Chinese Tech Stock Weekly Update

The following is excerpted from IRG's weekly stock report:

Internet

• Alibaba.com disclosed that it is looking at ‘Yahoo China’ to make a profit next year, with its Taobao auction site contributing some 30 percent of revenues in four to five years. In a related development, Jack Ma, Alibaba's founder and chairman, revealed that he had frozen plans to go public because he wanted to focus on building the business rather than on financials. He said Alibaba would introduce a new service in the next month but declined to give details. Taobao, which displaced eBay (EBAY) in China's fast-growing market, is a free service with 27 million users and is adding 60,000 each day. The site was one factor that pushed eBay to cut prices last year. Yahoo China was absorbed by Ma's company when Yahoo bought a 40 percent stake in Alibaba last year for US$1 billion.

• Industry sources reported that Huang Mingsheng, CEO of 263.net, has bought the development team of graphic software firm COOL66 and, in the process, formed a network technology company. The company is named Kaiping Media and is registered as a wholly owned company of Beijing Capital Online Information Service Company, the operator of 263.net. COOL66 is a desktop-based online picture sharing software that allows computer users to make an automatic update. The technology gives them the ability to browse their pictures and view daily weather information.

• Joyo.com announced that it has shifted into a comprehensive B2C web site that is into home appliances, digital products and commodities for daily use. The change takes Joyo.com away from books even as it has boosted its product line from 45,000 to 450,000. The number of cities being serviced by the virtual shopping center rose from 109 to 308. Earlier in June, Joyo.com inked a partnership with Sohu.com (SOHU.com) to manage the latter's online shopping service. Industry sources indicate that the top four B2C web sites in China currently are Dangdang.com, Joyo.com, Sohu.com and 800buy, with 26.8 percent, 10.7 percent, 3.3 percent and 2.3 percent of the market share, respectively.

Media, Entertainment and Gaming

• Industry sources said that SSE Infonet, an information provider controlled by the Shanghai Stock Exchange, is reportedly contemplating cutting its business ties with FTSE/Xinhua Index after it sued the index provider for allegedly breaching contracts. SSE Infonet is 90 percent held by the exchange. If the decision does materialize, it is expected to prevent FTSE/Xinhua from compiling its A50 Index, which uses Infonet data. Infonet earlier sued FTSE/Xinhua Index in a Shanghai court over the use of its data on A shares. It did not give details of the lawsuit but lawyers have said the index compiler did not have the right to create derivatives based on the data. The Singapore Stock Exchange yesterday launched FTSE/Xinhua China A50 index futures contracts, the first such product covering the largest 50 A-share firms. The Shanghai Pudong New District Court will hear the case on October 11.

• Shanda, Interjoy Technology Ltd, an affiliated company of Shanda (SNDA), and the Chinese Academy of Sciences' Institute of Automation announced a partnership that will allow them to jointly set up a Digital Interactive Entertainment Laboratory. The collaboration is seen as pushing the development of advanced global technology, which includes audio/video processing. The group will also look into the interphase between users and communications, the result of which can be used for the domestic home digital entertainment industry. Shanda sees the partnership as bringing about a technology that creates “healthy entertainment content.”

Mobile/Wireless

• Industry sources said that China Mobile (CHL) has decided to cancel the one-month free trial that it requires its value-added service providers to grant its customers. Since then, the operator has adopted other steps mandated in July by the Ministry of Information Industry to prevent inaccurate charges, such as requiring value-added service providers to receive double confirmation of new subscriptions. The value-added services such as ring tones and informative short messages, many provided by outside firms, have become China Mobile's growth driver, contributing 22 percent of its first-half revenues, which is equivalent to 309 million yuan (US$38.8 million). China Mobile would not comment. The reported move follows other value-added service providers, Tencent and Tom Online (TOMO), complained that the free trial period has made it difficult for them to gain new customers. Tom Online with a similar complaint also called the requirement of China Mobile as a way to use the free trial to attract users to its Monternet value-added platform.

• Vodone Telemedia looks to increase its customer base by 66 percent, reaching one million. The mainland wireless value-added service provider expects this to happen if it taps into 3G mobile phone services next year. The company said its subscription numbers have already gone up from 400,000 to 600,000 in a little more than two months. Vodone is expected also to become Hong Kong-listed Yanion International Holdings' business partner through a pending deal. The company launched its video-based services in April to China Unicom's (CHU) 2.5G mobile phone users. It offers free video bundled with advertisements on its portal and other websites and collects online advertising revenues. Vodone said it looks to its online advertising market growing to 10 billion yuan (US$1.2 billion) per year.

• Nokia (NOK) announced that it has secured a GSM expansion contract with Yunnan Mobile valued at about US$63 million. Under the deal, Nokia will supply Yunnan Mobile with GSM/GPRS radio and core network, including the Nokia MetroSite base stations, Nokia MSC Server mobile softswitch and Nokia Media Gateway in the Yunnan Province, in the Southwest China. Nokia will also provide services including network planning, implementation and other support services. With the Nokia MSC Server mobile softswitch, Yunnan Mobile is expected to be able to provide its customers new services, such as Multi-SIM service, offerings that are seen as boosting the company’s revenue and improving its customer retention. Currently, Nokia leads the 3GPP compliant mobile softswitch market in China and is a leading GSM network provider in the Chinese market. Nokia has more than 20 provincial customers and 20 million lines presently in operation.

• SmartPay disclosed that it is now working with China Merchants Bank [CMB] in creating services for China’s mobile payment market. Under the deal, CMB customers will be able to access mobile payment services using SmartPay's mobile and telephone payment platform. The services include purchasing airline e-tickets, digital goods, payment of utility bills, lottery tickets and being able to join SmartPay promotional activities. A number of new initiatives are planned to broaden and diversify offerings toward consumers.

Telecommunications

• The National Development and Reform Commission announced that it has led a team of mainland telecommunications equipment vendors, including ZTE and Datang Mobile, to sign a memorandum of understanding with SK Telecom (SKM) on co-operation in building a trial network in South Korea, based on the mainland's homegrown 3G standard, TD-SCDMA. Under the agreement, SK Telecom would run small-scale trials of TD-SCDMA in the second half of next year. Beijing would issue 3G licenses around the middle of next year at the earliest, with fixed-line carriers China Telecom and China Netcom expected to be given 3G licenses. Industry analysts said that at least one of the licenses is expected to be for services using the TD-SCDMA standard. In a related development, SK Telecom told the TD-SCDMA Alliance, which represents chipset makers and equipment vendors developing the technology, that the company might promote the commercial use of TD-SCDMA after the trial. Whether SK Telecom will promote it within Korea or China is not known. China Mobile (CHL), China Netcom (CN) and China Telecom (CHA) are conducting TD-SCDMA field trials in Baoding, Qingdao and Xiamen.