Chinese Tech Stock Weekly Report

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

Internet

• Blog United Community announced that it is the first blog web site in China that has been registered and released with a real name mechanism, part of the new ruling in the country that requires blog websites to track the real names and identities of users who register for weblogs. According to its founder, the web site is aimed at serving as a platform for domestic intellectuals to exchange ideas, make friends and carry out online transactions, and has been aimed at advocating a legal, self-disciplined means of online expression. Unlike other blog websites, users will not be able to register with Blog United Company unless they receive recommendations or invitations, with their identity and professional qualification to undergo strict reviews in order to guarantee the authenticity of the online information. Records from the Internet Society of China show that by the end of 2006, there were 20.8 million blog writers.

• Dynasty Gaming, a Canadian Internet gaming firm and software developer announced that is has entered into an agreement with Sohu.com (SOHU) for the launching of an online mahjong game for mainland Internet users. Under the deal, Dynasty's cashless Mahjong Mania betting game would be distributed and marketed over Sohu's dedicated entertainment and gaming channel. Earlier in March last year, Toronto-listed Dynasty signed a letter of intent with Mr. Stanley Ho to form Ho Majiang, a joint venture that would hold exclusive rights to develop the mahjong game in China via prepaid card wagering and would eventually seek a listing in Hong Kong. Loss-making Dynasty has yet to launch the game in the mainland. The company in recent months has reached a series of marketing and distribution agreements for Mahjong Mania in the country. Dynasty’s partner firms include Britain's Betex, which helps manage the mainland government-run sports lottery in Guangdong, Guizhou and Hebei, and prepaid card retailer Beijing Junnet Science and Technology.

• The China Internet Network Information Center announced its full support for Microsoft's Vista individual operating system. In the past, Chinese users usually needed to input English- language characters on their browser's address column or email address column when they used Microsoft's (MSFT) operating systems, but with CNNIC's support, users can input in Chinese when they want to visit web pages or send emails to servers that accept Chinese-language e-mail addresses. Earlier in 2006, CNNIC's two standards related to this use were approved as international standards by the Internet Engineering Task Force. Following that adoption, Microsoft implemented CNNIC's standard, which enables its Vista system to fully support online surfing in Chinese.

Media, Entertainment and Gaming

• Shanda Interactive Entertainment Limited (SNDA), a leading interactive entertainment media company in China, announced that it has entered into an exclusive agreement with leading South Korean online game developer Actoz Soft Co., Ltd., for the license to operate the popular massive multiplayer online game LaTale in mainland China. The game is expected to enter close-beta testing in China in February 2007. LaTale is a cartoon-style side-scrolling game with a compelling storyline, rich scenes and effects as well as an advanced avatar system. The game was well received by Korean users upon its commercial launch in South Korea in July 2006 under a free-to-play model. LaTale has also been licensed by an operator in Japan and is scheduled to enter open-beta testing in March 2007.

Mobile/Wireless

• China's Ministry of Information Industry announced that in its recent 3G standard test, it issued the first double module and double number readiness network access license to ZTE. According to the ministry, the company won the license because it has developed a type of mobile phone that supports both double module and double readiness functions, enabling two numbers from two different networks to be ready for use at the same time.

• Market sources said that China Mobile (CHL), the country's largest mobile operator, is offering its users in Guangdong free incoming calls while charging more on outgoing calls to maintain its revenue. The free incoming call plan has been seen as negative for the mobile operator even as shares in China Mobile went up following the report. Guangdong Mobile, a subsidiary of China Mobile, launched the new package with a basic monthly tariff of 50 yuan (US$6.4). The package does not include any free minutes, but under the so-called "calling party pays" pricing mechanism, Guangdong Mobile's users would not be charged receiving calls from either mobile or fixed-line phones. In a separate development, Guangdong Unicom, a China Unicom unit, also planned to launch its free incoming call package for GSM and CDMA users next month. Senior officials at the Ministry of Information Industry, the mainland’s telecommunications regulator, support the free incoming call pricing mechanism.

Software

• Rumors are Microsoft (MSFT) is setting up its first overseas MSN online services research and development center in Shanghai. Local media sources are saying Microsoft's new MSN R&D center will be located in Shanghai Zizhu Science and Technology Park, with the project said to cost some US$20 million in investment. The center will be used to develop software and offer technical support for MSN Messenger. Microsoft's MSN Messenger currently has more than 20 million users in China, and globally, is seeing increased competition from VoIP competitor Skype and Yahoo. In China, it has services like Tencent's QQ to also contend with. Microsoft has not confirmed the news.

• e-Future (EFUT) announced that it was selected by IBM (IBM) to provide a customer management eCard solution for B&Q China. B&Q's parent company, Kingfisher (KGFHY) is Europe's leading home improvement retail group and the third largest in the world, with leading market positions in the UK, France, Poland, Italy and China. Kingfisher operates over 700 stores in 11 countries in Europe and Asia. The family holds main retail brands including B&Q, Castorama, Brico Depot and Screwfix Direct. Since 1999, B&Q has developed and operated more than 50 stores in some 20 cities in China, with its business growing into twice the size of the nearest competitor, and becoming one of the largest Western retailers in China. IBM reportedly chose to utilize e-Future's experience, technologies, and professional capabilities in connection with the development of B&Q's customer management solution.

Hardware

• TCL announced its launching of an LCD television chip production line in Guangdong Province. The new production line, which features TCL's self-developed technology and devices, is reportedly the first in the world that has transformed artificial testing to automatic testing. TCL expects that with its launch, the production efficiency at TCL will be increased by 1.5 to 2.5 times and exceed the international average level. According to an official of TCL Multimedia China, it was the dramatic sales of TCL LCD televisions that prompted them to initiate this new production line, which he says has also demonstrated TCL's innovation capacity and competitiveness in the market. A significant factor in TCL's new production line is that it has adopted an automatic Functional Circuit Tester, which is rare in China and advanced throughout the world.

• Beijing Gehua CATV Network Company announced that it has formed an alliance with other companies to provide comprehensive high-definition television service and to speed up the development of the service in China. The alliance includes companies like Huacheng Film and Television Company, Dazhong Electronics, Dolby Laboratories Changhong, Haier, Hisense, Panasonic, TCL and Sharp. Huacheng said its CHC high-definition film is the first of its kind in China and will work with others to provide this to the alliance, while Gehua is mainly responsible for signal transmission among alliance members. The six TV manufacturers promise that their TV sets sold at Dazhong retail outlets conform to the national high-definition standard.

• Lenovo Group (LNVGY.PK), announced a 23 percent rise in its third-quarter net profit to US$57.7 million in the three months to December, compared with US$46.8 million a year earlier. China's biggest personal-computer maker ascribed the rise to strong growth in India and Germany, which offset continuing loses in the Americas. Lenovo said sales went up by 0.3 percent to US$4 billion. The company was expected to post a profit of US$51.8 million, according to a Bloomberg survey. The company overseas posted a decline of 4 percent as sales dropped in the Americas, although worldwide shipments grew about 8 percent, against the 7 percent industry average. Lenovo’s revenues from the Americas posted a 9.2 percent drop to US$1 billion, or 26.1 percent of total sales. The segment posted a US$4.1 million loss in the quarter, compared with a gain of US$25.2 million a year earlier Revenue in Europe, the Middle East and Africa and Asia-Pacific, excluding China, remained flat but margins improved after sales rose 16 percent in India and 50 percent in Germany. Profit in Europe, the Middle East and Africa soared 611 percent to US$12.8 million, while earnings in Asia-Pacific, excluding China, grew US$4 million. Revenue from handsets, mainly sold in China, registered a 19 percent decline to US$146 million.

• Computime Group, an electronic control and automation devices maker that listed in Hong Kong in October last year, is to maintain 15 percent to 25 percent annual turnover growth in the next few years on European demand for its Salus products. The Salus brand of switches and thermostats, which the group began producing in 2004, recorded triple-digit growth in the six months to September last year, accounting for less than 1 percent of total sales. Shenzhen-based Computime, which competes with London-listed Invensys and New York-listed Honeywell, said Salus products, now being sold only in Britain, would soon become available in Germany and France and later throughout Europe. The company said that product sales in Europe would represent about 30 percent of revenue for the year to March, compared with 15 percent a year ago. In January, the firm reported 15.7 percent revenue growth to HK$1 billion (US$129 million) for the six months to September last year, boosted by demand for its appliance control products, the second-largest contributor. The company said its net profit went up 12.3 percent to HK$73.9 million (US$9.4 million) in the first half from a year earlier.

Semiconductor

• Semiconductor Manufacturing International Corporation (SMI) announced its consolidated results of operations for the three months ended December 31, 2006, with its sales increased by 4 percent in the fourth quarter of 2006 to US$383.8 million from US$368.9 million in the third quarter. The company reported an increase in capacity to 182,250 8-inch equivalent wafers per month and a utilization rate of 86.6 percent in the fourth quarter of 2006.The company posted a net income of US$1.2 million in the fourth quarter of 2006, compared to a net loss of US$15.0 million in the fourth quarter of 2005 and a net loss ofUS$35.1 million in the third quarter of 2006. SMI posted record revenues of US$1.4 billion dollars in 2006, which represented a 25 percent increase year over year, with gross profit of 68 percent year over year to US$150.7 million dollars. For the first quarter of 2007, SMI said it is expecting more than 17 percent of its total wafer revenue to come from 90nm sales.

Ventures/Investments

• Sohu.com (SOHU) announced that it has entered into agreements with Vision Huaqing Development Company to purchase new office space in Beijing for US$35.3 million. With the deal, Sohu.com will occupy floors 7 through 15 of the Vision International Center. The premises consist of approximately 18,265 square meters, with Sohu.com required to pay the purchase price within five business days after the effective date of the agreements. The purchase price will be paid from available cash on hand.