Chinese Tech Stock Weekly Report: Dec. 13-30

by: IRG Ltd

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


China Netcom (CN-OLD) announced its entering into an agreement with VeriSign (NASDAQ:VRSN) on the launching of root domain name mirror servers, an offering aimed at giving more convenience to Chinese users. Under the agreement, the domain name lookups for Chinese netizens visiting .com and .net no longer need to be processed by domain name servers in overseas countries. The overall results are accelerated online surfing speeds and guaranteed online security. The setup of the mirroring servers is implemented by China Netcom and Verisign under the direct leadership of the country’s Ministry of Information Industry. Before this cooperation agreement, the domain name analysis service for Chinese users regularly visiting .com and .net websites has been provided by domain name servers located outside of China. (NASDAQ:EBAY) and Tom Online (NASDAQ:TOMO) announced a joint venture agreement in China that sees the two companies combining their expertise to build a new China marketplace in 2007. The move is seen by observers as intensifying their competition with the country’s top auction website, Under the agreement, eBay will have a 49 percent stake in the joint venture, and Tom Online will have a 51 percent stake. Both companies will make financial contributions to the venture, including a US$40 million cash contribution from eBay and US$20 million in financing from Tom Online. If mutually agreed, the two companies can equally share in an investment of up to an additional US$10 million. In addition, eBay will also contribute its EachNet subsidiary, while Tom Online will contribute local management expertise, technology, and brand. The formation of a joint venture is seen as creating synergy among user communities and distribution channels. The agreement is also expected to boost product innovation capabilities on a local platform, and promote mobile integration. eBay said it does not expect this partnership to have a material impact on eBay's financial guidance as issued in connection with its third quarter earnings release in October this year. In related news,, China’s largest online market, disclosed that it is talks with eBay to share each other's user-base globally.

Tencent disclosed that it has filed a lawsuit against auction website, accusing Taobao of infringing its copyrights by allowing sellers to sell QQ numbers and Q coins on the Taobao web site at unreasonable market prices. QQ numbers and Q coins are part of the virtual currency system that Tencent provides to its users. In the suit, Tencent has demanded that stop the users' illegal” behaviors. Tencent said it also asked Taobao to state clearly the measures it is going to take against the “illegal” behaviors of users within ten days. Observers see the resolution of the case as providing a legal basis for solving conflicts arising out of the use of QQ numbers.

Rumors are circulating indicating that Google (NASDAQ:GOOG) is about to acquire, a Chinese literature web site owned by Reports are saying that the president and CEO of Shanda, Chen Tianqiao, has expressed interest in working with international brands. Shanda’s top official has been reported as really interested in the deal. Unnamed sources stated that a third party auditing firm company has proposed a recommended price of US$400-600 million for No comment came from Google about the amount and the transaction.

A government source indicated that China's population of Internet users has risen by 30 percent over the past year to 132 million. The figure was up from 123 million at the end of June, according to the government's China Internet Network Information Center. It said the number of Chinese customers with broadband access has grown to 52 million. The Internet agency said the rapid rise in Internet use has propelled growth in China's online commerce, advertising and games industries.

Media, Entertainment and Gaming

CDC Games, a business unit of CDC Corporation (NASDAQ:CHINA) announced its signing of a definitive agreement to make an investment of 1.5 billion won (US$1.6 million) in Gorilla Banana. With the deal, CDC Games will become the company’s second largest shareholder. In addition to the exclusive rights for distribution in China of Gorilla Banana’s first game, Red Blood, CDC Games will also have exclusive rights to distribution in India. Company officials view India as the world’s next emerging games market and this expansion will further distance CDC Games from its legacy competitors in China. This is also viewed as the first step in a continuing expansion that will leverage the global infrastructure established by the CDC family of companies including offices in over 30 countries and more than 400 software engineers and developers in India. Gorilla Banana is an independent, online games development company founded in February 2006 whose founders were formerly game directors at NCsoft. Gorilla Banana will launch their first game Red Blood, a free-to- play MMORPG (massive multiplayer online role-playing game) based on an immensely popular comic book series in Korea, in 2008. The free-to-play model is very familiar territory for CDC Games. CDC Games pioneered the free-to-play, pay-for-merchandise market for online games in China.

China’s State Administration of Radio, Film and Television [SARFT] released an advisory on the punishment faced by online TV stations and video web sites which show online programs without the government's approval. The rule covers those who sell online or advertisements with fake government documents. According to relevant Chinese rules, these online TV and video stations will be fined between 10,000 yuan (US$1,280) and 30,000 yuan (US$3,842). SARFT says that companies must not cooperate with any of these illegal online TV stations by any means, and advises all broadcasting institutions and publications not to report on these online stations or provide platforms for their information release.

Linktone (NASDAQ:LTON), a wireless value-added services firm, announced the signing of an exclusive partnership with Hainann Satellite, the parent company of Travel Channel. Hainan Satellite is a TV station with coverage in all 31 provinces throughout China and an audience of more than 300 million viewers. As the exclusive provider of wireless value added services for Hainan Satellite interactive programming, Linktone will continue with its strategy of developing new media initiatives while delivering a differentiated product. Under the agreement, Linktone will be the exclusive partner to Hainan Satellite providing interactive WVAS for all its television programming. In addition, Linktone will provide product development, technical support, as well as 24-hour customer service support for Hainan Satellite. The Travel Channel China is a leading nationwide television channel for travel information throughout China.

According to the Motion Picture Association, Hollywood movie studios have won a lawsuit in China over the posting of movie clips on the Internet. The group said a unit of Inc. (NASDAQ:SOHU), which runs some of China's most popular Web portals, lost a suit over copyright infringement after it posted digital files of motion pictures for downloading. The report indicated that the Beijing First Intermediate People's Court ordered Beijing Sohu Internet Information Service Co. Ltd. to pay damages and costs of 1.1 million yuan (US$139,000). A spokesman in Beijing, however, stated that the company did not have any knowledge of the litigation, and officials at the Beijing court were not available for comment.


Reports indicate that (NASDAQ:NTES) is bringing down the number of its employees at its wireless department even as no reason for the cuts was given. Sina (NASDAQ:SINA) said in a report that NetEase was planning to focus on channels with more "commercial value". NetEase, along with rivals Sina Corp and, has been working to diversify revenues for the past two years as the market for their core wireless services has matured and mobile carriers squeeze commission rates. Industry sources said that revenue from wireless business or mobile value-added services went down by 53 percent to 72 million yuan (US$9.2 million) last year from 2004, accounting for 4.4 percent of total sales, compared with 17 percent in 2004. No comment was given by NetEase regarding the news. The company has about 1,600 employees, with its workers at its wireless unit found mainly in Beijing, Shanghai and Guangzhou.

ABI Research predicts that the total Chinese mobile video users will reach more than 32 million in 2008. The study points to about 27 percent of these consumers using broadcasting technology, with 73 percent employing unicast streaming technology. The report also indicates that a number of numbers will likely use both technologies. In 2006, the Chinese State Administration of Radio, Film, and Television, announced two handset-related standards. DAB is seen as becoming the first phase of mobile multimedia broadcasting standards development in China. ABI Research seen DAB as paving the way for upgrading to China's proposed mobile multimedia broadcasting standard, T-DMB, a terrestrial implementation of SK Telecom's mobile video format.

BenQ announced the signing of a collaboration agreement with China-based Datang Telecom Technology and Industry, licensing Datang's TD-SCDMA terminal solutions to produce TD-SCDMA handsets, which will mainly be sold in the China market. The partnership sees Datang as enabling BenQ to use DTivy-series TD-SCDMA solutions, with features including compatibility with GSM and GPRS standards, support for SMS (short messaging service), MMS (multimedia service), e-mail, WAP, Internet browsing, MP3 and MPEG-4 playback. TD-SCDMA is one of the world's three 3G standards (the other two are WCDMA and CDMA2000) developed by the China Academy of Telecommunications Technology, Datang and Siemens AG. Industry observers point out that working jointly with Datang is important for BenQ because China is expected to release 3G operating licenses in 2007 and the 2008 Summer Olympic Games in Beijing is expected to generate large demand for 3G services and handsets. After Inventec Appliance, BenQ is the second Taiwan-based handset maker to adopt TD-SCDMA. BenQ's competitors in the TD-SCDMA market also include Samsung Electronics, LG Electronics and many China-based makers and vendors, such as Datang, TCL, ZTE, Huawei Technologies, Amoi, Ningbo Bird, Lenovo and Haier.

A digital music services firm 5Fad, announced the signing of a partnership contract with BrainMedia to launch a mobile streaming service for users in China. The service is expected to allow clients to access 3G quality services on their existing 2.5G mobile data network. Controlling about 80 percent of the original music market on the mainland, 5Fad is the holder of one of the largest number of original music copyrights in China. BrainMedia is the leading provider of a codec technology for low bit-rate encoding and has developed a platform specifically designed for wireless music delivery. BrainMedia's technology enables the user to create high quality audio content at the lowest bit-rate available for China's current 2.5G wireless network.

Mobile value-added service firm Kongzhong, a mobile value-added service firm, announced the launching of a wireless job service in tandem has launched a service in cooperation with, an online job recruitment website in China. Kongzhong's new service features a whole range of wireless functions including post inquiry, job information, professional training, hunter service, talent testing and personal job wanted ads. With the offering, mobile phone users can easily receive the job information by logging into the job channel on the home page of with their mobile phones. All the information on Kongzhong's job channel comes from

Comba Telecom Systems, a provider of wireless equipments, revealed its plans to invest more in its wireless transmission business, a move aimed at tapping the development of China's 3G telecommunications services and the strong growth in developing countries. For the six months to June, its wireless transmission business, including digital microwave systems, registered a massive surge to HK$20 million (US$2.5 million), accounting for 3.4 percent of sales, against 0.5 percent posted a year earlier. The Guangzhou-based Comba earlier secured a contract from China Telecom to set up SDH networks in Guangdong. The company declined to disclose the value of the contract even as it revealed Ericsson and Alcatel as solution providers. In September, the firm reported first-half turnover posting a 42.7 percent rise to HK$589.5 million (US$75.7 million) from last year, boosted by increasing sales to China Mobile. Its net profit grew by 26.8 percent to HK$45.5 million (US$5.8 million), with revenue from China Mobile accounting for 65 percent of Comba's first- half sales and China Unicom giving 22 percent.


Skyworth Digital Holdings, China's second-largest television manufacturer by sales, reported a 21 percent rise in its revenue for its first half, boosted by strong growth in sales of LCD televisions. The company reported its sales growing to HK$5.6 billion (US$720 million) for the six months ended September compared with HK$4.6 billion (US$591.4 million) a year earlier, its net profit registering a 211 percent surge to HK$28 million (US$3.6 million) from a restated HK$9 million (US$1.1 million). Skyworth Digital said its core profit went up to HK$57 million (US$7.3 million) from HK$43 million (US$5.5 million) a year earlier, excluding exceptional losses in both periods. Its sales of LCD televisions posted a massive 171 percent rise to HK$1.9 billion (US$224.3 million) in the first half, accounting for 34.6 percent of revenue, compared with 15.4 percent a year earlier. The company said its domestic sales posted a 20.7 percent growth to HK$4.8 billion (US$617.1 million), which stands for 86.3 percent of revenue. A report by researcher Gfk Asia states that Skyworth was overtaken by Hisense as China's leading TV maker in October as its market share fell to 9.6 percent. Hisense now leads on revenue, with 9.8 percent market share while Konka leads on volume with 13.9 percent.

Rumors are circulating that PC giant Dell (NASDAQ:DELL) is negotiating with local Chinese computer manufacturer Founder in a bid to acquire the Chinese computing business. Industry sources mentioned that the CEO of Dell has expressed his aim to acquire Founder's PC business in May 2006 during a visit to Dell's production base in Suzhou. The report stated that the president of Founder was apparently not satisfied with the price Dell offered at that time. Industry analysts see Dell’s acquisition of Founder as helping the global PC giant take back its advantage in direct selling in the China market, a position observers think it is losing at present.

Lenovo (OTCPK:LNVGY) has announced a free computer recycling service in mainland China. The firm’s recycling service is available to users of Lenovo brand laptop computers desktop computers and servers, as well as ThinkPad laptops and ThinkCenter desktop computers. Lenovo says that both business and individual clients can send those types of computers to Lenovo's recycling sites across the country, or they can ask Lenovo's staff to come fetch the devices from their homes or offices. Lenovo will entrust a third party to process and dispose of these collected computers according to relevant Chinese laws and environmental rules, and it will undertake all the relevant cost involved during this process. Free recycling services have drawn great attention from the world's PC leaders, with Dell having initiated a free recycling service in China for its customers.

An agreement among the three main TFT-LCD manufacturers in China – TFTSVA, BOE Technology Group and Kunshan Longteng – sees the three companies jointly setting up a professional company as a unified platform for each of their TFT-LCD services. The three companies cite the lack of funds and limited scale of each company as the main reasons for the parties to decide to integrate their businesses. At present, SVA produces 90,000 LCD each month, BOE 60,000 and Kunshan Longteng about 30,000. The combination of their business will make them more competitive in the global market. The new company will be registered in Shanghai and serve as a unified platform for each of the three parties. Currently, the three companies are working on the organization and strategy development for the new company. They said an agreement leading to business integration is expected to be completed by June of next year.

China Security & Surveillance Technology (CSCT.OB), a provider of digital surveillance technology in China, announced its plans of acquiring two Chinese security and surveillance companies. The company said non-binding letters of intent have previously been signed with Shenzhen Hongtianzhi Electronics Company and HighEasy Electronic Technology. Hongtianzhi is one of China's top security camera manufacturers. Wuhan-based HiEasy will provide China Security with advanced compression technology to enhance the company's product offerings and user functionality by facilitating video and audio transmissions over telecommunications infrastructure networks. Industry analysts see the acquisitions as enhancing China Security's presence in the domestic market by making it one of the only vertically integrated providers, while also facilitating the company's planned expansion into new international markets. Hongtianzhi is expected to record approximately US$12 million in revenues and US$3 million in net income for 2006.The company's management anticipates revenues from the Hongtianzhi business to grow to approximately US$20 million for 2007. HiEasy is expected to record an estimated US$3.2 million in revenues and US$0.6 million in net income for 2006. Management expects revenues relating to the HighEasy business to grow to approximately US$5 million in 2007. The purchase price for HiEasy and Hongtianzhi is expected to be approximately US$10 million and US$30 million, respectively.


SmartPay has announced the recent completion of a Series B round of equity financing. The terms of the financing allow RRE Ventures, Evolution Capital, Lunar Group Capital and other existing shareholders to provide equity financing to the company resulting in total proceeds of approximately US$10 million. The company says it will use the proceeds to capitalize on its expansion and emergence as a leader in the growing Chinese payments market. SmartPay says it will utilize the proceeds of this financing to expand services and accelerate the growth of key performance metrics. In addition, the company will allocate a certain portion of the proceeds to ongoing exploratory work into new partnerships and a future public offering. The company provides remote payment services to consumers and intermediaries in China. The company focuses on merchants with large, recurring transaction volumes including mobile and utility billings, airline ticketing and other transactions, with the company using mobile and fixed telephones devices to process these payments, including SMS, WAP and IVR.


China Mobile (NYSE:CHL), China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) released data indicating an increase in the number of users for all the three major telecom companies. Of the three telecom operators, China Mobile received 4.6 million new users in November which resulting to a total number of user reaching 296.4 million by the end of the month. China Unicom registered an increase of 1.3 million new users, of which 930,000 were GSM users and 373,000 were CDMA users, with its total user number reaching 141.1 million by the end of November. China Telecom increased by 690.000 new users in the month, which added its total telephone users to 222.4 million.

The country’s Ministry of Information Industry [MII] announced the setting up of an emergency plan with telecom operators, including China Telecom and China Netcom to repair the seabed cable damaged by the earthquake in Taiwan. MII said that the earthquake has affected the Mainland's international communication links and has caused disruptions in voice and data transfers. At present, China Telecom and China Unicom are pressing on repairing the damaged cables, but it is still not known when the things can resume to normal. In Tiawan, Chunghwa Telecom says soon after the outages on its China-US links and the southern section of the SMW3 cables, the company had the traffic fixed on the restoration routes APCN and APCN2 cables in accordance with its contingency plan. Chunghwa Telecom says it has contacted cable ship companies for prompt repairs. Four cable ships will be dispatched to the outage areas and repair work will begin in January 2007. The recovery is scheduled to be completed in around three weeks.

Information Technology

PacificNet's (PINK:PACT-OLD) Epro subsidiary announced that it has been selected by China Unicom's Shanghai Branch to provide CRM consulting and call center training services. Under the agreement, PacificNet Epro is tasked with boosting the CRM service level and telemarketing management capability of China Unicom's customer service center called the 10010 Information Hotline. The agreement covers a number of key areas that include customer service and telemarketing management, development of outsourcing telemarketing programs, call center workflow design, business management, project Return on Investment (NYSE:ROI), customer affinity, designing effective telemarketing scripts, and enhancing customer service agent capabilities.