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<< Return to Asian Tech Stock Weekly Review Part I

China

Internet

The Chinese online search market generated revenue of 2.64 billion yuan ($389.66 million) in the second quarter of 2010, up 53.2 percent year-on-year. Baidu Inc. (NASDAQ:BIDU) accounted for 70.8 percent of the figure with revenue of 1.87 billion yuan ($276 million) in the second quarter. The China operations of global search giant Google (NASDAQ:GOOG) accounted for 27.3 percent of the domestic market. Google China had 720 million yuan ($106.27 million) in the second quarter. Sogou accounted for 0.8 percent of the total revenue, while Soso made up 0.6 percent of the total. Google's share of China's search market revenue dropped by more than six percentage points in the second quarter, while local rival Baidu Inc.'s share boosted by six percentage points. Concerns grew about Google's ability to retain Chinese users and advertisers in March when the company shut down its China-based search service after a censorship row with the government, and began directing Chinese search users to its Hong Kong site instead. Baidu's market share boosted to 70 percent in the three months ended June 30 from 64 percent in the first quarter, while Google's share fell to 24.2 percent from 30.9 percent. Google's first-quarter market share also fell, from 35.6 percent in the final three months of last year. Baidu's first-quarter market share was up from 58.4 percent in the previous three months. Google's performance in the third quarter following the renewal of its ICP license in early July is now improving.

Baidu Inc.'s second-quarter earnings more than doubled from a year earlier to a record as the Chinese Internet-search leader benefited from higher revenue per customer under a new advertising system and from rival Google's reduced presence in the fast-growing China market. Baidu had a net profit of about $123.5 million, for the three months ended June 30. The Chinese company has boosted the number of its customers and its capability of extracting revenue from them. Total active online-marketing customers grew 25 percent to 254,000 in the second quarter, while revenue per customer boosted 39 percent. Baidu forecasts sales growth that beat analysts’ estimates with third- quarter revenue to rise 77 percent to 2.26 billion yuan ($333 million) as it gained a record number of customers in the previous three months.

The online advertising of China's telecom enterprises slightly declined by 4.12 percent month on month in June, but still remained at a comparatively high level comparing with March and April. China's three telecom operators, China Mobile (NYSE:CHL), China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA), ranked top three in terms of online advertising spending. China Telecom and China Mobile both promoted their value-added services with the theme of the World Cup, and boosted the online advertising expenditure. China Telecom launched a value-added service with World Cup as the topic, and spotted online advertising boosted by 53.7 percent from May. China Mobile promoted the mobile phone TV in full swing, and provided interactive broadcasting-on-demand services to users. China Mobile's online advertising expense in June soared 89.3 percent.

Google Inc. (GOOG) said it will end technical support for two online services in China that it used to offer with local partner Tianya.cn as cooperation between the two companies is being wound down. Google will stop support for the two Tianya social- networking services. Google will close a self-developed website ranking page and a lifestyle site in China because of lower-than-expected demand. Google had 27.3 percent of China’s search-engine market in the second quarter, declining from 29.5 percent three months earlier. Baidu Inc.’s share boosted to 70.8 percent from 67.8 percent. Uncertainty about Google’s Chinese operations after the censorship dispute with the government had affected the company’s business in China.

Mobile/Wireless

According to Interfax, Samsung (OTC:SSNLF) was China's top CDMA handset supplier by domestic shipments in May, shipping 249,000 units, down 5.68 percent month-on-month. Hisense was now at second place from the leading position it held through March and April, shipping 183,000 units in May. ZTE (OTCPK:ZTCOF) was third on the list, shipping 150,000 units, up 12.78 percent from April. In fourth place was Huawei, shipping 145,000 units, down 31.60 percent from April, followed by Haier (OTCPK:HRELF), which shipped 124,000 units, down 18.95 percent from April. Nokia (NYSE:NOK), Samsung, TCL, Motorola (MOT) and Sony Ericsson (NASDAQ:ERIC) were the top five manufacturers in May. Nokia was the top manufacturer, shipping 7.65 million GSM handsets. Samsung and TCL followed in second and third place respectively. Motorola dropped from third place in April to fourth place in May, shipping 759,000 GSM handsets. Lenovo (OTCPK:LNVGY) dropped out of the top five and was replaced by Sony Ericsson, which shipped 735,000 units throughout the month.

According to iResearch Consulting Group, China's mobile Internet market size reached 4.02 billion yuan ($593 million) in the second quarter of 2010, up 7.7 percent year on year but down 10.6 percent quarter on quarter. Telecom operators in the market implemented stricter mobile phone charging control measures and strengthened control over SP terminal embedment, which delivered a strong impact on business revenue of both upstream and downstream companies of the mobile value-added industry chain. The mobile e-commerce sector and mobile online game sector continued growing fast while the mobile value-added sector, which contributes to the mobile Internet market much, dropped to a large extent.

Telecommunications

China Telecom Corporation Limited (CHA) will acquire a stake in Telekom Srbija a.d. The government of Srbija will launch a bidding procedure to sell a part of its 80 percent stake in Telekom Srbija. The Serbian government is planning to raise at least 1,500 million euros ($1, 937 million) from the sale of 40 percent stake in Telekom Srbija. Orascom Telecom (OTC:ORSTF), Etisalat, Deutsche Telekom (OTCQX:DTEGY), Turk Telekom and Telefonica (NYSE:TEF) also plan to bid to acquire stake in Telekom Srbija. The government assigned Citigroup Global Markets Limited (EHD) to advise it on the sale.

Chinese telecom operators saw their revenue from core business grow 5.9 percent year on year in the first six months of this year. Revenue from mobile telecom business boosted 11.2 percent year on year in the first six months, accounting for 68.55 percent of the total core business revenue. The ratio was 65.31 percent in the same period of 2009. Income from fixed-line telecom business declined 4 percent from a year earlier, accounting for 31.45 percent of the total core business revenue. Chinese telecom companies saw their core business revenue rise 6.3 percent in East China, rise 8.5 percent in Central China and rise 9.6 percent in West China.

China's 3G users was at 25.2 million by the end of June 2010, 42 percent, 30 percent and 28 percent of which are respectively had by China Mobile Ltd. (CHL), China Unicom (Hong Kong) Ltd. (CHU) and China Telecom Corporation Ltd (CHA). China Mobile has 10.46 million TD-SCDMA users, China Unicom has 7.56 million 3G users and the figure for China Telecom is about 7.18 million. China's 3G users boosted from 15 million of the end of 2009 to 18.08 million. The figure boosted 7.12 million. The top three telecommunications carriers witnessed a user growth of 29.03 million, of which new 3G users accounted for 24.5 percent. Their gross telecoms operating revenues hiked 5.9 percent. By the end of June, there are more than 1.1 billion telephone users, including 800 million mobile phone users and 115 million Internet broadband users.

China Unicom saw the number of its 3G subscribers increase by 1.03 million to 7.56 million in June this year. The mobile carrier added 1.02 million 3G users in May. The number of 2G users boosted by 643,000 in June to 149 million. The net addition of 2G users last month was less than the 763,000 added in May. The number of broadband users boosted by 831,000 in June to a total of 43.76 million. The Chinese telecom operator said earlier this month that it will put into market its first batch of 3G intelligent mobile phones across the nation.

China Mobile Ltd (CHL) had its subscribers boosted 5.06 million in June to 554 million. The net addition of phone users last month was more than that of May when the mobile operator recorded 4.77-million net additions. Last month, the company's number of 3G users boosted by a record 1.14 million to a total of 10.46 million. In the first six months of this year, China Mobile added a total of 31.76 million phone users. At the end of June, China's phone users had exceeded 1.1 billion, including 300 million of fixed-line users, 800 million of mobile phone users.

China Telecom Co Ltd (CHA) last month added 3.02 million CDMA users, sources reported. In the first half of this year, the company saw net addition of 18.43 million CDMA users. At the end of Jun, the Chinese carrier's CDMA subscribers totaled 74.52 million and the number of 3G phone users was about 7.18 million. The number of broadband subscribers last month boosted by 880,000 to 58.33 million. However, the total number of fixed-line users decreased by 890,000 to 181 million in June. The number of the company's CDMA subscribers is expected to grow to 100 million within a year.

China Unicom will invest approximately 300 million yuan ($44.2 million) over a period of three years to construct a communications network in earthquake hit Yushu, China. The company's plan includes 2G and 3G mobile communications network, fixed-line communications network, internet, basic data network and related transmission network, access network, IT support systems, production and office equipment, network security, and emergency support equipment. The company will employ energy saving and emission cutting methods for the construction of the communications network.

According to iSuppli, the number of broadband subscribers in China posted sequential growth of 57 percent in Q1. China posted the fastest growth in broadband subscribers of any global region, with China accounting for 37 percent of new worldwide subscribers during Q1. China is followed by Europe in broadband subscriber addition. The growth in China should continue in the second quarter, with an estimated 5.5 million net new subscribers added when final figures are tallied. Growth is not expected to slow down as the Chinese government in April approved a stimulus plan for building fiber broadband networks through seven government ministries. The stimulus plan calls for $22 billion in total investment in fiber networks that will establish more than 80 million fiber broadband ports by the end of 2011.

Media, Entertainment and Gaming

· According to iResearch, China's online game market reaped a combined revenue of 7.34 billion yuan ($428 million) in the second quarter of this year, 8.8 percent more than in the same period of last year. The Q2 growth rate was much lower than the 21.4 percent increase recorded in the first quarter of this year, due to lack of hot titles and decreased revenue of small-sized companies. The high-growth period for the online game market has passed as the market has faced a bottleneck after its revenue grew 30 percent to 50 percent annually over the past few years. iResearch expected high growth in the country's top game companies. Tencent (OTCPK:TCEHY), Shanda Games (NASDAQ:GAME) and NetEase.com (NASDAQ:NTES), saw their combined market share rise to 58.3 percent in the second quarter. Tencent had a market share of 27.2 percent, followed by Shanda's 15.9 percent and NetEase's 15.2 percent.

· Shanda Games Limited launches its outsourcing procurement platform osp.sdo.com. It starts to receive application for outsourcing service provider certification. On the strength of its internal demand, Shanda Games has become the first online game company to release its professional game outsourcing procurement platform. The company, which reaped a net profit of $48.2 million in the first half of 2010. The outsourcing mode has begun spreading in the development of Shanda Games' various projects, marking the first step of its R&D strategic transformation. Its outsourcing procurement business has also expanded from China to overseas markets.

· Beijing Perfect World Co., Ltd. (NASDAQ:PWRD) had an impairing capital divestment from its second largest shareholder, Song Ge, who is seeking to set up a new film company together with the original employees of the company's certain department in the future. Perfect World had a $91.6 million in revenue for Q1. Perfect World has delayed debut of its new games and expanded its business into overseas market and the video and movies, information, as well as the wireless sectors. Perfect World had its unaudited financial results for the first quarter ended March 31, 2010. Total revenues increase 2.8 percent, and an increase of 47.0 percent. Online game operation boosted 5.2 percent and an increase of 51.0 percent. The sequential growth in online game operation revenues was primarily attributable to the continued popularity of some of the company's existing games and a series of successful in-game promotions and marketing activities.

Disclosure: No positions

Source: Asian Tech Stock Weekly Review (July 19 – 25), Part II: China