Chinese Tech Stock Weekly Update

by: IRG Ltd

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


INICIS Co. Ltd., a leader in payment processing services, announced that it has set up an alliance with ChinaPay of China and eContext of Japan to provide online global payment processing services to merchants from around the world. This strategic alliance will provide online payment processing services to many global merchants conducting or wishing to conduct online business in China, Japan and Korea. Under the agreement, ChinaPay, eContext and INICIS will work together to develop, market and deliver world-class online payment service as a unified gateway. INICIS Co. Ltd. is a leading provider of online payment service processing for online consumers, merchants, master merchant service, card issuers & acquirers, and government agencies. ChinaPay Co. Ltd., a subsidiary of China Union Pay, is a leading provider of online payment gateway services in China and has become one of China's largest and fastest-growing payments networks. A parent company, CUP, has 166 member banks, and is responsible for operating the only national bankcard network to enable and promote the acceptance of bankcards in China. eContext (Nippon new market) is a leading provider of payment gateway services for convenient stores, credit card payments, and distribution of marketing promotions for e-commerce in Japan. The company supports third parties that are engaged in e-commerce and mail order business.

CJ Internet announced that it would establish a joint venture in China with T2CN, a local online gaming company. CJ Internet and T2CN will each invest 50 percent in the new entity and CJ Internet will have rights to management. T2CN is a Chinese online game company servicing successful Korean game titles such as Pangya, Freestyle and Neosteam. In a separate development, the first closed beta test for robot action game SD Gundam Capsule Fighter (SD Gundam), created by Softmax and Bandai Korea and published by CJ Internet, attracted close to 2,500 beta testers, said CJ Internet. The second round of closed beta tests will start in November. (NASDAQ:SOHU) reported a decline in its net earnings to US$6.6 million, from US$8.0 million a year ago. Sohu said its total revenues for the quarter totaled US$35.4 million, compared to revenues of US$34.1 million for second quarter ended June 30, 2006, and US$27.4 million for third quarter ended September 30, 2005. The company said its net income for the third quarter was US$6.6 million. Sohu posted 27 percent growth year on year and 5 percent rise quarter on quarter in its advertising revenues to US$23.9 million. Advertising revenues, consisting of US$21.0 million in brand advertising and US$2.9 million in sponsored search, contributed some 67 percent of total revenues in the third quarter of 2006. As of September 30, 2006, Sohu's cash, cash equivalents and investments in marketable debt securities balance was US$120.0 million, compared to US$132.9 million as of June 30, 2006 and US$133.1 million as of December 31, 2005.

Microsoft (NASDAQ:MSFT) said the company is now looking to China’s fast growing online advertisement market in the country, with the firm’s manager of global market business indicating that Microsoft is working fast on the integration of its online systems in China. The company said it is going to launch its digital advertisement solutions, with the plan to promote advertisement services on Office Online. Reports show that China’s online advertisement market posted a 59.8 percent growth to 3.2 billion yuan (US$405.5 million) in 2005 from the same period the previous year.

PacificNet (PINK:PACT-OLD) announced that it has signed a deal with mobile Internet portal, a mobile Internet portal, for the acquisition of a 20 percent ownership equity interest. With a reported 11 million registered users, features mobile social networking, mobile games, and entertainment. This free WAP portal provides a variety of mobile internet services such as news, mobile gaming and entertainment services, mobile blogs, mobile email (Mo- Mail), Avatar and virtual pets, mobile online dating, mobile instant messaging, and virtual communities. PacificNet looks to the acquisition as boosting its mobile games, mobile e-commerce unit, and wireless Internet. Earlier, MOABC recently entered into a profit-sharing cooperation agreement with on a newly launched mobile game titled "The World," a Mobile MMORPG Game.

People are interpreting the 4 percent decline in the shares of (NASDAQ:BIDU), China's most popular Internet search engine, as attributable to the departure of its chief technology officer, Jerry Liu. Even if Liu is not seen as forming a rival firm, industry analysts still see the move of the official as significant to the company. Liu helped Baidu grow from a start-up to its current position as holder of more than 60 percent of China's online search market, which is in competition with Google and others. The impact on the share price was described as short term. Earlier this year, Baidu settled a lawsuit with music companies EMI, Sony-BMG, Universal and Warner Brothers over copyright infringement and complaints that it directed Internet users to sites operating unlicensed music downloads.

Media, Entertainment and Gaming

Shanda (NASDAQ:SNDA) announced entering into a deal with Chinese game developer JoyChina for an exclusive license to operate a 3D advanced casual game entitled “Kong-Fu Masters” globally, with the agreement not covering Hong Kong and Taiwan. A top Shanda official said this is the first game licensed from a Chinese game developer. The official described Kong-Fu Masters as a game rich in Chinese cultural content, giving Shanda confidence in its global publishing potential and ability to attract a broad user base at home and abroad. Kong-Fu Masters is a martial arts fighting game featuring a cast of well-known characters from Chinese folklore and history. The game is expected to enter open-beta testing in China the end of 2006.


China Unicom (NYSE:CHU) disclosed that is going through testing of its instant communications and messaging software, with the plan to launch soon it in the next few months. An affiliate of the company called the China Unicom New Space, which is responsible for value-added services, is the firm behind the development and promotion of the software. Industry sources say that the software is fitted with full functions, which include multi-terminal log-in, free and unlimited short message sending, and group short message sending. There are currently many instant communications software on the Chinese market, such as QQ, MSN, POPO, and ICQ. In a separate development, China Mobile announced it has plans to launch its own IM service no later than the end of this year.

The country’s State Administration of Radio, Film and Television [SARFT] announced the release of a recommended standard for the mobile multimedia broadcasting industry to be implemented soon. SARFT described the standard as based on the STiMi (Satellite Terrestrial Interactive Multiservice Infrastructure) technology. Industry observers see the country’s mobile TV standard as providing an opportunity for China, given that there is no unified mobile TV standard on the global market. After China failed to gain global recognition for its WAPI standard, this new mobile broadcasting standard is expected to propel the country to the forefront of this particular sector. Mobile phone television is seen as giving an opportunity for the telephone network, cable television network and computer network to integrate.

ZTE Corp. reported a 50 percent decline in its third-quarter profits, to 76.9 million yuan (US$9.7 million), compared with 154.8 million yuan (US$19.6 million). The company attributed the fall to declining sales of higher-margin products to mainland customers such as China Mobile (NYSE:CHL) and China Unicom (CHU). ZTE said its sales went up by 15 percent to 5.4 billion yuan (US$684.4 million) from 4.7 billion yuan (US$595.7 million) for the three months. In July, the company said its domestic sales accounted for 62.2 percent of total sales in the first half, compared with 69.5 percent a year earlier. ZTE said profits for the first nine months dropped 47 percent to 450.4 million yuan (US$57 million) from 842.5 million yuan (US$106.7 million) a year earlier. The company said it aims to continue investing in production lines for 3G equipment in a bid to gain a bigger market share before the 3G market is opened. The company said in July, the increase in its accounts receivable this year was mainly from emerging markets, such as Pakistan, Egypt and Nigeria. Last month, ZTE said its subsidiary won a contract to provide 3G wireless technologies to Alaskan mobile-phone operator Copper Valley Wireless.

A deal between SK Telecom (NYSE:SKM) and China Unicom (CHU) will allow clients using mobile phone services by China Unicom to send and receive messages in Korean. This is the first time subscribers to a foreign service will be able to send text in Korean. Though overseas text services have been available for some time, the Roman alphabet was the only one available. SK Telecom subscribers with global roaming were always able to text in Korean. SK Telecom said it has plans to extend Korean short message services to include China Mobile users as well. China Mobile (CHL) is currently the largest mobile phone service provider in China.


Dell (NASDAQ:DELL) announced plans to initiate recycling services and provide them to business customers in mainland China and Hong Kong, with the firm vowing not to charge customers for the services. Dell's Asset Recovery Service assists business and institutional customers by removing and refurbishing or recycling old hardware consistent with environmental guidelines. There are two programs being offered by the company. One is Dell's Value Recovery Services, which will arrange the packing, shipping and testing of surplus computer equipment for an organization. If it meets functional and cosmetic requirements, it is resold with value from the sale returned to the customer. Dell's Recycling Services will dispose of equipment that has no resale value by collecting and delivering it to Dell's recycling partners. The equipment is responsibly recycled following Dell standards. Earlier in June, Dell announced consumer recycling as part of its program for China. It has also issued a new chemical-use policy outlining the company's precautionary approach to identify and eliminate substances of concern from its products. Dell says it is presently meeting the requirements of the European Union's Restriction on the use of Hazardous Substances [RoHS] directive for products sold in the EU and will implement these requirements on its global product lines.


Tencent revealed its program to set an Internet research institute, with the plan of making an investment worth 100 million yuan (US$12.6 million) for the structure. The research institute will basically work on forecasting future technology and market development trends, making development and research plans, studying and developing core technology. The aim of the program is to improve Tencent's technical strength and innovation capacity so as to better serve the users. To be called the Tencent Research Institute, the structure is said to be the first of its kind in China.

Shanghai Telecom and Shanghai Mobile announced the signing of an alliance with Shanghai Information Commission for the promotion of ‘informationization’ development. Under the agreement, the two firms agreed on putting in an investment worth some 40 million yuan (US$5 million) so that by 2010, the broadband and information resource can be available to anyone in the city. Within this development program are items that include mobile political affairs, e-commerce and new suburb communications construction for the World Exposition.

Digital agency AKQA announced its move to expand its operations in Asia and set up a Shanghai office by the end of the year. To support this program, the digital agency said it has initiated the recruitment process for the best creative and technical staff for AKQA Shanghai. The recruitment is reportedly being conducted across Asia Pacific. To operate in the Chinese city, AKQA said it has formed a wholly owned foreign enterprise to operate in Shanghai.


Semiconductor Manufacturing International Corp. (NYSE:SMI) disclosed that it is considering whether to sell shares in its Shanghai business for a listing in the city's A-share market in 2007 or wait until the end of 2008 to list the entire group in the mainland. SMI said it aims to raise funds in a bid to make more advanced products and compete better with market leaders such as Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) and Powerchip. The company looks to breaking even this year, with profits for the three months to December offsetting losses in the earlier periods. Industry observers suggest that SMI could first secure a 2007 mainland listing of its three Shanghai plants, which have already met China Securities Regulatory Commission requirements by being profitable for three years. It could also wait until the end of 2008, when the whole group will have posted profits for three successive years. SMI counts among its clients, Infineon unit Qimonda and Japan’s Elpida. The company said it is aiming at increasing to 30 percent the contribution of its DRAM chips to sales from 28 percent.