Asian Tech Stock Weekly Review (March 15 – 21, 2010)

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 |  Includes: ALBCF, BIDU, CHA, CHL, CHU, CSUN, DCM, DD, EBAY, ELPDF, FMCN, GOOG, HPQ, JUPIF, KZ, NED, NTT, RKUNF, SFTBF, SNDA, SSNLF, TWX
by: IRG Ltd

Japan

Semiconductor

Elpida Memory (OTC:ELPDF) is expected to return to the black with an operating profit of 16.5 billion yen (US$183 million) for the year ending this month, buoyed by a recovery in DRAM chip prices. DRAM prices are currently around US$2.5 for 1 gigabit products, up from around US$1 about a year ago.

Media, Entertainment and Gaming

Jupiter Telecommunications (OTC:JUPIF) will make Warner Bros new movies available on the same day they are released on DVD as part of its enhanced video-on-demand (VOD) service. J:COM has recently tested several new release titles from Warner Bros on the same day they come out on Blu-ray/DVD and will continue to offer more titles from Warner Bros on a day-and-date basis.

Index Corp. (INDQF.PK) will start offering support to overseas developers of social-network games seeking to push into Japan. The Index Holdings unit aims to generate 1 billion yen (US$11.1 million) in related sales a year and share the income with client firms. Abroad, games offered on social networking sites are usually played on personal computers. But mobile phone users are the big players in Japan. So foreign firms needing to make their games handset-compatible when entering Japan will have Index to provide help. Among other services, Index will translate games and on-screen buttons, and ensure that game applications intended for PCs work on each type of mobile phone handset. It will also adapt games to better suit Japanese tastes.

Telecommunications

Nippon Telegraph and Telephone Corp (NYSE:NTT) is expected to issue 200 billion yen (US$2.2 billion) in bonds in fiscal 2010, declined more than 10 percent from fiscal 2009. NTT's bonds provide medium to long-term funding for units NTT East Corp and NTT West Corp. This fiscal, the telecommunications giant has so far rolled out three bond issues, totaling 230 billion yen (US$2.5 billion), including a 60 billion yen (US$663.4 million) four-year bond targeting retail investors. NTT is likely to forego issuing foreign currency-denominated bonds as domestic long-term interest rates remain lower than those overseas. The company is likely to focus on issuing bonds with about 10-year durations for institutional investors for now. Issuances targeting retail investors may also be shelved in fiscal 2010.

Advantage Partners will partner with Softbank (OTCPK:SFTBF) to acquire the company’s XGP mobile network service business. Advantage Partners and Softbank are to invest alongside the government-backed Enterprise Turnaround Initiative Corporation (ETIC) of Japan in the turnaround of bankrupt Japanese mobile services company Willcom.

NTT Docomo (NYSE:DCM) will expand the role of Docomo China Co., Ltd. to strengthen delivery of high-quality solutions, services and support and facilitate new growth in the fast-expanding Chinese mobile market. Docomo China, a wholly owned subsidiary based in Shanghai, will begin collecting data on mobile communications and exploring new business opportunities in China. It will assume responsibility for these duties from the Docomo Shanghai Representative Office, which will be closed on March 31. The change is seen to strengthen organizational structure and raise operational efficiency.

Korea

Telecommunications

Korea Telecom could bid for a controlling stake in Colombian state-owned company Empresa de Telecomunicaciones de Bogota SA (ETB). Korea's vice-Transport Minister Kwon Do-youp made the announcement at a meeting of business leaders of the two countries in Bogota. Spain's Telefonica has also said it is interested in bidding for ETB, and there is speculation that Telemex may also bid. ETB is selecting a partner to inject fresh capital in return for a controlling stake in the company. The stock has been one of the Colombian stock market's most volatile in recent months, fluctuating sharply on takeover rumors.

SK Broadband will begin distribution of IPTV handset to offer IPTV service to elementary, middle and high school. Merged LGT and KT will distribute hand sets in a form of USB. School IPTV Service is a service that the MEST would offer IPTV to elementary, middle and high school to reduce private education costs and boost public education. 3 big mobile carriers plan to provide IPTV to classrooms. Instead of setting up existing IPTV set top box, it will use existing PCs in classroom to develop IPTV handset for PC that can use IPTV in PC jointly with SKT. External hand set has CAS (Conditional Access System) and DRM (Digital Right Management) which needed for real time broadcasting necessary to IPTV to see real time broadcasting and VOD watching. And using smart card, it can do user certification and contents security.

Semiconductors

Creditors of Hynix Semiconductor Inc. have raised 923.2 billion won (US$813.6 million) by selling a 6.67 percent stake in the chipmaker through block trade. KEB, the main creditor of the chipmaker, said the creditors unloaded 39.28 million shares for 23,500 won (US$20.72) per share to local and foreign investors at its closing share price. Three previous attempts to sell part of the creditors' combined 28.1 percent stake in the chipmaker declined through as they drew no domestic buyers. The creditors, which bailed out credit-squeezed Hynix by swapping the company's debts for stocks, now own a combined 21.4 percent stake in the company after the block sales, while Korea Finance, with a 5.5 percent stake in the company, is the largest shareholder. The deal cut KEB's stake in the firm to 4.56 percent.

Sales by South Korean chipmakers in 2009 expanded a combined 3.6 percent from a year earlier due to boosted demand from handset makers, despite a sharp decrease in overall revenues for the global industry. While the global semiconductor industry logged an 11.7 percent fall in 2009 revenues, South Korean chipmakers weathered the storm due to demand for NAND flash memory used in mobile devices and light-emitting diode (LED) memory for flat screen TVs. Samsung Electronics (OTC:SSNLF) and Hynix Semiconductor the second-largest and seventh-largest chipmakers in terms of 2009 revenue, were the only two of the world's top 10 semiconductor suppliers that had positive growth for the year as most suppliers were hit by the economic downturn.

Korea’s chipmaker MagnaChip LLC, owned by Avenue Capital, announced plans to list on the New York Stock Exchange through an IPO. The company plans to raise about US$ 250m through this offer. The company manufactures chips that are used in flat-panel displays and smartphones.

Media, Gaming and Entertainment

The government will work with on-line game firms to put restrictions on excessive gaming as concern over the issue flared anew following the starving death of an infant who was allegedly neglected by addicted parents. Possible restrictions under consideration include having users lose part of their virtual assets if they spend too much time gaming, the ministry said in a press release. Details of the fatigue system will be announced later this month. The ministry also said it will increase its budget for projects to curb online game addiction by 10-fold to 5 billion won (US$4.4 million) to offer better counseling and treatment to addicts.

China

Internet

eBay's (NASDAQ:EBAY) PayPal unit plans to increase its online-payment system as an option on Alibaba.com's (OTC:ALBCF) new AliExpress international marketplace. This would help expand PayPal's presence in China, as well as smooth Alibaba's entry into international markets, such as the U.S. Alibaba.com last year launched AliExpress, a wholesale marketplace where retailers around the world can source electronic products, automotive parts, clothing and other unbranded merchandise from suppliers in China and Taiwan.

Alibaba.com’s fourth-quarter net profit climbed 49 percent from a year earlier to 281.2 million yuan (US$41.2 million) as its members grew and revenue climbed 36 percent. The company will continue to invest in technology and talent in its China marketplace this year as it sees domestic demand as the company's long-term growth engine. The improvement in Alibaba's earnings comes as the global economy is recovering from the financial crisis, boding well for export trade and domestic consumption in China. Alibaba, which provides listings for mostly Chinese manufacturers to find buyers at home and abroad, takes membership fees in return and derives most of its revenue from Chinese exporters. Its parent, Alibaba Group is 39 percent owned by Yahoo Inc.

Google's (NASDAQ:GOOG) censorship dispute with China could come to a head by the end of March, at which time the U.S. company's license to operate its Chinese-based search service may expire. The prospect of an expiring license comes as Google and the Chinese government appears to have reached an impasse in their dispute over Internet censorship. Google has previously said it intends to soon stop censoring results on its Chinese-language search site, Google.cn, although it has not specified when it would do so. [Ed Note: See here and here]

Noah Education (NYSE:NED) has signed an agreement to acquire 70 percent interest in Shenzhen Wentai Education Industry for total consideration of 126 million yuan (US$2.8 million) by June 1, 2010. Wentai Education manages six kindergartens and four primary schools in five cities in Guangdong province, with total student enrollment of over 5,000 and 580 faculty and staff. The company had revenue of 49 million yuan (US$7.2 million) in 2009. Wentai Education will use 90 million yuan (US$13.2 million) of the investment for expansion, while its management team will retain the remaining 30 percent of the company’s stake. The compensation will come from Noah’s current cash reserve.

Baidu (NASDAQ:BIDU) will launch its business-to-consumer (B2C) online shopping mall in cooperation with Japanese online mall operator Rakuten (OTCPK:RKUNF) by the third quarter of 2010. Total investment will reach US$50 million over the next three years. Youa held a 4.7 percent market share in the C2C online shopping market as of the second quarter of 2009, while Taobao remained the market leader with a 77.1 percent share, followed by Paipai.com with a 10.4 percent share.

Taobao.com spent an average of 500,000 yuan (US$73233) per day in commission payments to Taobao.com promoters by late 2009. The company will introduce "The Blue Whale Plan," a new advertising model under which it will distribute a total of 1 billion yuan (US$146 million) to small and medium-sized site operators in 2010.

Mobile/Wireless

KongZhong Corp.’s (KONG) total revenues of US$34.334 million for the three months ended December 31, 2009, declined 2.2 percent. Revenue from wireless value-added services (WVAS) inched down 0.5 percent quarter on quarter to US$25.267 million. Revenue from mobile games declined 10.4 percent to US$7.349 million. Revenue from wireless Internet service boosted 14.4 percent to US$1.718 million. Cost of revenue climbed expanded 5.1 percent quarter on quarter to US$18.037 million from US$17.167 million in the previous quarter. Total operating expenses edged up 2.0 percent to US$12.030 million. Gross profit dropped 8.6 percent to US$15.656 million. Gross margin reduced 3 percentage points to 46 percent.

Telecommunications

China Mobile Ltd. (NYSE:CHL) had a sharp slowdown in profit growth for 2009 and said it will cut capital spending in the next three years to save costs and maintain profitability. Earnings growth momentum for China Mobile has been slowing down because of increasing competition from rivals China Unicom Ltd. (NYSE:CHU) and China Telecom Corp. (NYSE:CHA). Higher marketing and depreciation expenses for its third-generation mobile services are also likely to continue to weigh on its profitability this year. The company is seeing downward pressure on its margins and revenue as the telecom operator adds more low-income subscribers in rural areas and mobile tariffs are trending down. After the commercial launch of its 3G mobile service in January 2009, China Mobile has been striving to improve its network coverage and handset quality to add subscribers.

Results of a recent survey on 3G users revealed the distance between Chinese telecom operators' intended development and actual user behavior. The most attractive 3G application is high-speed Internet access rather than video calls. Most of users spent 50 yuan (US$7.33) on 3G services. China's three telecom operators introduced various 3G services in 2009, the first year that the new mobile communications technology has been provided to Chinese users. They made great efforts to publicize services such as video calls, mobile-phone television, mobile-phone mail box, mobile-phone reading, mobile-phone payment and other novel applications. But the survey shows that most customers using 3G service for only one reason: Accessing the Internet.

Negotiations between China’s telecom and cable TV regulators remained stuck over legislation that would allow companies in China to bundle together and offer telecom, cable television and internet services. Current laws do not allow companies to merge and offer collective services. The regulators are unable to agree over how the mobile companies can continue to ensure the strict censorship standards required in the television and internet businesses in China.

China Mobile will boost its handset subsidies by nearly 30 percent this year as it ramps up its recently launched 3G business. The company will provide about 15.5 billion yuan (US$2.27 billion) in subsidies this year. Average revenue per user (ARPU), a commonly watched barometer of health, was likely to fall slightly this year from 2009.

China's operators launched 3G services in May 2009. 3G subscribers accounted for 5.2 percent of China Mobile's new subscribers, 19.3 percent of China Telecom's new customers, and 18.7 percent of China Unicom's new subscribers. The total number of 3G subscribers in 2009 has reached 11.414 million, accounting for 1.5 percent of mobile users. Data card, wireless fixed-line phone and other non-mobile phone users account for over 60 percent. By the end of December 2009, the sales volume of China's 3G terminal market has reached 11.224 million units. CCID Consulting says China's 3G mobile phone market will see great development in 2010 with sales volumes to exceed 50 million units.

Media, Entertainment and Gaming

Shanda (NASDAQ:SNDA) and China Central Television's (CCTV) national online TV station CNTV plan to cooperate in various internet services, such as online games, video, literature, music, wireless products and online platforms. The two companies aim to form a joint venture to develop online games. Neither company has offered further details of the joint venture so far. CNTV and Shanda-invested online video site Ku6.com shall cooperate in TV technology, products development and copyright protection in November last year, while CNTV and Shanda Literature also already have cooperation agreements.

Shanda will start co-operating Kingsoft's in-house developed 3D martial arts MMORPG JX Online 3 in May this year. The companies have agreed that Kingsoft will be responsible for game content and quality, while Shanda will distribute and promote the game. Kingsoft and Shanda will establish a joint venture to co-operate games, starting with JX3. Kingsoft has nine games scheduled for release in 2010.

Focus Media (NASDAQ:FMCN) narrowed its net loss for the fourth quarter to US$52.5 million, compared to a loss of US$802 million in the fourth quarter of 2008 and a loss of US$127 million in the quarter ending September 2009. The out-of-home advertiser recorded full year losses at US$208 million, compared to a loss of US$770 million in 2008. The company’s Chairman and CEO Jason Jiang announced that the company’s focus for 2010 would be on developing LCD, poster and in-store advertising networks in China’s second and third tier cities.

Hardware

Skyworth said that sales of its LCD TVs boosted by 70 percent year-on-year to 335,700 units in February in China. Revenues from the company's China TV business unit grew 61 percent in February compared with the same period 2008.

The Chinese regulator conducting a probe into consumer complaints against Hewlett Packard (NYSE:HPQ), the world’s largest computer maker, accusing the company of selling faulty laptops upheld the complaint and reported that the company indeed sold laptops with faulty video cards. The plaintiffs alleged that the video cards overheated and melted, causing damage to the laptops. The company has promised to look into the matter and take corrective action.

Alternative Energy

China Sunergy (NASDAQ:CSUN) CEO Allen Wang has resigned from the company for personal reasons, and been replaced by Stephen Zhifang Cai. Cai previously worked as the Director of China Electric Equipment Group (CEEG), CEO of CEEG PV Business, Chairman of CEEG Shanghai Science and Technology, and management roles at DuPont (NYSE:DD) China and the Shanghai Institute of Chemical Fiber. The firm will acquire 100 percent equity interest in two related module manufacturers, China Electric Equipment Group subsidiaries CEEG (Shanghai) Solar Science & Technology and CEEG (Nan Jing) New Energy, for total consideration of US$47 million. The acquired companies have annual production capacity of 150MW and 70MW, respectively, and target capacity of 300MW and 170MW by mid-2010.

Disclosure: Director