Asian Tech Stock Weekly Review (September 21-27, 2009)

Japan

Hardware

• Nintendo Co. (NTDOY.PK) cut the top-selling Wii’s price for the first time and Sony Corp. (SNE) lowered the cost of buying its PlayStation Portable player in Japan to help revive industry sales. The motion-sensing Wii’s price will fall 20 percent to US$200 in the U.S. The PSP will be 15 percent cheaper in Japan and sell for 16,800 yen (US$185). Nintendo became the last of the three major game-console makers to cut prices as the hardware manufacturers bowed to publishers and retailers, who called for cheaper machines to reverse the industry slump. Global sales of the Wii declined for the first time, while Sony sold the fewest number of PlayStation 3 machines in two years. The price of the Wii, introduced in 2006, will be lowered in Japan and in Europe the following day. Sony’s PSP in Japan will be cheaper than Nintendo’s DSi player.

• Sony Corp. said it will sell 13 million PlayStation 3 worldwide this year after cutting the price of the video-game console. U.S. sales of the PS3 surged fourfold since Sony reduced the price by US$100 to US$300 in August. Sales of the PS3 are also on a massive trajectory in Asia and Europe, About 24 million PS3 consoles have been sold worldwide since their 2006 introduction. Sales of Microsoft’s (MSFT) Xbox 360 Elite machine also climbed after the company cut the price by the same amount last month.

Mobile/ Wireless

• NEC (NELTY.PK), Casio Computer (CSIOY.PK) and Hitachi (HIT) will merge their mobile handset businesses by next April, creating the second-largest mobile phone production company in Japan after Sharp. NEC is set to be the dominant partner of the merged venture, called NEC Casio Mobile Communications, with a 66 percent stake. NEC will steer the venture's products aggressively into global markets, such as China and the U.S. The founder and CEO of Japanese mobile research, consulting and development firm Infinita, the merger has taken place in an effort to reinvigorate Japan's struggling mobile market. The mobile industry in Japan had faced severe setbacks as foreign handset models have become increasingly popular and the domestic market has reached saturation.

• Willcom Inc., which provides mobile services using a personal handy-phone system, is planning to ask creditor banks to allow a delay in the payment of some 100 billion yen (US$1.1 billion) in debts because of the decreasing numbers of subscribers. To revive its business, Willcom will have to apply for a type of private rehabilitation which combines features of both a court-mandated liquidation and a voluntary liquidation. The company will aim to turn itself around with the help of a third-party body specializing in private rehabilitation while continuing PHS mobile services.

Willcom has suffered continuous drops in contracts, registering a net subscription loss of 30,900 in August. Willcom is considering launching a next generation PHS service dubbed ''XGP'' in October to boost its market share amid intensifying competition among mobile providers. Since the company will have to invest about 140 billion yen (US$1.6 billion) in the project over the next five years, it resorted to the rehabilitation process as the payment of interest-bearing debts will weigh on it as it copes with losses in net contracts.

Telecommunications

• Jupiter Telecommunications (Jcom) (JUPIF.PK) has seen its total number of subscribers reach 3.24 million in August, up 11.9 percent, or 344,700, year-on-year. Combined revenue generating units (RGUs) for cable television, internet access and telephony services reached approximately 5.84 million, up 657,600 or 12.7 percent since 31 August 2008. The bundle ratio (average number of services received per subscribing household) increased to 1.80 from 1.79 last year and the cable television digital migration rate went up to 86 percent. Jcom ended August with 2.59 million television customers of which 2.24 million are digital television subscribers. The number of internet subscribers went up to 1.55 million from 1.34 million, and the number of telephony customers climbed to 1.70 million from 1.49 million at end-August 2008.

• The board of Japanese communications firm eAccess has approved a bond issue of 3 billion yen (US$33.4 million). The bonds, underwritten by The Bank of Tokyo-Mitsubishi, carry a coupon rate of 0.9 percent and a term of 3.5 years. The bonds will be placed with qualified institutional investors.

Korea

Telecommunications

• SK Telecom Co. will have to sell its entire 30 percent stake in SK C&C via the latter's IPO in November to become a holding company in compliance with the relevant regulation. SK C&C, a technology service affiliate of SK Group, last year planned to go ahead with its IPO in June, but delayed its plan because of a severe economic downturn last year. SK Networks, a global integrated marketing company and one of the sister companies of SK C&C, is also considering selling its entire 15 percent in the company through the IPO.

• KT Corp. (KTC) will invest 142.7 billion won (US$119.4 million) in energy-saving technologies and the environmental improvement of existing telecommunications facilities to become a eco-friendly technology company. The company will cut its greenhouse gas emissions by 20 percent by 2013. The company will also invest in developing eco-friendly services, such as solutions for green automobiles and eco-buildings, cloud computing, green Internet data centers, green mobile communications and smart grids.

• SK Broadband Co. would boost its profit by improving its bundled product line-ups and wireless services. For the second quarter, SK Broadband had net loss of 41.6 billion won (US$35 million). Its operating loss was 20.4 billion won (US$17 million). Sales dropped 4.7 percent.

Media, Gaming and Entertainment

• South Korea's computer game exports climbed by 40.1 percent in 2008 year on year, reaching US$10.94 billion. It is the sixth consecutive year for South Korea to maintain a trade surplus in the sector. The computer game industry recorded a surplus of nearly US$7.1 billion last year, as imports of game software totaled US$3.87 billion. Among the total exports, 97 percent are online games, rising by 43 percent from the previous year. China was the largest importer of South Korean computer games, which accounted for 27 percent followed by Japan with 21 percent.

Semiconductors

• Samsung Electronics (SSNLF.PK) remains cautious about the semiconductor sector's outlook even as the industry emerges from its two-year slump. It expects the current shortage of high-end DDR3 chips used in many PCs and other electronic devices to be resolved in the short term. The average selling price of a 1-gigabit double data rate 2 (DDR2) memory chip that runs at 800 megahertz has risen about two-thirds in the past three months. The price of 1-gigabit DDR3 chips, which can handle data faster than the current mainstream DDR2 chip, has risen about a third in the same period. Major shareholders for Hynix Semiconductor have started the sale process for a US$2.75 billion stake in the memory chip maker and are planning to pick a preferred buyer by the end of this year.

• Hyosung Group has submitted a bid for a major stake in Hynix Semiconductor Inc., the world's No. 2 memory chipmaker. Hyosung with business interests ranging from chemicals to heavy machinery was the only bidder for the 28-percent stake estimated at 3.65 trillion won (US$3.04 billion). Creditors claimed four or five domestic companies had expressed their intent to invest in Hynix. Invitations for bids for the combined 28 percent stake in the company were sent to only 43 South Korean companies. KEB will select a preferred bidder by the end of November after conducting due diligence on Hyosung and receiving a final bid from the conglomerate.

Software

• Opera Software (OPESF.PK) announced its partnership with the Korea-based SK Telecom and offer Opera Mini on several of SK Telecom handsets. Initially available in early October 2009, Opera Mini will launch on the T*Omnia II from SK Telecom. The browser will be available on select smartphones and feature phones. Opera Mini is currently the world's most used mobile Web browser, with nearly 30 million users. Its popularity is due in part to its renowned surfing speeds, which is the result of Opera Mini's compression technology that remotely compresses data before sending it to the phone. To celebrate SK Telecom's introduction of Opera Mini to the Korean market, Opera Software's CEO, Jon von Tetzchner, attended a meeting with Joon-Dong Bae, Executive Vice President and Head of Marketing Division at SK Telecom.

China

Internet

• Alibaba's (ALBCF.PK) online payment subsidiary Alipay recorded a transaction volume of 900 million yuan (US$131.7 million) through airline reservation payments made between September 14 and September 20. Alipay trading volume grew 15 percent week-on-week, trading orders increased 10 percent week-on-week and payments per customer jumped by 88 yuan (US$12.9) on average. Taobao.com released an "air ticketing fast track" service for all users including non-members. More than 800,000 users check air ticket information on the site daily while only around 10,000 tickets are actually paid for through the site each day.

• Baidu (BIDU) and Google (GOOG) are expected to turn their main battlefield to the Chinese mobile search market in line with the spread of 3G services and smartphones in the country. More than 600 million Chinese consumers are using cellphones now, and expected to give birth to a mobile search market with revenues of billions of U.S. dollars. Google has ranked No. 1 among all search engines in terms of revenues on the global mobile Internet market, but keeps abreast with Baidu in the Chinese mobile search market with an about 26 percent share. Google estimates its mobile search revenues to exceed PC search revenues within the several years to come.

• Alibaba Group's consumer-focused e-commerce site Taobao.com began offering a domain name service, which allows shop owners to designate specific letters or numbers to be followed by taobao.com. The service is currently open to shop owners who have purchased a three-month "Winport" package or are left with more than one year of Winport service. Winport costs RMB 980 per year. As director of company research, Taobao.com has assigned Dr. Wensong Zhang. Zhang. will take charge of core software development, optimizing network hardware and software and building a low-cost e-commerce platform.

Mobile/Wireless

• Focus Media (FMCN) entered into an agreement to issue and sell 75 million ordinary company shares for an aggregate price of US$142.425 million to Focus Media Executive Chairman Jason Jiang during the twenty consecutive and preceding trading days. The subscription brings Jiang's holdings in the company to approximately 19 percent and is subject to a six-month lock-up period. Jiang has the right to nominate one new director to take the place of the current executive director under the agreement. Non-independent directors Dr. Tan Zhi and Jimmy Wei Yu had resigned from the board, while the company's acting Chief Financial Officer Alex Deyi Yang has been appointed as a non-independent director.

Telecommunications

• China Mobile (CHL) and content providers will split mobile reading revenues 60/40. China Telecom (CHA) and China Unicom (CHU) are developing similar services. China Mobile will invest 500 million yuan (US$73.2 million) in the next five years to build China's largest mobile book publishing platform. 160 million are mobile Internet users and more than 80 million use mobile reading services. China Mobile attracted two million users for its trial WAP site promoted in June.

• Although the Indian government is considering new bills to restrict overseas telecom equipment, particularly China-made products, Chinese telecom equipment and network solution provider ZTE Corp. (ZTCOF.PK) will continue enlarging its investments in the country. ZTE has set up its first network operations center (NOC) in India in an attempt to offer better services to local telecom carriers. As the company's largest NOC in foreign countries, the Indian center has about 200 employees during its initial operation. Notably, 80 percent of the employees are local persons. India is ZTE's largest market apart from China. ZTE keeps an annual growth pace of 30 percent in India. It gained operating revenues of US$1 billion in India last year, accounting for 10 percent of the company's global revenues.

• China Mobile Ltd. has seen more than 80 million users who read by mobile phones by now, creating 20 percent to 30 percent of its traffic generated from surfing on the Internet by mobile phones. The company has a user base of 500 million, and 160 million of them surf on the Internet by mobile phones. It has lured 2 million users from its WAP and terminal platforms for mobile phone reading, which was launched in June 2009. Mobile phone reading is an emerging industry and the future of the traditional publishing industry. The top three novel publications by sales volume are all mobile phone novels in Japan, the supreme mobile phone reading market in the world. China Mobile will have to invest 500 million yuan (US$73.2 million) to form a large wireless book distribution platform. And it will develop special-purpose handheld readers apart from existing mobile phone reading.

• The China Development Bank (CDB) and Huawei Technologies Co. signed a new strategic cooperation agreement, extending US$30 billion of credit to Huawei. The CDB agreed to provide US$10 billion of credit line to Huawei to support its overseas exploration. The CDB has helped many Chinese firms to explore overseas business, and has become an important bank in providing overseas financing services. The CDB posted outstanding foreign currency loans of US$80.1 billion. The cooperation between CDB and Huawei has lasted for more than 10 years. CDB provided financing service for Huawei to establish a domestic scientific research and production base.

• China Telecom had net addition of 2.08 million mobile service subscribers in August, adding the total to 43.81 million. The telecom operator's fixed-line service users dropped 1.52 million in August to 196.17 million, as a result of intensified market competition and China Telecom's strengthened control in sales initiatives for low-end subscribers to enhance profitable development. The number of the carrier's broadband subscribers climbed 690,000 in the reporting period, down 15.85 percent on month, with the total user base topping 50.56 million. In the first eight months of this year, China Telecom gained 15.9 million mobile users and 6.29 million broadband users, and lost 12.18 million fixed-phone service subscribers. Industrial analysts had previously predicted the carrier's monthly net growth of mobile users to slow down. It will face growing competition pressure from its rival China Unicom's, which has launched large-scale 3G services. The past comparatively loose market environment will change.

Media, Entertainment and Gaming

· WoW operations alone are expected to boost NetEase's (NTES) online game revenue by 30 percent year-on-year in 2010 and increase the company's market share by 4 percentage points. Although WoW operations will drive NetEase's revenues up over the next year, the game operator still faces challenges in the long run. NetEase may have slowly increase in new WoW players in the short term because of the limited distribution network for the game's pre-paid point cards, which are necessary for proceeding past a certain level in the game. The company has obtained approval from China from Ministry of Culture (MoC) to operate WoW in China. WoW is still the most popular online game in China with nearly 5 million active users, which accounts for nearly one-third of the game's global user base.

· Shanda Games (GAME) priced its initial public offering in the U.S. at the top of the range despite increasing investor jitters over a potential IPO bubble. Shanda raised US$1.044 billion in the deal that was priced at US$12.50 per ADS. The strong performance came as a surprise following weakness in the market over the past two days. A 12 percent drop in the share price of China Metallurgical made investors nervous. The company increased the offering by 33 percent as it was overrun by demand, said people familiar with the marketing of the deal. The deal was 10 times subscribed. The offering comes five months after the successful debut of another Chinese gaming firm. Changyou.com (CYOU) made its IPO in April at US$16 per share and has since rocketed by 140 percent.

Software

• CDC Software Corp. (CDCS) will acquire a 51 percent stake in Hejia Software Technology Co. Ltd. in three steps before March 31, 2012. Hejia is a major provider of enterprise resource planning (ERP) software in China. The two sides would jointly develop software products while Hejia Software would sell CDC Software's OEM products in China. In contrast, CDC Software will help the former advance into the global market. This acquisition is part of CDC Software's strategic plan to expand its geographic footprint and increase sales by acquiring rapidly growing companies. Moreover, the company will continue to pursue other strategic investments in China. CDC Software acquired a majority stake in Integrated Solutions, a provider of ERP solutions for small- and medium-sized discrete manufacturers.

• CDC Software Corp. will attach more importance to the market in China and is expected to gain US$50 million of annual revenue in the next three years. The company's annual sales would hit US$300 million` in the next three years, including those from China, which should increase to US$50 million, making China its second largest market. The company would achieve the target through growth and acquisition. The company would continue to focus on the business of enterprise management solutions and move the service sector to China to develop the huge market potential. The company would also acquire some companies in China. CDC Software has already acquired two companies since its debut on NASDAQ in April and said that it would make full use of the funds raised on the stock market for expansion.

Alternative Energy

• ReneSola (SOL) will buy Dynamic Green Energy Ltd for about US$88.5 million, mostly in stock, expanding the parts company into the market for solar panels, the final product sold to produce energy. ReneSola also updated its revenue views for the third quarter and full year and would issue 14.4 million ADRs. ReneSola shareholders will buy all of Dynamic Green shares for 26.8 million ReneSola ordinary shares and US$10 million in a convertible promissory note issued by ReneSola. ADRs representing two ordinary shares each of company stock closed at US$5.86 on the New York Stock Exchange, which would value the stock portion of the deal at US$78.5 million. Dynamic Green manufactures solar products, including wafers and solar photovoltaic panels, through its wholly-owned unit Jiawei Solarchina Co Ltd and other Chinese operating units.

• ReneSola has lowered its revenue outlook for the full year 2009 to between US$470 million and US$500 million from the previously announced US$500 million to US$550 million. Full year shipment expectations are unchanged at 450-500MW. ReneSola had third quarter revenue in the range of US$130 million to US$140 million, in line with previous expectations. Second quarter net revenues were US$82.6 million, and the company expected third quarter revenue to raise 60-70 percent sequentially. Third quarter gross margin is expected to be similar to that of the second quarter at 5.1 percent.

Semiconductor

• SMIC (SMI) released the financial report for the first half of this year, and had net losses of US$277 million. But the firm's turnover in the second quarter was up 82.5 percent from January-March. The firm's capacity utilization rate increased to 75 percent in the second quarter as their logic shipments increased 102 percent on quarter. The advanced logic revenue for 0.13-micron and below grew by more than 135 percent from the first quarter, increasing to 41 percent as a portion of total revenue from 32 percent in the first quarter. Zhang contributed the significant recovery to customers' strong performances in the communications and consumer segments. Demands from the greater China and North America surged in comparison with the first quarter, and the European market also showed signs of recovery.