Chinese Tech Stock Weekly Update

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

Internet

• China.com announced the release of an updated advisory to shareholders regarding the impact that Chinese telecom regulations on its financial results. The new policies issued in July include the requirement that subscribers provide double confirmations for orders and MVAS (Mobile Value-Added Services) providers send billing reminders to subscribers. These have resulted in China.com having fewer new subscribers for its services and higher cancellation rates, which then resulted to increased costs in getting new users. In particular, the company said that it predicts the revenue and net profit of its MVAS business unit to be significantly affected this quarter.

• Industry sources said eBay (EBAY) China revealed that it is in early part of negotiation with Hutchison Whampoa's media flagship Tom Group to sell or merge part of the company with Internet portal business Tom Online (TOMO). For a long while now, eBay China has been the subject of rumors that it is looking to sell or merge its online auction business following its loss of market leadership to Alibaba.com's Taobao.com. The rumors came also after the mainland government issued news about plans to control foreign ownership of mainland Internet payment services. In 2005, the central government said that it will issue rules this year under which all Internet payment service providers, including eBay's 100 percent-owned PayPal, would have to have a mainland partner to offer such services in country. The news said that Tom Group may transfer eBay Eachnet operations to Tom Online so as to generate more users while the broader revenue base would help to support the auction business. According to China Internet Network Information Center, Taobao maintains about 67.3 percent of the mainland online auction market in the first six months, compared with eBay Eachnet's 29.1 percent. In other reports, Tencent Holdings, the mainland's largest instant messenger service provider with over 400 million users, is also identified as a potential buyer of eBay Eachnet.

• The China Internet Network Information Center put the number of blogs in China as going beyond 34 million, a number that is more than 30 times as many as the country had four years ago. The report said that about 17.5 million people in China consider themselves web log writers, with some 55 million regularly reading them. Industry observers see blogs as extremely popular in China as they provide people the only public forum for expressing their thoughts amidst the government control of media. Blogs in China generally deal with travel, pop culture and other non-IRG political matters. China remains the world's second-largest population of Internet users after the U.S., with 123 million people online.

• Alibaba announced its plans to go into Internet services, with the plan to include the country's largest online auction site available to mobile-phone users. The announcement was made even as service providers have issued profit warnings amidst policies that require double confirmation from clients before they can subscribe to new services. The policies were said to be aimed at protecting users of mobile value-added products. Tom Online, the largest service provider by revenue, said third-quarter revenue could decline between 31 percent and 35 percent from the previous quarter. The top official of Alibaba, however, maintains that mobile-related services hold potentials, proof of which is in the short messaging and ring tones which posted a 44 percent growth to 48.3 billion yuan (US$6 million) in 2005, according to Analysys. The official said his other business units are considering offering mobile services. These units include online auction site Taobao, the online payment division Alipay, and Alibaba, the business-to-business marketplace. No details about the plans were released by Alibaba.

Media, Entertainment and Gaming

• Recruit Holdings Ltd., announced its entering into a partnership with Netease.com (NTES) to launch 1010job.com, a portal expected to provide job related data and information. Recruit is a Hong Kong-listed recruitment advertising group. The agreement will allow some 160 million NetEase mailbox users to use a service called CV Through Train Service aimed to facilitate the job application process. The two companies said that under the deal they will provide more value-added service to users based on their “jobseeker-centered” concept. In separate developments, Enjapan, the second largest online recruitment web site in Japan announced it had agreed to cooperate with 800HR, a segmental recruitment website in Beijing. The largest recruitment web site from Ireland, Keyland, participated in the merger of two local recruitment web sites in Shanghai and Beijing, respectively. Taiwan's biggest recruitment web site, 104 HR bank, said it has already entered the Shanghai market.

• WangYou Media announced that it has set up a strategic partnership with Baidu.com (BIDU) for the development and promotion of web-based multimedia content. Under the agreement, WangYou Media will syndicate multimedia content, including user-generated film clips, short video series and entertainment programs to Baidu.com. WangYou Media is a firm that provides China's online youth community with a multimedia platform for creating, sharing, organizing and distributing all kinds of original digital amateur works.

Mobile/Wireless

• China Unicom Ltd. (CHU), the nation's second-largest mobile-phone operator, said it is going to focus on neighboring countries as it tries to expand through strategic alliances with overseas operators. China Unicom and bigger rival China Mobile Ltd. (CHL) said they are seeking foreign partnerships to expand overseas and to develop local technology. Earlier in June, China Unicom disclosed that Korea's SK Telecom Co. (SKM) will buy as much as US$1 billion of its bonds convertible into a 6.7 percent stake. The two companies said they would co-develop handset and network technology and new services. In August, SK Telecom said it will help China develop its own standard for wireless networks, the first alliance China's government has signed with an overseas operator for 3G technology. China has not, however, said when it will grant licenses for 3G, or how many it will permit. The nation had 437.5 million cell-phone subscribers by the end of August, according to the Ministry of Information Industry.

• China Unicom and SK Telecom announced that they made a joint purchase of over 1 million mobile phones ever since they forged a partnership earlier this year. At present, the two companies said they are negotiating with Samsung Electronics, Motorola (MOT) and LG Electronics on buying six types of middle and high-end mobile phones, with the plan to purchase low-end mobile phones from other mobile phone manufacturers.

• ZTE announced that its subsidiary has secured a contract to provide its 3G wireless technology to Copper Valley Wireless, an Alaska-based mobile phone operator. ZTE said the deal will help CVW, a subsidiary of Copper Valley Telephone Co-operative, launch a digital wireless service early next year. No financial details of the deal were announced. With competition intensifying in the local market, ZTE said it is looking to expanding overseas. The company said its domestic sales went down by 8.8 percent to 6.5 billion yuan (US$822 million) from a year earlier, with the mainland’s contribution to its total revenue declining from 69.5 percent to 62.2 percent in the first half of 2006. Analysts are saying that ZTE will have a tough time competing in the foreign market with companies such as Alcatel (ALA), Sony-Ericcson and Siemens (SI), with some observers downplaying the benefit that may be derived from the deal with the Alaskan firm.

Software

• Microsoft (MSFT) China announced that it would continue to enlarge investment in China, with the company stating that it work for the development of the local software industry. In details, the company said that in the following five years, it will fulfill a US$100 million strategic investments and US$100 software outsourcing investments in China. With the investments comes the provision of training for about 80000 software talents as an effort to carry out an agreement reached with the Chinese government. Microsoft China said it will also invest more than US$100 million each year in China to strengthen technology innovation in the country and recruit 500 developing talents to enlarge its developer team to 3000 people in the coming three to five years.

Information Technology

• iPico and the China RFID Alliance have announced that iPico's IP-X RFID technology will undergo testing in four RFID pilot projects in China. The projects are expected to take place in Qingdao and will include the respective government bureaus and organizations in that place as well as Haier. A top official of iPico said that the IP-X technology platform is capable of making a valuable contribution to the successful roll-out of RFID in China.

Ventures/Investments

• Piper Jaffray & Company (PJC) announced the opening of its new investment banking and research office in Shanghai. The firm said the new office is part of its global expansion in Asia and Europe, with the firm offering service in investment banking and research. The firm has been active in the financial markets in Asia since 2000, having completed six IPO and follow-on transactions year-todate and 20 transactions overall. The firm's first transaction for a company with China-based operations was a U.S. IPO for UTStarcom in 2000, followed by transactions for other leading Chinese technology companies including: Baidu.com (BIDU), Ctrip.com (CTRP) and Tom Online (TOMO).

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Comments

[Mr WaveTheory:]

The difference between speculators and investors is this: speculators care about returns that can generate 5-10x their money, investors care about preserving their capital. Venture capitalists are speculators, because they bet on ideas that have a 1 in 10 chance of succeeding. Speculation makes sense when the odds are good. Mutual fund managers want to make 5% with 80% certainty - and even at that, alot of them fail. I wrote about how to invest in China stocks and the difference between speculating in small China companies and investing in large ones. I will dive into speculation today.

mrwavetheory.blogspot....

2006 Oct 05 03:57 AM