Japanese Tech Stock Weekly Update

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

Internet

• Yahoo Japan said it is looking to the sales of digital content, such as music and games as a bigger contributor than advertising to its cell phone service. Observers point to this business model as different from that of Yahoo’s (YHOO) main PC-based service, which earns most of its sales from advertising. Internet giants including Yahoo and Google (GOOG) are rolling out new services for mobile phones in Japan. Earlier, Google started a Japanese-language news service for mobile phones this week, ahead of other markets. According to the Digital Content Association of Japan, its market for digital content posted a 12 percent rise to 2.5 trillion yen (US$21.2 billion) in 2005 from a year earlier, with about 15 percent coming from mobile phones. In six months, pageviews for Yahoo Japan's mobile services went up by 7.7 percent to 1.5 billion (US$12.5 million) in September, outpacing the combined 0.5 percent gain for its PC and mobile sites. Yahoo Japan is working with Softbank Corp. to expand its mobile service.

• Oki Electric Industry Co. announced the unveiling of two new Internet protocol telephony systems to be offered in Japan and abroad, beginning with China in December. The company said it aims to sell 100,000 units of the new telephone systems IPstage MX and IPstage SX in Japan and overseas within three years. Oki Electric said the telephone systems are best suited for offices with less than 100 employees. The IPstage MX targets offices with 100 extensions or less, while the IPstage SX targets those with 30 or less.

• Online brokerage kabu.com announced that Mitsubishi UFJ Securities Co., Goldman Sachs Japan Co. and BNP Paribas Securities (Japan) Ltd. would join the company in its nighttime marketplace. The report said that three securities houses are expected to join before 2006 ends once negotiations on details, including ways to handle orders, are completed. Several other brokerages are also expressing interest in joining the nighttime market. The exchange, which began operating on Sept. 15, enabling investors to trade 300 selected issues between 7:30 and 11 p.m. after regular market trading ends at 3 pm.

Mobile/Wireless

• NTT DoCoMo Inc. (DCM) announced the unveiling of 14 new 3G-cell phones ahead of the introduction later this month of mobile number portability in the country. Mobile number portability will debut Oct. 24. Under the system, users will be allowed to keep the same mobile phone numbers even after switching from one operator to another. Of the 14 new phones, DoCoMo said 11 are in its 903i series and can have improved music-downloading and game services. KDDI Corp., the country's No. 2 mobile phone carrier known for its au brand, said in August it would debut 12 new models for the fall and winter. Softbank Corp. (SFTBF.PK) said last month it would market 15 new mobile phone models by the end of this year.

• Google Inc. announced that it has started offering a free Japanese-language news service for mobile phone handsets. The Internet firm will collect news articles on sites of newspapers and broadcasters then categorize them into politics, the economy and other news areas, and by clicking their headlines, handset owners can read those articles. Google’s launch is expected to spur free distribution of information to mobile phones.

• With the number of cellphone subscriptions approaching 100 million, and per customer communication charges from individual users falling, cellphone carriers are introducing advanced handsets designed for corporate users as the market for individuals nears saturation. Industry analyst said that cellphone carriers expect business-oriented handsets to expand the market of corporate users, which account for about 10 percent of all cellphone subscriptions. In September, NTT DoCoMo Inc. began marketing the BlackBerry, a multi-function handset equipped with a keyboard. Manufactured by Canada’s Research In Motion Ltd., DoCoMo's BlackBerry 8707h handset is the first in Japan. DoCoMo said it has received orders for 1,400 subscriptions from several dozen companies, primarily foreign enterprises. Softbank Mobile Corp., which was known as Vodafone K.K. until September, said it will release a multi-purpose handset bundled with Microsoft Corp.'s Windows Mobile operating system. Manufactured by Taiwan's High Tech Computer Corp., the device is expected to sell for about 30,000 yen (US$251). In December, KDDI Corp. said it would release the E03CA handset, manufactured by Casio Computer Co., for corporate users. The device will enable a maximum of 20 people in a group to send and receive sound and images. But some analysts said it is unclear whether these smart phones will be widely used in Japan, a market dominated by advanced multi-function handsets.

• Mobile payment solution company Danal announced that it would enter the online game market. A company official explained the move as aiming at enhancing their online music service business. Last month the company signed an agreement with an online game developer. The game, titled “On-Air Online”, is an online dance game developed by G&P Entertainment and will be serviced on Danal’s music streaming site, Ohdio.com.

Media, Entertainment and Gaming

• Media reports indicate that Rakuten Inc. and Tokyo Broadcasting System Inc. have made no progress in their alliance talks. Sources said the negotiations have been stalled over what to do with a 19 percent equity stake Rakuten owns in TBS, due to a fall in TBS share price. Observers said that Rakuten, which spent more than 100 billion yen (US$835.6 million) on the shares, would incur a loss of 15 billion yen (US$125.3 million) if it sold. Observers said that Rakuten shares have also tumbled, partly because investors have lost some of their confidence in Internet companies following the Livedoor Co. scandal. Rakuten's market capitalization has halved from about 1 trillion yen (US$8.3 billion) a year ago. The two companies began negotiations on alliances in January after Rakuten dropped its management integration proposal in November. They are discussing more than 20 candidate projects, such as joint production of movies and collaboration in online shopping. But the talks have produced no concrete results. TBS has been demanding Rakuten to sell its TBS shares as a pre-condition for an operational alliance. TBS has formed separate tie-ups on Internet-related operations with such companies as Bic Camera Inc., Culture Convenience Club Co. and Dentsu Inc. Industry sources said that the alliances have apparently reduced Rakuten's importance as a partner for TBS.

• Dataplace has concluded an agreement with Xinhua News Agency in obtaining national sales representation of Chinese news and online news programs distribution in Japan. Under the agreement, Dataplace will distribute about 70 news articles from China in Japanese in XML format as well as 20-30 minute news programs with Japanese subtitles. An additional feature is a search engine from which users can look up previous news by category such as fashion and food. The news distribution service is expected to start on November 11 with the search engine to be ready in December of this year.

Semiconductors

• NEC Electronics Corp. (NIPNY) announced its shipment of a chip compatible with both Blu-ray and HD DVD formats in next-generation DVDs, a move that is seen as bridging a format problem that has divided the electronics industry. NEC said that the chips go on sale for 10,000 yen (US$84), roughly the same price as NEC Electronics' chips which read only Blu-ray or only HD DVD formats. Observers note that if other hybrid technology is developed, the new chip could bring down costs to build dual-format players, helping consumers and the movie industry sidestep the rivalry between the two opposing camps. NEC Electronics is targeting monthly shipments of 300,000 during the business year starting April 2007.

Hardware

• Hitachi Ltd. (HIT) announced its plan to acquire car electronics maker Clarion Co. Ltd., through a tender offer. Hitachi holds already 14 percent stake in Clarion. The acquisition would cost Hitachi about 50 billion yen (US$420 million). Media sources said that Hitachi would announce the tender offer soon, with Clarion supporting the offer. Clarion is one of the world's top makers of car navigation systems.

• KDDI announced its move to purchase the optical fiber operations of Tokyo Electric Power (Tepco) in a deal that could be worth about US$960 million. The two firms said the move is aimed at increasing their competitiveness against telecom market leader and former state monopoly Nippon Telegraph and Telephone Corp. (NTT). Under the deal, Tepco, the world's largest private power provider, will separate its optical fiber business in January and transfer it to KDDI. In return, KDDI will give 144,569 shares of its stock to Tepco.

Ventures/Investments

• Softbank Corp.’s (SFTBF.PK) founder reportedly pledged a record amount of collateral to refinance US$10.7 billion of debt used in the acquisition of Vodafone K.K. (VOD). Media sources said that Softbank has offered all of the assets, income and shares of Vodafone K.K. as security for US$12 billion bonds and loans it plans to sell next month. Softbank acquired Vodafone Group Plc's Japanese business for US$15 billion. The deal gives the company some 15 million mobile-phone users in the world's second- largest economy. Softbank’s founder Son, whose net worth is US$7 billion, according to Forbes Asia, agreed to provide more security because Softbank needs the money to repay 1.2 trillion yen (US$10.7 billion) in short-term financing. Vodafone K.K. originally paid interest on the loan of 250 basis points more than a lending benchmark, the Tokyo inter-bank rate. That premium rose to 300 basis points when Softbank was unable to arrange new financing by the end of September. Citigroup Inc., Deutsche Bank and Mizuho Financial Group Inc. arranged the initial loan with four more banks and are organizing the refinancing, helped by 15 more firms including WestLB AG, Calyon and Royal Bank of Scotland Group Plc. No other details of the deal were disclosed. Analysts are saying that Softbank's deal may be imitated by companies seeking acquisitions in Japan, noting that already there are as many as 10 Japanese companies considering similar deals.

Comment on this article