Chinese Tech Stock Weekly Report

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

Internet

• Intel (INTC) China announced entering into an agreement with TCL Computer and Langtaosha Chain Netcafe in Nanjing by way of a memorandum of understanding to set up a chain of Internet cafes. According to the MOU, Langtaosha will use over 100,000 TCL branded computers with Intel processors in its franchised Internet cafes, with Intel and TCL providing customized solutions to Langtaosha according to the features of the latter's net cafes. As part of the agreement, the companies will work jointly on technology, sales channels, service and resources.

• China Southern Airlines (ZNH) registered a record sale of 5.4 billion yuan (US$694.3 million) in etickets. The airlines said that it was the first airline in the country to sell an Internet e-ticket in 2000, a move that is paying major dividends for China’s largest carrier. China Southern Airlines said that it is moving toward a 100 percent ticket-less travel scenario even as it has already some 30 percent of its overall sales volume sold as e-tickets. China Southern Airlines is currently only selling e-tickets via its Chinese website. The 2006 sales of US$694.3 million in ticket sales came predominantly from Chinese airline ticket sales. The largest airline in China for the past 28 years, China Southern Airlines connects more than 80 cities around the globe.

• According to China Internet Network Information Center, as of December 31, 2006, there were 137 million Internet users on the Chinese mainland. This represented about 10.5 percent of China's total population, which was an increase of 23.4 percent over that of the same period last year. The status report indicated that some 104 million Internet users in China were using broadband and 17 million were using mobile phones to access to the Internet. Related to Internet utilization, Beijing citizens' Internet literacy rate reached 30 percent, which was the highest in the entire country. Of all the Internet users in mainland China, 58.3 percent were male and 41.7 percent were female. Internet literacy rate in the urban areas were 6.5 times of that in rural areas. By the end of 2006, the country registered 4.1 million domain names, of which 1.8 million were .CN domain names, up 64.4 percent compared with the same period of last year. About 1.9 million domain names were .COM domain names, which stand for 47 percent of China's total domain names. The report said that, at the end of 2006, China had about 843,000 web sites and 98 million IPv4 addresses.

• Industry sources said that Baidu (BIDU) has secured the approval to become an online news portal. A government source said that the country’s State Council Information Office [SCIO] granted Baidu an Internet news content service license, allowing Baidu.com to do its own reporting rather than simply posting news search results. Analysts see the license as enabling Baidu an edge in terms of content over competitors that lack the permit. The SCIO is responsible for the government news release and tasked jointly in regulating Internet content with the culture and information ministries. Baidu had already started preparing its news department and been ready to hire staff, with the company also changing the logo and name of its "information" channel to "news" channel in Chinese characters. No comment was generated from Baidu. Sina.com (SINA), the county’s largest Internet portal, has secured a news service permit way ahead of Baidu, which is dubbed as China’s Google.

Media, Entertainment and Gaming

• China UnionPay announced the launching of a service dubbed “Trip of Discovery” in order to meet the increasing demand of consumers who plan to travel overseas during the upcoming Spring Festival Holiday. The service to be offered until March 31, 2007 in 24 countries and regions where its service is available will see China UnionPay card holders, using their card easily in those countries and regions. They can join in China UnionPay's "Trip of Discovery" activity out of China by logging in and registering at the special section on Ctrip.com (CTRP).

• 99Bill Corporation, the leading independent third-party payment service provider in China, recently announced the signing of a cooperation agreement with Ourgame, China's leading online game and entertainment operator. Under the agreement, 99Bill will provide real time and convenient payment services to Ourgame's 100 million global subscribers. The 99Bill's payment platform enables Ourgame's multiple age group users to pay for the services easily with bankcards as well as prepaid cards in real time. With the partnership, 99Bill will support Ourgame's ongoing service expansion with innovative and customized payment solutions. As the leading independent third-party payment platform, 99Bill has built an extensive partnerships with a board range of service providers in all major Internet and wireless service sectors, aggregated over 14 million registered accounts and won greater recognition among its users and partners. 99Bill's unique payment solution for the online game industry supports debit cards, credit cards, prepaid cards, and virtual accounts, as well as offline payment methods such as postal and bank wires. As the first email and mobile phone-number-based payment platform in China, 99Bill has already established partnerships with leading Internet content and service providers, as well as mobile value-added service providers.

Mobile/Wireless

• China Mobile (CHL) announced that it has secured an agreement with Millicom International Cellular S.A. that will allow the Chinese firm to acquire 88.8 percent of the outstanding shares of Paktel Limited, a mobile communications provider based in Pakistan. The deal implies an enterprise valuation for Paktel Limited of US$460 million. Completion of the transaction is subject to the receipt of certain regulatory approvals. Once approvals are obtained, completion is expected to happen in February 2007.

• CDC Mobile, CDC Corporation's (CHINA) mobile value-added services business unit, announced that it has secured a letter of intent to make a strategic investment in Japan’s BBMF Group. The letter of intent carries CDC Mobile’s intention to invest US$20 million in convertible bonds issued by BBMF Group. Under the letter of intent, the two companies would also form a strategic alliance in operations to jointly target 3G markets in Japan and China. CDC Mobile would have a first right of refusal to distribute BBMF's 3G products and services in China, subject to terms to be agreed between the parties. This will be the first of CDC Mobile's MVAS targeted investments through its recently announced US$100 million 3G Content Partner Program designed to provide first-mover advantage in the anticipated 3G content market in China. Headquartered in Tokyo, BBMF Group is a market leader in 3G content in Japan with one of the largest mobile comic sites and mobile online game sites in Japan, as well as one of the largest libraries and fastest growing number of files and titles available for download of any carrier. The company has licensed the right to publish mobile versions of over 1,300 comic titles by 470 authors. Based upon revenues in December 2006, BBMF's annual revenues would be approximately US$20 million, with its revenues forecast to grow significantly in 2007. Analysts project the 3G content market in Japan to be US$1.2 billion by 2008.

• China Construction Bank, in cooperation with China Jianyin Investment Securities, China Mobile and China Unicom (CHU), announced the formal launching of a mobile phone stock market service. The move of the group is seen as a taking a more advantageous position in the mobile valueadded service market. The service is expected to enable stockbrokers to be more mobile, without the need to be at the stock exchange market or in front of computers to watch the stock price. With the service, they can check the market situation wherever and whenever they want through their mobile phones. Currently, China Construction Bank's mobile phone stock market service provides real-time stock price changes, stock price history and other stock market related information, with the bank not charging any fee for the service. Users, however, have to pay information traffic fees.

Software

• Fair Isaac (FIC), an analytics and decision management company, announced the opening of an office in Beijing. The office is seen as providing financial institutions in China with comprehensive consulting, delivery and implementation support services for Enterprise Decision Management. Fair Isaac's clients in China include leading local and international banks that have entered the Chinese market. The company offers solutions for Enterprise Decision Management designed to help businesses automate and improve decisions across the customer lifecycle. These solutions include data management services and predictive analytic systems that bring complete customer information. Fair Isaac also provides tools and services that help businesses develop and deploy their own custom decision systems.

Hardware

• AMD (AMD) announced that TCL Computer, one of China's fastest-growing PC manufacturers, will offer customers a range of commercial notebooks and desktops based on high-performing, energy-efficient AMD64 processors. Industry sources see the technology partnership as a commitment to improving China's rapidly-growing IT industry and shows how the market’s acknowledgment of the advantages of AMD64 commercial solutions. Founded in 1998 in Shenzhen, TCL Computer designs, manufactures and markets mobile and desktop personal computers, as well as innovative digital products. The company is also one of the leading players in China's IT market. It is part of the core business lines of TCL Corporation, which is one of the biggest consumer electronics groups in China.

• The country’s National Development and Reform Commission announced the approval of the Network Home Appliance General Requirement made by Chinese home appliance manufacturer Haier. The industry standard is expected to apply to the entire home appliance industry. Another six standards drafted by Haier Network Appliance Standardization Division have also been submitted to the Standardization Administration of China for examination and approval and might soon also become industry standards. The standard follows the seven Haier Group network appliance standards that have been adopted as industry standards throughout China. The latest standard – QB/T2836-2006 – standard will go into effect on August 1, 2007 and will be published by China Light Industry Press.

• According to the country’s Ministry of Information Industry [MII], an intellectual property standard called the Multi-track Digital Audio Coding and Decoding Technology Specification has been deployed for China's digital audio industry. The standard is seen as bringing an end to the monopolization of some foreign companies in this field and will greatly boost China's digital audio industry development. The standard was made on the basis of Guangzhou Guangsheng Digital Technology Company's self-developed technology and compiled after the review of the administration oversight department. A MII official described the release of the new standard as giving a priority for China's digital audio industry and increasing its competitiveness in the global market.

• Skyworth Digital Holdings, China's second-largest television maker, announced that it would sell more than double the number of flat-panel televisions than it previously forecasted for this financial year. The company said it will sell about 1.1 million units for the year to March, compared with the previous forecast of 400,000 units, and forecast 1.8 million units for the next business year. Skyworth said total television sales would increase by 5 percent to 10 percent to about 8.9 million to 9.4 million units in 2007-08. The company said revenues from LCD televisions jumped 172 percent to HK$1.9 billion (US$243.2 million), or 230,000 sets, for the six months to September, accounting for 34.6 percent of total sales, compared with 15.4 percent in the same period of 2005. Exports of CRT televisions, which dominate the company's overseas sales, declined by 8.3 percent in the first half to 998,000 units. Overall overseas television sales by the company surged 2.7 percent to HK$666 million (US$85.2 million) in the first half, accounting for 11.9 percent of total sales.

Semiconductors

• Praxair China (PX) and Semiconductor Manufacturing International Corporation (SMI) announced the signing of a contract that will allow Praxair to supply industrial gases to SMI's new FAB 8 facility in Shanghai. With the agreement, Praxair is expected to upgrade its existing facility and pipelines in the Zhangjiang Hi-Tech Park to supply ultra-high-purity nitrogen, oxygen, argon, hydrogen and helium to the semiconductor plant. . Praxair will also build and operate the purification and gas-monitoring sytems located on the site. SMI's FAB 8 facility marks a significant expansion of its existing facilities in Shanghai and will be used for the production of 300mm wafers with 90nm technology. Praxair also supplies SMI's existing fabs in Shanghai and its 12-inch wafer fab in Beijing. SMI is the largest producer of semiconductor chip wafers in China and one of the leading integrated circuit manufacturers worldwide.

Ventures/Investments

• Market sources said that Beijing Novel-Tongfang Information Engineer, a digital television device maker partly controlled by China's Tsinghua University, announced plans to raise as much as US$400 million in an IPO on the New York Stock Exchange. The company is one of the mainland technology companies favoring a listing on the NYSE or NASDAQ over Hong Kong for the higher valuations that they can secure from the large number of technology funds that invest there. Beijing Novel was set up in 2001 as a joint venture between Tsinghua Novel and Tsinghua Tongfang, a Shanghai-listed information and biotechnology company. Tsinghua Novel is owned by Tsinghua University and Hong Kong's Novel Group, a diversified conglomerate with property, textile and chemical units. The firm makes set-top boxes, digital television video recorders and cable-TV data transmission hardware. Among its clients are China Central Television, the Central Satellite Television Transmission Center and the Broadcast and TV Monitoring Centre at the State Administration of Radio, Film and Television.