Chinese Tech Stock Weekly Update

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

Internet

• Tom Online (TOMO) disclosed a 59 percent decline its third-quarter earnings following policy changes by mobile phone companies that saw revenues slashed for its wireless service. Tom Online said its net income went down to US$5.3 million from US$12.9 million in the same period last year. The company said its third-quarter revenues posted a 15.2 percent drop to US$39 million, with revenues for Tom's games, short messages and other wireless services registering a 19.6 percent decline to US$34.7 million. Analysts said the cut in the revenues for all of China's value-added service providers affected Tom Online as wireless services accounted for 89 percent of quarterly revenues. Other Chinese portals make a bigger share of their money from advertising or online games. Tom sees the situation continuing for wireless services through the fourth quarter, with revenues expected to drop to US$34.5 million to US$35.5 million. Tom also mentioned that third-quarter online advertising revenues went down by 9.2 percent at US$3.5 million. Earlier, Tom said the company also has launched a venture with Internet-based phone provider Skype, with the firm posting 23.5 million registered users at the end of last month.

• eBay announced entering into an agreement with Baidu.com (BIDU) that allows China's biggest search engine to run advertising on eBay's site in the mainland, with the two companies to commence testing of Baidu's search-based advertising on eBay's China site in the first quarter of next year. The partnership is seen as allowing eBay to tap a Chinese search market where advertising revenue is seen as growing to more than US$1.4 billion in 2011 from US$194 million this year, according to a September 28 Credit Suisse report. The partnership is also seen as pushing Baidu to get a bigger share of market from rivals Google and Yahoo. Under the agreement, Baidu said it will also promote eBay's PayPal Internet payment service on its web site. According to Analysys International, eBay's share of the Chinese online auction market rose to 16.8 percent in the second quarter from 15.1 percent the previous three months. It was behind Alibaba.com's Taobao unit, which saw its share go up to 32.3 percent from 30.8 percent. No financial details about the deal were disclosed.

• News Corp. (NWS) disclosed the possibility of launching a version of its popular MySpace Internet social network in China during this fiscal year if it found the right joint venture partner. The disclosure follows the announcement made by News Corp on its partnership with Softbank Corp. to launch MySpace in Japan. News Corp, which bought MySpace, one of the fastest-growing Internet properties, for about US$80 million last year, has watched its stock climb 26 percent since it announced the deal. The company posted a fiscal first-quarter profit of US$43 million, compared to a net loss of US$33 million. The report said the profit was pushed by increases in advertising sales at the Fox TV network and Fox News network, as well as by a US$261 million gain from the sale of its interest in Sky Brasil and the China-focused Phoenix Satellite Television Ltd.

• eLong.com (LONG), a travel web site, reported for the third quarter of 2006 a 40 percent growth in revenues to US$9.4 million from US$6.6 million reported in the same period in 2005. The company said revenues from hotel commissions for the third quarter rose by 38 percent to a total of US$7.3 million, from US$5.1 million year-over-year, and by 7 percent from US$6.7 million sequentially. Its revenues from air ticketing commissions during the third quarter went up by 47 percent to US$1.4 million from US$927,000 year-over-year. eLong said its operating income in the third quarter of 2006 hit US$215,000, as compared to an operating loss of US$857,000 in the corresponding period of 2005. As of September 30, 2006, the company's cash and cash equivalents balance was US$142.1 million.

• 51job.com (JOBS) reported a 12.5 percent growth in total revenues to US$22.9 million from the third quarter of 2005, in its announcement of unaudited financial results for the third quarter of 2006 ended September 30, 2006. The company said revenues for print in the third quarter of 2006 went up by 5.7 percent to US$12.4 million compared with the same quarter in 2005, attributing the rise mainly to a bigger volume of advertisements in 51job Weekly and higher average revenue per page. Its revenues for online recruitment services for the third quarter of 2006 totaled US$7.3 million, with the company explaining the increase as due to growth in the number of employers using the company's online services. The report said the number of unique employers using the company's online recruitment services increased to 44,969 in the third quarter of 2006 compared with 34,407 in the same period last year. 5ijob.com said that, as of September 30, 2006, the company's cash balance was US$104.5 million. Media, Entertainment and Gaming

• Shanda (SNDA) reported unaudited financial results indicating a 12.6 percent year-on-year decline in its total net revenues to US$ 55.2 million for the third quarter ended Sept. 30, 2006. Shanda said its online game revenues also registered a 6.6 percent year-over year drop to US$51.7 million. For the third quarter of 2006, the company announced a 7.7 percent growth in its net revenues to US$55.2 million, compared to the second quarter of 2006. For its online game revenues, Shanda reported for the third quarter of 2006, a 9.4 percent quarter-over-quarter growth, but a 6.6 percent year-on-year decline to US$51.7 million. The company said the total peak concurrent users for all Shanda games in commercial service in the third quarter of 2006 went down by 8 percent to 2 million from 2.2 million in the second quarter of 2006. Revenues from MMORPGs in the third quarter of 2006 posted a 9.1 percent quarter- over-quarter rise to US$42.0 million, with the sequential growth in MMORPGs revenues ascribed mainly to increased revenues from Mir II and Magical Land, as well as initial contributions from ArchLord. Revenues from casual games in the third quarter of 2006 grew by 10.7 percent quarter-over-quarters, but decreased 27.9 percent year on year to US$9.7 million. It reported a 23.4 percent increase in its operating income for the third quarter of 2006 to US$14.2 million. In the third quarter of 2006, Shanda posted a net income of US$18.1 million, compared to a net income of US$17 million in the second quarter of 2006.

• Hurray! (HRAY) announced entering into an agreement on the acquisition of a 30 percent equity interest in Beijing New Run Entertainment Company. Under the agreement, Hurray! will make an investment of about US$2.2 million in cash for a 30 percent equity interest in the independent Chinese record label. New Run Entertainment is into music production and distribution for its 12 portfolio of artists. Hurray! said the acquisition is part of its aim to be a leading digital entertainment firm in the country.

Mobile/Wireless

• China Mobile (CHL) and U.S.-based News Corp. announced their alliance by means of a launch of a wireless music service in China. In June, the two companies established a strategic partnership in June, when the mobile communications company acquired a 19.9 percent stake in Phoenix Satellite Television from Star Group, the Asia-based television and entertainment subsidiary of News Corp. The acquisition was seen as China Mobile's entry into the media industry and News Corp.'s strategy to expand its influence in China by looking to new media. Through the wireless music platform, China Mobile will provide cell phone users with downloading services for songs created by Internet users, while the Star Group will engage in music production and promotion. The alliance brings together China Mobile's big customer base and Star Group's skills in content production and promotion.

• KongZhong (KONG) in its unaudited third quarter 2006 financial statement reported a 24 percent rise in its total revenues to US$25 million from the same quarter of 2005, with the results representing a 17 percent decline from the second quarter of 2006. The company said revenues from 2.5G services contributed 44 percent of total revenues, with the rest coming from 2G services. WAP revenue in the third quarter of 2006 declined by 39 percent to US$5.7 million, from the same quarter of 2005 and decreased 13 percent from the second quarter of 2006. Its revenue from 2G services, posted a 139 percent year-on-year surge and but quarter-over-quarter drop to US$14 million in the third quarter of 2006. Total operating expenses in the third quarter of 2006 went up by 6 percent to US$9.7 million. KongZhong expects total revenues for the fourth quarter of 2006 to be between US$20.5 million and US$21.5 million. As of September 30, 2006, the Company had US$118.6 million in cash and cash equivalents. In a separate development, Kongzhong.com announced that it has entered a strategic cooperation with Qianlong.com to set up a Beijing news channel on its Kong.net website. Under the agreement, Qianlong will be responsible for providing Beijing local news content for the web site.

Hardware

• Lenovo Group (LNVGY.PK), the world's No 3 maker of personal computers, announced a 52.7 percent fall in fiscal first-half net profits, following price-cutting efforts made by the company to absorb IBM's PC division. Lenovo said its net profit for the six months to September was US$43.1 million, down from US$91.2 million in the same period last year. The company said its first-half revenue went up to US$7.1 billion from US$6.1 billion. According to Gartner, Lenovo is the world's No.3 PC maker, ranked behind market-leader Hewlett-Packard and Dell. Rounding up the top 5 companies are Taiwan-based Acer and Japan's Toshiba. Lenovo leads in the Chinese market but it has had to slash prices to keep its dominance in the market, working in the process to boost its brand name outside China.