Asian Tech Stock Weekly Review (November 2-8, 2009)

Japan

Mobile/ Wireless

• Aurora Feint has agreed to sell a 20 percent stake to Japanese online and mobile commerce and entertainment provider DeNa. DeNA gaming industry partner Hudson, has agreed to use OpenFeint in their game lineup starting with Bomberman for the Christmas season.

Semiconductor

• United Microelectronics (UMC) decided to obtain the common stocks, preemptive rights and stock acquisition rights in UMC Japan through a tender offer to be made by UMC’s 100 percent owned subsidiary, Alpha Wisdom Limited. UMCJ operates a semiconductor manufacturing plant in Tateyama City, Chiba, Japan with a monthly production capacity of 20,000 eight inch wafers. UMC acquired a majority interest in UMCJ, with the goal of utilizing UMCJ as a strategic manufacturing and sales base in Japan.

Telecommunications

• NTT Communications (DCM) completed its acquisition of 100 percent of Pacific Crossing , an operator of trans-Pacific undersea cable network, PC-1. NTT Communications with the completion of the deal, will control the PC-1 trans-Pacific cable. NTT Com will retain the Pacific Crossing management team and Pacific Crossing will continue as a business within the NTT Communications group selling network capacity in the wholesale carrier marketplace. Pacific Crossing's customers will see an immediate extension of network reach beyond PC-1 with extended domestic capability in Japan and the U.S. as well as the ability to leverage NTT Com's international network to offer turnkey solutions for Asia to U.S. connectivity.

• Unity had the landing of its Trans-Pacific fiber optic cable system in Chikura, Japan, marking an important milestone in the construction of a new system which will deliver significant increase in capacity between the U.S. and Japan. With construction on schedule, the new system will be ready for service in the first quarter of 2010. The cable ship KDDI Pacific Link reached the Japanese coastline in Chikura earlier this week after two months spent laying the newly manufactured cable from the middle of the Pacific Ocean. There will be a period of intensive end-to-end testing before the system is put into commercial service. Trans-Pacific bandwidth demand has grown at a compounded annual growth rate (CAGR) of 62.8 percent between 2002 and 2008, and demand is expected to continue on a strong growth trajectory, with an estimated tenfold increase from 2008 to 2013.

Korea

Telecommunications

• The South Korean government will license more operators for the country's homegrown mobile Wimax technology Wibro to increase uptake. Currently, KT and SK Telecom provide Wibro services and have just over 250,000 subscribers after three years of commercial services. The Korea Times reports that the Korea Communications Commission (KCC) has said that KT and SK Telecom will be required to open their Wibro and WCDMA networks for roaming for the new operators. The KCC will offer licences for nationwide services as well as for local services and will also allow VoIP on Wibro-enabled handsets. KT and SK Telecom have been reluctant to offer voice on their Wibro services for fear of cannibalizing 3G voice traffic. The government will further encourage development of other mobile internet services such as IPTV and will push mobile operators and handset makers to introduce low-priced Wibro/Wi-Fi handsets.

• KT Corp. (KTC) said its third-quarter net profit rose 80 percent from a year earlier to 351.4 billion won (US$298.3 million) as a stable local currency helped cut foreign-exchange losses. KT absorbed its mobile affiliate KTF Co. in June and the figures were calculated on the assumption that the two companies became a single entity on Jan. 1, 2008. Sales climbed 3.9 percent on year while operating profit declined 11.7 percent. The rise in its revenue came from increased sales of mobile and Internet phone services. The number of its mobile service subscribers reached 14.9 million in the third quarter, up 4.5 percent. Subscribers of KTs Internet phone service, part of its fixed-line business, nearly quadrupled on year to 1.26 million.

Mobile/Wireless

• LG Electronics Inc.'s (LGERF.PK) mobile-phone unit plans to have a 20 percent growth in shipments for 2010. Brisk sales of handsets at both Samsung Electronics Co. and LG Electronics, contrast sharply with an industry-wide recession. LG Electronics boosted in third-quarter net profit due to increasing sales in cellphones, flat-screen televisions and panels. Handset shipments for the quarter jumped 37 percent over the year-ago period. Profit margins declined. Marketing expenses and pricing pressures, including in handsets, would further decelerate its profit in the fourth quarter.

• Pantech Group will begin its handheld multimedia device business next year and is also considering venturing into manufacturing of netbooks. These business expansions are interpreted as moves to diversify the company’s revenue sources using the brand recognition and the distribution channel of its mobile phone business. Insiders said that Mantech C&I, an affiliate of Pantech Group, is releasing a WiFi-enabled multimedia device in April, next year. Pantech organized a task force team for the development of a new device in Pantech C&I early this year. The team has developed a new multimedia device under the code name of Mobile Tabloid. The team consists of 20 members and is expanding for new members. Vice Chairman Park Byeong-yeop is told to have significant interest in the new business as a new breakthrough for the company.

• LG Electronics Inc. is investing heavily in smartphones and seeking to forge an alliance with a U.S. mobile carrier to make inroads into a market dominated by Blackberry (RIMM) and Apple Inc.'s (AAPL) iPhone. LG is also focusing on green energy and health care which includes providing lighting and energy control, television security, laundry and storage solutions to hotels and other businesses that will draw in steady commission. LG television sets grabbed 13 percent of the global market this year from 6 percent last year and the company's refrigerator market share rose to 20 percent from 7 percent last year.

Semiconductors

• Hynix Semiconductor Inc. forecasts the market for dynamic random access memory (DRAM) chips would maintain its strength in the fourth quarter and contract prices could rise further in November before stabilizing in December. As the industry's supply growth is limited, a shortage in DRAM is seen for 2010 overall, Hynix executives said during an investor conference call. Low-power, high-speed DDR3 chips would become the mainstream in the DRAM market by the first quarter of next year.

• Singapore's state investor Temasek Holdings Private Limited will pay 284.7 billion won (US$242 million) to buy 12 percent stake in South Korean light emitting diode (LED) company Seoul Semiconductor and 9 percent stake in affiliate Seoul Optodevice, according to a brokerage that advised on the sale said. Temasek also confirmed the investment, saying that investing in the South Korean companies fits well with Temasek's investment theme of supporting emerging champions. Temasek's move comes almost two months after Abu Dhabi's state fund ATIC offered US$1.8 billion to buy Chartered Semiconductor , which was 62-percent owned by the state investor.

• Reports showed that South Korea lags far behind Japan in terms of core technology and manufacturing know-how in the rechargeable lithium battery sector. The basic technology levels of South Korean firms such as Samsung SDI Co. and LG Chem Ltd. are estimated to reach just 30 percent those of their Japanese rivals like Sanyo Electic Co. In terms of component and material development, the level of South Korean firms amounts to about 50 percent that of the Japanese companies. Lithium batteries are widely used in notebook computers, mobile phones, various wireless information technology devices, and electric-driven automobiles.

China

Mobile/Wireless

• Smartphone shipments in China is expected to triple by 2013. Sales of handset was at 15.3 percent in China in 2008, a 30 percent increase from 2007. In-Stat sees the next wave of smartphone growth in China to be driven by lower barriers to entry for mobile operating systems and chipset platforms. Smartphone shipments will account for 37 percent of all handset sales by 2012. This will boost revenue to US$191 million. iSuppli sees grey-market phone shipments to hit 145 million units in China in 2009 up 43.6 percent from 2008, and peaking at 192 million units by 2012. It defines grey-market handsets as devices that are not recognized or licensed by local regulators that often use fake International Mobile Equipment Identity (IMEI) numbers.

Telecommunications

• VIA Telecom, a mobile phone chipmaker under VIA Group, will supply TD-LTE products to China Mobile Ltd., according to CEO Ker Zhang. The shipment of mobile phone chips will surge 50 percent in Mainland China next year, bolstered up by the commercial operation of 3G networks and the growing demand in the rural market. VIA Telecom is a major partner of China Telecom Corporation Ltd. It is also the second largest CDMA chip supplier in the mainland, with a 25 percent market share, only next to Qualcomm Inc. The mainland market accounts for 70 percent of VIA Telecom's operating revenues.

• China Unicom (CHU) (Hong Kong) Ltd. is targeting increasing the number of its third-generation mobile users by more than 1 million a month. The company launched 3G services in China Oct. 1 and had more than 1 million subscribers to the mobile technology standard at the end of that month. China Unicom has signed up more than 5,000 iPhone users in China since it launched the phone there and it expects the Apple phone to boost its average revenue per user. The company is the only seller of the iPhone in China at the moment. China Unicom's high pricing of the iPhone is seen to be limiting demand for the product.

• The 3G industry will bring market demand of 1 trillion yuan (US$146 billion) to China in the coming three years. The nation's telecoms operators will spend around 400 billion yuan (US$58.5 billion) in telecoms network construction. The market that users update their mobile phones will hit 400 billion yuan (US$58.5 billion), and 3G businesses including broadband, mobile phone video are expected to create a market of 200 billion yuan (US$29.3 billion). As of the end of September 2009, China had had a mobile internet user base of 192 million, 62.7 percent increase from a year ago. The nation's mobile Internet market value climbed 54.5 percent year on year in the prior year.

• China Unicom completed buying back a 3.8 percent stake in itself from SK Telecom Co. The Chinese telecommunications carrier will buy back 899.75 million of its shares from SK Telecom at HK$11.105 (US$1.40) each.

• Fidelity Management and Research LLC recently reduced its H-share holding in China's ZTE Corp. (ZTCOF.PK) to 7.69 percent from the previous 8.01 percent. Information from the HKEx showed that FMR sold 940,000 H shares of ZTE for US$5.4 million on Oct. 30. The average share price of the transaction was US$5.74 apiece. ZTE’s third-quarter net profit jumped 58.2 percent due to the Chinese carrier's continuous investment in 3G networks. Revenue for the third quarter rose 43 percent on strong sales of 3G equipment in the domestic market.

• Xinhua reports citing a source within RIM that negotiations between Research In Motion and China Telecom have entered the final stage. The companies will disclose their cooperation before the end of this year, which will be followed by the launch of communication and e-mail services. The handset maker will introduce more BlackBerry phones in China as well.

• China Mobile Communications Corp. (CHL) has partnered with the official China Central Television (CCTV) to jointly launch a Chinese-language mobile video news summary service. The news summary, which has not be given an English-language name, is still undergoing testing, but is available on a trial basis in Shanghai for certain China Mobile subscribers. The service will be launched nationwide for both 2G and 3G users following the trials.

• GeoSentric Oyj has partnered with China Unicom to launch the new consumer focused 3G mobile lifestyle service - Unispace powered by the company, for iPhone customers offered via Shanghai Unicom. GeoSentric's GyPSii is a mobile digital lifestyle application and geo-mobility social networking platform: connecting people, places and communities across networks and devices, with patented technologies for the transfer and publishing of location based information between mobile devices. Unispace powered by GyPSii distributed on-deck via iPhone, provides a compelling line up of applications including GyPSii as the only social networking app on-deck at the launch, one of 10 applications pre-loaded and the only non-Chinese provider.

Media, Entertainment and Gaming

· China's online game market revenue size is estimated to hit 7.17 billion yuan (US$1.05 billion) in the third quarter of this year, up 34.5 percent year on year and 6.3 percent quarter on quarter. The market's revenue estimated by iResearch is relatively higher than that provided at the end of October by Analysys International, another market research. The market size increased 66.6 percent, 48.1 percent, 39.5 percent, 32.5 percent, and 32.8 percent in the five quarters ending June 30, 2009, respectively. iResearch believes that the online game market's decelerated growth shows that the industry has matured and now is in healthy development, after its high-speed expansion during its primary stage of development. Tencent Holdings Ltd. remained the No.1 Chinese online game company in the third quarter this year with a market share of 20 percent, ahead of Shanda Interactive Entertainment Ltd, NetEase.com Inc., Perfect World Co., Ltd., and Sohu.com Inc.

· Cisco (CSCO) agreed to acquire the set-top box business of Hong-Kong based DVN (Holdings) Limited for US$44.5 million as part of its broader strategy to compete in emerging markets with locally designed and produced solutions. After the acquisition, it is expected to close in the first half of calendar 2010, the DVN set-top box business will become a part of the International Cable Business Unit within the service provider Video Technology Group at Cisco led by Ken Klaer. The company has also entered into a go-to-market alliance with the remainder of the DVN organization to utilize the company's middleware and advanced applications as well as integration and support services. The investment is part of Cisco's ongoing long-term commitment to China. The Chinese cable market with 160 million subscribers and the Chinese government's plan for full digitization of the market by 2015 offers it a long-term opportunity.

· Giant Interactive (GA) is planning to launch of a mobile version of its first trial in online games. The mobile version marked a shift of low-flow game functions to the mobile form to catch online gamers. All the regular functions of the web game have been planted into the mobile platform.

· The Chinese government regulator rejected an application from World of Warcraft’s new licensed operator. The General Administration of Press and Publication has turned down Chinese Internet portal NetEase.com Inc.'s (NTES) application seeking approval for the game. NetEase violated a rule banning new account registration and collection of subscription fees during a trial period that started July 30, when the firm was ordered to revise harmful content in the game. World of Warcraft was previously licensed to The9 Ltd. which ran the game in China for four years from 2005.

Internet

• China ended September with 360 million internet users and 192 million mobile internet users, up 62.7 percent year-on-year, Interfax reports citing figures from the Ministry of Industry and Information Technology (MIIT). Penetration for internet in China was 27.1 percent and 99.33 million people had broadband internet access.

Semiconductor

• A California jury ruled that Semiconductor Manufacturing International Corp. (SMI) stole and used trade secrets from rival Taiwan Semiconductor Manufacturing Co. (TSM), possibly putting SMIC on the hook for more than US$1 billion in damages for TSMC. The jury also found that SMIC breached the terms of a 2005 settlement over similar claims, for which it had agreed to pay US$175 million and to surrender all TSMC documents and stop using TSMC technology and processes. TSMC is asking the Alameda County Superior Court panel to award it more than US$1 billion in lost profits and damages, and the judge to permanently bar SMIC from selling the contested products in the U.S. TSMC sued SMIC for theft of trade secrets and patent infringement stemming from chip sales in California.

Networking

• Juniper Networks Inc. (JNPR) is set to invest more in China to enhance its local marketing and R&D. The company has been sophisticated in the development of the IPv6 Internet technology, just waiting for the IPv6 Web's widespread application. The company's routers can co-work with the next-generation Web via cost-free software upgrade. Chinese telecoms operators had made their layouts about the IPv6 Internet technology's marketization and were expected to release the plans in the near future.