Chinese Tech Stock Weekly Report

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

Internet

• Redback Networks (RBAK) announced that it has secured the second phase of a broadband network upgrade with Guangdong Telecom. Under the deal, Guangdong Telecom will use Redback's SmartEdge family of multi-service edge routers to deliver broadband Internet, IPTV and virtual private network [VPN] services for up to four million homes and businesses. The deal makes it one of the largest network upgrades that Redback will help manage in China. Guangdong Telecom remains the largest independently run provincial carrier of China, with the company holding more than 50 million customers and contributing one-quarter of China Telecom's revenues and one-third of China Telecom's profit. Guangdong Telecom said it is planning to grow the broadband business more aggressively and double the number of broadband subscribers in the next year or two. China is Redback's second largest market outside of the US. In the last 18 months, Redback's SmartEdge multi-service edge routers have been deployed in 22 of the 32 provinces in China.

• Taobao.com, Alibaba.com’s C2C web site, announced that it has formally entered the service field by launching a real estate channel in cooperation with localized online lifestyle community Koubei.com. Industry observers note that this marks the first alliance between an online shopping website and classified information service provider. The alliance, according to analysts, has created a new business pattern based on C2C in China. Under the agreement, Koubei.com will provide content to Taobao's new real estate channel, with the housing information posted by Taobao's users to be synchronously published on Taobao.com and Koubei.com.

• A study made by Baidu (BIDU) revealed that China had 19.8 million Internet bloggers at the beginning of last month, a figure that stands for a 24 percent increase from a year before. The report follows the announcement from state press stating that the Chinese government has plans to require millions of Internet bloggers to disclose their identities by registering under their real names. The same announcement has raised some concerns about individual privacy. The head of the Internet Society of China was quoted as saying that bloggers used their anonymity to spread “irresponsible and untrue” information. No timetable was given as to when the government would implement the rule.

Media, Entertainment and Gaming

• China Central Television [CCTV] announced its renewal of a multi-year contract for the global distribution of its programming with Intelsat. China’s national broadcaster became the world's first global Mandarin Chinese television service when it expanded services internationally via the PAS-3 satellite back in 1995. Intelsat currently provides a full-time program distribution services for CCTV via its PAS-1R Atlantic Ocean Region satellite, PAS-9 Atlantic Ocean Region satellite and PAS-10 Indian Ocean Region satellite. Intelsat also provides CCTV with capacity on its Galaxy 3C satellite for direct-to-home [DTH] services in the U.S.

Mobile/Wireless

• Along Mobile (AGMB.PK) announced signing a strategic partnership with China Mobile's Shaanxi Branch in a bid to enter mobile phone fee collecting services next year. At present, mobile phone fees are collected by different commercial banks, and business halls held by China Mobile (CHL) and China Unicom (CHU). The subscribers can only choose from those business halls and the commercial banks where they opened accounts. With the strategic alliance, China Mobile subscribers will now be able to pay mobile phone fees at any place where Along's downloading machines are installed. Part of the service is that the users can pay their bill while they download pictures, ringtones and mobile games.

• Linktone (LTON) announced entering an exclusive partnership with China Health Media making Linktone the exclusive operator of short-messaging-services and interactive voice response voting platforms for China Health Media's interactive trivia questions and games. The mobile value-added service company has been described by Linktone as a “perfect partner.” China Health Media exclusively operates a network of audiovisual television displays to Chinese health care facilities, such as hospitals and medical clinics. Reports show that more than 1,000 hospitals in China use China Health Media's advertising network with total daily traffic surpassing 5 million viewers.

Software

• Symantec (SYMC) announced entering into a cooperation agreement with Chengdu High-Tech Zone to invest US$20 million. The company said the investment will be used to build an R&D center for Symantec in Chengdu and is the company's second largest, next to its Beijing center. It will be mainly engaged in the research and development of security strategies, anti-virus software, information data protection, storage technology and storage safety.

• CDC Software, a wholly owned subsidiary of CDC Corporation (CHINA), announced the acquisition of Vis.align, a leading provider of IT support and managed services. CDC Software explained the acquisition as boosting its service portfolio, creating cross-selling opportunities, and offering customers additional end-to-end enterprise solutions and services. The Vis.align acquisition provides CDC Software customers with comprehensive services offering including infrastructure and application optimization, application development and outsourced managed services. Vis.align reported over US$20 million in sales in 2005.

Hardware

• The country’s top electronics makers unveiled dozens of video players made with a homegrown DVD format in a campaign to promote a Chinese alternative to foreign technology. The DVD format, known as EVD, is part of state-backed efforts to create standards for mobile phones and other products and reduce dependence on foreign know-how and possibly reap licensing fees if they are adopted abroad. EVD, or Enhanced Versatile Disc, was first released in 2003, but an effort to promote it was dropped in 2004 after the players failed to catch on with consumers and producers squabbled over licensing fees. The move also adds a new twist to a rivalry between the HD DVD and Blu-ray Disc next-generation video standards being promoted by competing groups of U.S., Japanese and European companies.

Semiconductors

• Littelfuse revealed its decision to relocate its semiconductor wafer manufacturing from the U.S. to China. The company said the transfer of its plant in Texas to Wuxi would be a phased transition over the next three to four years. Following the decision, the company said it will invest some US$16 million to build a new wafer fabrication facility in Wuxi adjacent to an existing plant the company acquired in May 2006 as part of its purchase of Concord Semiconductor. The company said the project is expected to generate US$9 to10 million of annual savings once the transfer is complete, with the closure of the plant causing pre-tax restructuring charges of approximately US$2.5 million in the fourth quarter of 2006 and approximately US$3.5 million over the period of 2007 to 2010.

Telecommunications

• Juniper Networks (JNPR) announced that Chongqing Telecom, a wholly owned subsidiary of China Telecom (CHA) has deployed Juniper Networks E320 Broadband Service Routers. The device is expected to help Chongqing Telecom deliver all of its advanced services in streamlined operations. According to Juniper, the deployment will help to cost-effectively address a growing demand for highspeed Internet, IP television [IPTV], video on demand and other advanced IP services to its extensive customer base. Chongqing Telecom operates one of China's largest and most advanced broadband networks, delivering high-speed Internet access, IPTV and voice over IP, among other advanced services in its service portfolio.

• A report from Tianjin Airport Industrial Port states that ZTE plans to invest 5 billion yuan (US$639 million) to build its northern base inside the port. ZTE is the only mainland company that has been listed among the global 100 IT companies. With 2005 sales of 50 billion yuan (US$6.3 billion), the company was transformed, enabling it to become one of the major telecom equipment suppliers in the world. ZTE's northern base will include a regional R&D center, an innovative service center, a production center, a northern market headquarters and attached facilities. The company said the base will focus on WiMAX, 3G mobile phones, RFID and serve the global market. There are presently 13 R&D centers both in and outside of China.

• Alcatel-Lucent (ALU), the world's largest supplier of communications equipment and services, announced that it will increase investment in China. The company said it will focus on the enterprise market and the launch of new networks across the mainland by telecommunications operators. The company, formed last week by the US$11.6 billion merger between industry rivals Alcatel of France and Lucent Technologies of the U.S, is expected to build up research and development, manufacturing and marketing activities in China. No details about the financial deal were disclosed. Investments in China estimated by the former Lucent totaled US$2.9 billion from 1985 to last year, while the former Alcatel acknowledged more than US$1 billion invested in the mainland as of last year.

Ventures/Investments

• Guangdong Sun Wah Tech Consulting Group, an IT enterprise backed by the provincial government, is seen as enhancing IT outsourcing in southern China under an agreement with India's Tech Mahindra to create the biggest domestic software enterprise in Guangzhou. The group, formed in May between privately held Hong Kong conglomerate Sun Wah and the Guangdong Software Outsourcing Council, signed an agreement last month to set up a software outsourcing services joint venture with Tech Mahindra, India's eighth-largest software exporter, at the Tianhe Software Park in Guangzhou. Financial terms of the deal were not disclosed. Observers said that scale is comparable to those established by multinational IT suppliers in China. Professional services group Industry analysts said that Guangdong aimed to develop its IT outsourcing services industry into a world-class market similar to what is being accomplished by the car-manufacturing sector in Guangzhou. According to the Department of Science and Technology branch in the province, software exports from Guangdong totaled US$1.5 billion last year, up 9.9 percent from 2004, according to data from the Department of Science and Technology branch in the province.