Japanese Tech Stock Weekly Report

by: IRG Ltd

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


Soliton Systems K.K., a Tokyo-based firm that mainly builds systems for broadband content distribution services for apartment buildings and hotels, will make its debut on the JASDAQ Securities Exchange in March. The company, which also develops and sells Internet authentication software and security systems, said it plans to use the proceeds from the IPO, estimated to be about 1.3 billion yen (US$11.1 million) for investment in computer systems, and research and development programs. For the business year to March 2007, Soliton Systems projects consolidated sales of 19.1 million yen (US$164,000) and a net profit of 895 million yen (US$7.6 million).

Media, Entertainment and Gaming

Sony (NYSE:SNE) and Immersion (NASDAQ:IMMR) reported the settlement of a patent dispute over the vibration technology that shakes video game controllers. The two companies also announced their decision to work together to bring the so-called "rumble" function back to PlayStation products. Litigation threatened to halt the Japanese company's U.S. sales of PlayStation and PlayStation 2 consoles, controllers and games that use Immersion's vibro-tactile technology. The patented technology contributes a sense of realism to videogame play by jolting the player's hands whenever there are gunfire, explosions, crashes or other dramatic on-screen events. Immersion sued Sony Computer Entertainment and Sony Computer Entertainment America in 2002 seeking US$299 million in damages. As part of the agreement, Sony will pay U.S.-based Immersion US$97.2 million in damages and interest, as stipulated in the original court award that Sony was appealing. Sony will also pay US$22.5 million in licensing payments through 2009 plus an unspecified amount of fees and royalties, with Sony shelling out an estimated US$150.3 million to settle the litigation.

The country’s software makers are working on the development of online gaming, with firms looking to online gaming as a new source of revenue in the stagnant game software market. Among domestic software manufacturers, Koei has been identified the first to work on online game software. During fiscal 2007, it will produce software based on its hit product for game consoles based on Sangokushi (Romance of the Three Kingdoms). The company said, currently, online products account for only 20 percent of software sales, but it is aiming to increase that percentage. Capcom Co. is planning not only to develop software but also to set up a game portal site with the online game producer Dwango Co during fiscal 2007. GungHo Online Entertainment Inc., which operates a game portal, is in the process of developing a game based on the popular comic Hokuto no Ken (Fist of the North Star). Most games now offered by the firm are South Korean, but the company is bringing a software production company under its umbrella and thus giving itself a more comprehensive structure for development. Industry observers note that the popularity of portable game console Nintendo DS spurred domestic game software sales, which was previously stagnant, at about 300 billion yen per year. According to Enterbrain, the online game market in Japan will exceed 300 billion yen (US$2.5 billion) in 2010, which would be 2.4 times the size of the market in 2005.

• Tokyo Broadcasting System Inc. and Rakuten Inc. made a joint announcement of the nullification of their written conditions for tie-up talks. The two companies, however, said they have agreed to keep discussing possibilities of alliances in some form. The nullification came after Rakuten, Japan's top online shopping mall, informed TBS that the voting rights on its TBS shareholdings are no longer frozen. Analysts are saying that the negotiations of the two companies might enter a new stage with TBS also announcing a revision of its measures to prevent hostile takeovers. The proposed TBS measures include a poison pill, in which equity warrants are issued to all existing shareholders to dilute an unsolicited acquirer's stake.


NEC (NIPNY) announced that it has secured an agreement to work with Indian IT services group Sify (NASDAQ:SIFY) to push thin-client computing in India. Under the agreement, NEC will build virtual PC centers in India from which Sify can provide thin-client terminals to its 16,000 enterprise and 2 million consumer customers as an outsourced service. The terminals measure 16cm by 10cm by 3cm and are small enough to be mounted on a wall or behind a monitor. They support all main Internet applications including voice-over-IP telephony. The applications themselves run on an NEC server that maintains communications with the terminals. NEC reckons the system works about 34 percent cheaper than using conventional PCs. With the deal, NEC said that it aims to set up 100,000 thin-client terminals and 6,000 server units installed in India in the next three years, with a number of the terminals to be placed in Sify's 3,500 Internet cafes across the nation and will also be used in the company's call centers and office processing centers. NEC is also promoting the thin-client system in other markets. Local subsidiaries in Canada, France, the U.K. and the U.S. began promoting it this quarter and it will be available in China, South East Asia, Oceania and the rest of Europe during the second quarter. NEC said it aims to generate sales of 150 billion yen (US$1.3 billion) in its first three years of operation.

Contec Co., a Japanese electronics maker, announced that it has secured approval to list on the Second Section of Tokyo Stock Exchange. The company will offer 900,000 shares to the public in its initial public offering. Of those, 600,000 are newly issued shares and 300,000 are shares currently held in private. The company will conduct a book-building for the IPO shares. The company expects to net 1.2 billion yen (US$10.2 million) from the IPO. It plans to use all the proceeds for the repayment of loans. For the fiscal year ending in March, the company forecasts a group pretax profit of 1 billion yen (US$8.5 million), net profit of 694 million yen (US$6 million), and sales of 22.7 billion yen (US$194.3 million). Nomura Securities, the lead underwriter of the offer, also has a green shoe option allowing it to offer an additional 135,000 shares in the event of exceptional demand.


• Market sources said that Sharp (OTCPK:SHCAY) has plans to invest 200 billion yen (US$1.7 billion) in a new plant in Japan to produce large flat screens for televisions. The report said Sharp has planned to start building the plant in the western Japanese city of Himeji as early as the middle of this year, with the plant to produce 40-to-60-inch LCD panels. Sharp is reportedly looking to begin operations in 2009. Earlier, in January, Sharp announced plans to boost its output of flat screen televisions with new production lines in Japan and Mexico in response to flourishing demand for LCDs.

•Industry sources indicated that U.S. investment funds Cerberus Group and Texas Pacific Group have been short listed as companies interested in the acquisition of Victor Co. of Japan, a money-losing subsidiary of Matsushita Electric Industrial Co. (NYSE:MC) The report said the two funds will soon submit their respective buyout plans to Matsushita, which will decide which fund to negotiate with on selling its 52.4 percent stake in the unit widely known as JVC. Earlier audio equipment maker Kenwood Corp. expressed willingness to take over the company but has since dropped out of the competition. Matsushita is expected to decide by the end of this month whether to enter into formal talks with Cerberus or Texas Pacific. Sources said Cerberus is seen as calling for JVC executives to acquire the shares from Matsushita through a management buyout by promising to provide the necessary capital for such a deal.