Asian Tech Stock Weekly Review (January 18 - 24, 2010)

by: IRG Ltd



Fujitsu Ltd. (OTCPK:FJTSY) has appointed the head of its system products business as its next president, after months of deadlock that halted restructuring. Masami Yamamoto will take the helm of the firm starting in April. Fujitsu needs to cut costs further if it is keep pace with heavyweights IBM, Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL). Fujitsu, despite efforts to expand abroad in IT outsourcing services, remains tied to a sluggish market in Japan. Chairman Michiyoshi Mazuka has been running Fujitsu ever since former President Kuniaki Nozoe abruptly stepped down in September, citing illness. Mazuka's provisional status weakened his ability to cut money-losing operations or pursue mergers to boost sales in IT services. The delay may be costly in the rapidly transforming IT services sector, where hardware, software, and services firms are coming together to become more competitive.

Canon Inc.'s (NYSE:CAJ) group operating profit appears to have topped initial forecasts and hit 215 billion yen (US$2.4 billion) for the year ended December due to robust camera demand. That would mark an increase of about 25 billion yen (US$280 million) from initial forecasts, although it would represent a decline of nearly 60 percent from the year ended in December 2008. Sales were down 20 percent as net profit was also down about 60 percent. The company's single-lens reflex digital cameras fared particularly well, spearheaded by sales in China and other parts of Asia. Canon, which also makes photocopiers, is expected to report roughly 90 billion yen (US$983 million) in operating profit for the October-December period, its third straight quarter-on-quarter gain. Its office equipment business performed poorly, however, as companies cut costs and curbed investments.


Orders for Japanese equipment used to make semiconductors quadrupled in December from a dismal showing the same month a year earlier, as the biggest chipmakers are now rushing to invest in new equipment. Orders for Japanese chip-making equipment were around 90 billion yen (US$983 million). Monthly sales also rose as the semiconductor sector emerged from a prolonged slump, with sales of chip gear up 23 percent from a year earlier in December, and up 2 percent from the previous month. Samsung Electronics (OTC:SSNLF) and TSMC (NYSE:TSM) and UMC have placed orders for new equipment with Japan's Tokyo Electron. Hynix Semiconductor also said it was ready to outrun the 40 to 50 percent growth seen for the entire dynamic random access memory industry, on a surge in demand for smaller PCs in emerging economies.

Business Process Outsourcing

Japanese call center administrator Transcosmos Inc. has entered a partnership with KT Corp. (KTC) through subsidiary Transcosmos Korea Inc. Transcosmos this month began subcontracting part of the KT group's call center operations at two locations in Seoul and Pusan. The two call centers have a combined 900 positions and are responsible for fielding inquiries from customers regarding the KT group's mobile phone and Internet access businesses. By subcontracting call center work from the South Korean firm, Transcosmos hopes to boost sales in South Korea by 20 percent this year by 25 billion won (US$22.15 million). It is looking to expand its South Korea business into one of its core overseas operations, alongside China. The companies will utilize KT's communications infrastructure and Transcosmos' expertise to jointly develop business subcontracting services utilizing information technology.


NTT Communications will launch a multi-point video conferencing service in Japan. The solution will combine a cloud-based multipoint control unit with NTT Com’s VPN offering, Arcstar IP VPN and e-VLAN, NTT said. The new solution is expected to alleviate the heavy investment required for high quality video conferencing systems for companies with geographically dispersed locations within Japan.

NTT Communications had its further expansion in China with the opening of a new branch office in Wuhan, Hubei Province in February and the launch of a new point of presence (POP) for its Arcstar Global IP-VPN managed network services in Guangdong Province. The Wuhan office is a milestone for NTT Com as the first branch office of a global telecommunications company in the city. Wuhan is home to many specially designated zones for economic and technological development. The central China region comprising Hubei, Henan and Hunan provinces has been enjoying high GDP growth rates, attracting Japanese and other multinational companies to set up business hubs and capitalize on the region’s growing middle class. Economic development is expected to be further stimulated by a high-speed railway opened between Wuhan and Guangzhou in December 2009. NTT Com currently operates branches mainly near China’s coast, including Dalian, Tianjin, Beijing, Shanghai, Suzhou and Guangzhou. The Wuhan branch will enhance NTT Com’s provision of ICT solutions, including fast support for operation and maintenance, in central China.

eAccess (OTC:ECLTF) and mobile operator Emobile are still working towards a merger. In December, the companies entered into a memorandum of understanding on a business combination by way of a share exchange between the two companies, through which Emobile will become a wholly-owned subsidiary of eAccess. The board of directors of eAccess has established an independent committee consisting of independent directors which will ensure the fairness and transparency of the process, together with external financial and legal advisers which have been appointed. The company has extended the review process for a definitive agreement, which was originally scheduled for mid-January this year. eAccess did not disclose a new timetable for the process.



KT Corp. expects revenue and capital spending to increase this year as the company steps up efforts to seek out new growth engines amid a saturated telecommunications market. The company expects revenue to increase 2.8 percent to 19.5 trillion won (US$17.3 billion) this year. It will boost capital spending by 8 percent. The figures are based on the assumption that KT absorbed its KT Freetel wireless unit. The company will try to achieve the higher sales target by focusing on its Internet TV business and by cutting costs. It merged its wireless affiliate into the company and together the two companies plan to beef up product offerings and boost wireless data services to compete with SK Telecom.

SK Telecom confirmed that it would make no further investment in S-Fone, putting the underperforming mobile service provider on life support. Plagued by low profits and low subscription rates since it was launched in 2001, as a US$230 million business cooperation contract (BCC) between SK Telecom and Sai Gon Post and Telecommunications Corporation (SPT), S-Fone was only able to sign up about 7.3 million subscribers to its CDMA network, a market share of less than 10 percent. S-Fone had revealed that SK Telecom and SPT had inked a memorandum of understanding to change the form of their investment from a BCC to joint venture. SK Telecom w3as not effectively pulling the plug on S-Fone, saying instead that it was now engaging SPT in discussions on future operations and other ideas that might be of mutual benefit.

South Korea grabbed the top spot in a ranking of broadband connection speeds globally last year, while the gap separating first and second place finishers widened from the year before. Broadband connection speeds in South Korea in the third quarter of 2009 were the fastest among 226 countries at 14.6 megabits per second. The speed was also 16 percent faster than a year ago and marked a 29 percent on-quarter increase. Akami's State of the Internet report also said that Japan placed a distant second with average broadband service at 7.9 Mbps, followed by Hong Kong and Romania at 7.6 Mbps and 6.2 Mbps, respectively. The U.S. was ranked 18th in Internet connection speeds.

Media, Gaming and Entertainment

The Korean government has earmarked approximately 138 billion won (US$122 million) in investment funds to support the production of cinema, computer graphics and other entertainment content over the next three years. The fund from the ministry's budget will be run by a venture capital firm that, based on the government seed money, will draw additional investments from the private sector and select beneficiaries of the loans. This funding aims to not only increase capital available for the entertainment industry, but also bolster investment sentiment for it.


Hynix Semiconductor Inc. will repay more than 1 trillion won (US$888 million) in debt this year as a shortage in the industry may help the company post its biggest profit in four years. Lower debt and higher earnings may make Hynix more attractive to potential bidders as creditors are attempting for the second time to part with their Hynix holdings after Hyosung Corp. dropped its offer in November. The chipmaker is projected to post its biggest annual profit since 2006 this year as demand for personal computers improves. Hynix creditors may help finance an acquisition as they try to sell all or part of their combined 28 percent stake.

Hynix Semiconductor Inc. posted a second straight quarter of net profit in the fourth quarter of 2009 after seven consecutive quarterly losses thanks to a rise in memory chip prices. The company also gave a rosy outlook for the first quarter of this year as strong demand for personal computers and a rapid growth of the smartphone market is expected to lift shipments of dynamic random access memory (DRAM) chips and NAND flash memory. The semiconductor industry is on its way to a recovery from a severe slowdown in 2008, with analysts anticipating the rebound to pick up pace as PC demand is expected to lift memory chip sales in the first half of this year. Net profit reached 657 billion won (US$578 million) in the October-December period. The company's fourth-quarter net income nearly tripled from the previous quarter. Sales surged 85 percent on-year in the cited period.


Samsung Electronics Co. agreed to pay US$900 million to end a legal dispute between Rambus over computer-memory technology. The agreement ends litigation that began in 2005 after efforts to renew an expired license failed. Samsung, based in Suwon. The agreement may prompt other chipmakers to end their disputes with Rambus and begin paying royalties. Samsung will invest US$200 million in Rambus stock, make an additional payment of US$200 million and then pay US$25 million a quarter for the next five years. The companies will focus on graphics and mobile memory and review a possible collaboration on server and high-speed Nand flash memories.



Approximately 500 million yuan (US$73.2 million) will be pumped into the Internet field in the southern Chinese boomtown of Shenzhen in the future seven years. The city's Internet market hit about 16 billion yuan (US$2.3 billion) in 2008, accounting for 11.5 percent of the nation's total. Its e-commerce transaction volume was 6.25 percent of the total. The e-commerce has grown rapidly in recent years in Shenzhen, and the city has been approved to build the nation's first e-commerce city here. The city's Internet market will be 12.5 times the figure in 2008. Upon the above plan, the city will see an Internet growth of 50 percent yearly from 2009 to 2012.

Baidu’s (NASDAQ:BIDU) chief technology officer resigned for personal reasons. Li Yinan was appointed as Baidu's CTO in 2008, before which he was in a similar role with Huawei Technologies. The announcement of Li's resignation coincides with a management change announced earlier this month.

Alibaba Group (OTC:ALBCF) will increase its global work force this year after hiring 6,480 new employees in 2009. Alibaba Group and Ltd. will increase staff at home and overseas. The company will kick off an overseas recruitment campaign in the U.S. soon where Alibaba Group has been ramping up its operations. Alibaba hasn't finalized the number of staff it will recruit for 2010, the person said. At the end of 2009, Alibaba Group's total work force stood at 17,500. Most of these workers are employed in China. Alibaba Group workers below senior executive level will receive salary increases this year, and the company will give out year-end bonuses for 2009.

China's Internet economic scale in 2009 increased 30.7 percent to 74.3 billion yuan (US$10.9 billion). In comparison to the approximately 8 percent GDP growth, the Internet is still the most active industry of China in 2009. Of specific sectors of the Internet industry, revenues of online shopping and online payment would enjoy the fastest growth on year, rising nearly 100 percent. E-commerce becomes the new driving force for the development of Internet. The growth rate slides in comparison with the previous year's 52.6 percent, but is still much higher than the approximate 8 percent GDP growth of China, showing unique vigor of new economy. China's economy keeps growing, with the GDP in 2010 touching 9 percent. The rate of development of tertiary industry exceeds that of the primary and secondary industries, and becomes the driving force of China's economy.


KongZhong (KONG) has entered into an amendment to the share purchase agreement with Shanghai Dacheng Network Technology Co., Ltd. and its shareholders, which includes the entering into certain business cooperation agreements among Dacheng, its shareholders and one of Company's wholly-owned subsidiaries. Pursuant to these businesses’ cooperation agreements, Company will obtain control of Dacheng and expects to be able to consolidate Dacheng's financial results into Company's financial statements beginning no later than February 10, 2010. The other major terms contained in the share purchase agreement remain.


The number of Internet users in China, already the largest in the world, rose to 384 million by the end of 2009. Users accessing the Internet with mobile phones jumped by 120 million last year to 233 million, with the fast expansion of the country's 3G network, allowing high-speed transmission of images and video. Chinese web users are most interested in music, news and search engine services. China's spiraling online population has turned the Internet into a forum for citizens to express their opinions in a way rarely seen in a country where the traditional media is under strict government control. The growing strength and influence of the web population has prompted concern in Beijing about the Internet's potential as a tool for generating social unrest, and authorities have stepped up surveillance in recent years.

Huawei Technologies Co., Ltd. had participated in the first-round bidding for Motorola’s (MOT) broadband & mobile network division. The first round of bidding has come to an end. Potential buyers offered a price range between US$3 billion and US$4 billion, which is still lower than the mobile phone maker's expectation of US$4.5 billion. Motorola was rumored seeking buyers for the broadband and mobile network division at a price of US$4.5 billion as early as November 2009. Investing banks, including Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), as well as Centerview Partners, offer suggestion for the deal. At least, two companies participated in the first-round bidding, with a market value of US$1.4 billion or so, ARRIS probably teamed up with private equity firms.

ZTE (OTCPK:ZTCOF) shipped 3 million TD-SCDMA handsets last year, 1,100 percent more than a year earlier. The firm's TD-SCDMA handset market share last year rose 20 percent year on year. In addition, ZTE released four new TD-SCDMA handset models, the U720, U600, U230 and U215. The U600 and U215 are also customized handsets for China Mobile (NYSE:CHL). ZTE released over 30 TD-SCDMA terminal models in 2009, and will release more than 30 this year. Handsets and wireless wireline terminals each accounted for about 40 percent of ZTE's total TD-SCDMA terminal shipments last year, while data cards accounted for the remaining 20 percent.

China Unicom’s (NYSE:CHU) transaction volume on its online network surpassed 4 billion yuan (US$585 million) in 2009, and that average daily transaction volume has currently hit 30 million yuan (US$4.3 million). China Unicom launched a network for its online business in April 2008. Unicom expects to offer a video phone service between fixed-line and mobile phone users in some provinces or cities around the end of the first quarter. The service will initially be limited to fixed-line and 3G handset users, and it is still unclear whether the service will support cross-regional calls.

Media, Entertainment and Gaming

· NetDragon (OTC:NDWTF) said its net profit for the 3 months ended and the year ended December 2009 may experience a very substantial decline although its revenue for the year ended 2009 is expected to increase compared with 2008. The expected decline in net profit is mainly due to the rise in development cost of new product and expansion of new businesses.

· Shanda Games Limited (NASDAQ:GAME) said that Ms. Diana Li has resigned as the Company's chief executive officer and a member of the Board of Directors to pursue other interests. The Company's chairman, Mr. Qunzhao Tan, will assume the duties of both chairman of the board and CEO of the Company.

· Sales of China's independently developed online games increased 50 percent year on year in 2009. The actual sales in 2009 generated direct income of 55.5 billion yuan (US$8.1 billion) for related industries; and the actual sales of mobile Internet games was registered at 640 million yuan. There were 64 online games developed by 29 Chinese companies entering the markets of over 40 overseas counties and regions, and realizing US$109 million. The number of online game users and pay online game users respectively grew 33.4 percent and 22.1 percent on year in 2009 to 65.87 million and 37.15 million. Industrial analysts held that the industry's continuous growth during the ongoing international financial crisis is contributed by accelerated increase of players of online games, particularly fee-based online games.

· The number of online game players in China surged 33 percent to hit 66 million over the past year, said a report released at the annual conference of Chinese gaming industry. The revenue from online gaming industry in the country was 25.6 billion yuan (US$3.7 billion) in 2009. 64 Chinese games developed by 29 domestic companies had earned about US$109 million in overseas market. The online population in China had reached 384 million by 2009.

· Storm Information Technology Co. Ltd has accomplished its second round of fundraising, securing US$20 million in total. Four investors participated in this round, said the CEO, adding that Shenzhen Fortune Venture Capital Co. Ltd was one of the investors. The financing exercise took 3 months to completed, and all funds have come in place. Walden International invested an undisclosed amount in Storm Entertainment. Storm Entertainment reached agreement with Shanda Interactive Entertainment Limited (NASDAQ:SNDA) for joint operation. This year the firm will launch co-operative games with another two companies. 2010 is a crucial year for Storm Entertainment, adding that its performance in the second and third quarters will determine the execution of its listing plan next year. Storm Entertainment was founded in July of 2007 by William Zhu, using an elite class of online gaming players as its development team. By far it has released 5 games ranging from 2.5D MMORPG to web-games.

· Hurray! (HRAY) has completed the merger with local online video portal Ku6. Ku6 has sold all of its outstanding shares to Hurray! in exchange for 723.68 million Hurray! shares. Ku6 will retain its brand name and is now a wholly-owned subsidiary of Hurray!. Following the completion of the merger, the company also appointed Danian Chen and Shanyou Li to the Hurray! board of directors, effective 19 January.

· The market scale of online games in China reached 25.8 billion yuan (US$3.7 billion) in 2009, a 39.5 percent increase over the previous year, a white paper on online game development released by the Ministry of Culture. The domestic games' market size surged 41.9 percent last year to occupy 61.2 percent of the entire market. As of 2009, China had about 361 major online games which were either in operation or being tested. Among them, 115 were newcomers in the year. Tencent (OTCPK:TCTZF) had replaced Shanda to become the largest online game operator in the country. The Chinese online games earned US$106 million from overseas market in 2009, a 47.2 percent increase from the previous year.

· Kingsoft will separate game operations and game development in 2010, and will focus on online games which promote core values of harmony and cooperation. Kingsoft will release more than ten new games this year including licensed Chinese fantasy 3D MMORPG Fei Tian Feng Yu and Yue Ying Chuan Shuo.


Lenovo Group Ltd. (OTCPK:LNVGY) has been green-lighted by its shareholders to repurchase 100 percent of Lenovo Mobile Communication Technology Ltd. for US$200 million in cash and stock. Lenovo sold the mobile phone maker Lenovo Mobile for US$100 million in March 2008 to some PE funds, including Hony Capital controlled by the Lenovo founder Liu Chuanzhi. Afterwards, the target company saw a surge in its business and gained a net profit of 3.04 million yuan (US$445,222) in the entire 2008. Lenovo's repurchase of the subsidiary represents its efforts to expand in the Chinese mobile Internet market, which is flying with the local 3G telecoms industry. Lenovo Mobile has launched a type of LePhone-branded smartphones equipped with the Android operating systems of Google Inc. (NASDAQ:GOOG).

Investments/ Ventures

China will limit new loans to around 7.5 trillion yuan (US$1.1 trillion) in 2010.

China issued 9.59 trillion yuan (US$1.4 trillion) in new RMB-denominated loans in 2009, 4.69 trillion yuan (US$686 trillion) more than in 2008. China set a guideline limit on 2010 credit at around 7.5 trillion yuan (US$1.09 trillion) during December's Central Economic Work Conference.

Disclosure: Director