Chinese Tech Stock Weekly Report

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

Internet

• Beijing ISM Internet Technology Development Co., the Chinese company behind the Gmail.cn e-mail service, declined to comment on a report that Google (GOOG) has renewed its attempts to acquire the Gmail.cn domain name. From ISM's Beijing headquarters came the statement that the company was aware of the report, but was not clear about where the news was coming from. The company said it is not also sure whether Google had made an offer to buy the Gmail.cn domain name and disclosed that they will release a statement once things are clarified. In 2004, Google had already expressed interest on having the rights to the Gmail.cn domain, first approaching ISM about the domain name and its use of the Gmail name in August 2004. Nothing came out of the negotiation. Observers note that Google has invigorated its efforts to acquire sole rights to the Gmail name in web domains since opening up the free e-mail service to any user who wants an account.

• Match.com, an online dating service, said it plans to announce the finalization of its acquisitions of two foreign Internet services: the online dating site Netclub in France and the eDodo social networking site in China. According to comScore Media Metrix, Match.com, with its current 15 million users, is already the world's largest online dating and personals service. The addition of eDodo and Netclub would bring the company more than 4 million subscribers. The company looks to the deal with eDodo as promising as it will allow the company access to China for the first time. According to the market research firm iResearch.com, there are more than 64 million online singles in China, and the market is predicted to experience a 105 percent massive growth between 2004 and next year. Financial terms of the deal were not disclosed.

• 51job.com (JOBS) reported an 18.2 percent rise in its total revenues for the fourth quarter of 2006 over the fourth quarter of 2005 to 171.1 million yuan (US$22 million). The company said its total revenues for 2006 went up by 17.2 percent to 697.9 million yuan (US$90.1 million) from 595.6 million yuan (US$77.0 million) in 2005. Its income from operations for 2006 posted a 49 percent growth to 114.7 million yuan (US$14.8 million) from 77 million yuan (US$10.0 million) for 2005. Print advertising revenues for the fourth quarter of 2006 posted a 10.7 percent rise to 87.4 million yuan (US$11.2 million) compared with 79 million yuan (US$10.2 million) for the same quarter in 2005, with the company ascribing the growth to a greater volume of advertisements in 51job Weekly which was partially offset by lower average revenue per page. Online recruitment services revenues for the fourth quarter of 2006 went up by 32.1 percent to 58.6 million yuan (US$7.5 million) from 44.4 million yuan (US$5.7 million) for the same quarter last year. The increase was principally attributable to growth in the number of employers using the company's online services. The estimated number of print advertising pages generated in 2006 increased 6.1 percent to 12,609 from 11,884 estimated pages in 2005.

• Kingsoft said it has initiated the final beta test of its WPS Online Office 2007 version, which is seen as directly competing against Google’s newly launched Google Apps. The company said it plans to open it to public in April. The new online WPS version will not provide free services to individual users. The service will allow users to store their data on Kingsoft's servers, much like the new Google App, which does provide a free service. Kingsoft WPS started to offer a complete free individual version for its users in order to expand the company's market share. The new WPS Online version will only have one version. The company revealed that it is looking at an overseas listing soon.

• NetEase.com (NTES), the mainland's largest online game operator by revenue, reported a 15.7 percent surge in its profit to 320.2 million yuan (US$41.3 million) from 276.7 million yuan (US$35.7 million) for the fourth quarter. Beijing-based NetEase said its sales posted a 10.9 percent rise to 540.3 million yuan (US$69.7 million). The company, however, which runs the mainland's most popular online game, Fantasy Westward Journey, reported that gaming revenue has declined from 467.9 million yuan (US$60.4 million) in the third quarter to 451.6 million yuan (US$58.3 million) in the fourth. Another game, World of Warcraft, the second most popular in the mainland, is developed by smaller rival The9, whose revenue posted a 22 percent growth in the fourth quarter from the third. Analysts maintain that games offered by NetEase and rival Shanda Interactive Entertainment would remain popular in smaller cities because of their brands and low computer capability requirement. Fantasy Westward Journey had peak concurrent users of 1.3 million, while Westward Journey II, the third most popular, had 603,000. To maintain its lead in the market, NetEase revealed its plans to upgrade its Westward Journey II to version III in the second quarter of this year. NetEase said it is looking for growth in Tianxia, a three-dimensional game it spent four years to develop.

Media, Entertainment and Gaming

• Focus Media (FMCN) confirmed that it is acquiring Allyes Information Technology Company Limited, the largest Internet advertising service company in China. The admission follows a long stretch of rumors about the planned acquisition circulating in the market. Under the agreement, which is expected to close by the end of March 2007, Focus Media will acquire a 100 percent equity stake of Allyes for US$70 million in cash and US$155 million in the form of Focus Media ordinary shares and an additional payment of up to US$75 million in Focus Media ordinary shares contingent upon Allyes meeting certain earnings targets during the twelve month period from April 1, 2007 to March 31, 2008. David Zhu said he has signed an employment agreement with Focus Media and will remain as the CEO of Allyes. Allyes is the largest Internet advertising agency and provider of Internet advertising technology in China. According to iResearch, China Internet advertising will reach 9 billion yuan (US$1.1 billion) in 2007. Mobile/Wireless

• Industry sources said the new round of public bidding for China Mobile's (CHL) TD-SCDMA project has started, with the company reportedly calling in TD-SCDMA suppliers for a meeting. Reports indicated that the bidding will be divided into two parts, involving core network and equipment, and each part has 5 suppliers to join the bidding. For the core network, suppliers include Huawei, ZTE, Nokia and Erricsson. The Telecom Institute of the Ministry of Information Industry said that because it is a large-scale network project, the requirements are much stricter than previous telecom rollouts. Five suppliers have also already entered the testing phase, including Datang, Potevio, ZTE, TD Tech and an unnamed Guangdong corporation. Earlier, Potevio and ZTE have reportedly passed the first test in February.

• KongZhong (KONG) announced its unaudited fourth quarter and fiscal year 2006 financial results, with total revenues for the fourth quarter posting a 7 percent growth from the same quarter of 2005 to US$23.7 million. The mobile value-added services [MVAS] company said its revenues from 2.5G services accounted for approximately 39 percent of total revenues, with revenues from 2G services holding the remaining 61 percent. Revenues from 2.5G services, which include services delivered using wireless application protocol [WAP], multimedia messaging service [MMS], and Java technologies, went down by 38 percent from the same period in 2005 and 16 percent from the third quarter of 2006 to US$9.1 million. The company says the sequential revenues decrease was primarily due to the continuing effect of the regulatory changes introduced by China Mobile during the third quarter 2006 that, among other things, imposed a one-month free trial period for new subscription users, requiring that new users confirm subscriptions twice and mandated the termination of WAP subscriptions that have not been active for more than four months. WAP revenues in the fourth quarter of 2006 went down by 44 percent to US$4.8 million from the same quarter of 2005 and a decrease of 16 percent from the third quarter of 2006. MMS revenues in the fourth quarter of 2006 went down by 20 percent to US$3.9 million from the same period of 2005, and a decrease of 17 percent from the third quarter of 2006. Revenues from 2G services, including short messaging service [SMS], interactive voice response [IVR], and color ring back tone [CRBT] increased 2 percent quarterover-quarter to US$14.3 million in the fourth quarter of 2006.

• Industry sources said that Datang Telecom Technology and Industry Group (Datang Group), a developer of the mainland's homegrown 3G technology TD-SCDMA, is expected to receive about 4 billion yuan (US$516.4 million) from the government. The fund is seen as preparing the group for a corporate restructuring. The report also indicated that the State-owned Assets Supervision and Administration Commission would be responsible for the cash injection. Last month, mainland sources said that China Mobile Communications Corp would inject 3 billion yuan (US$387.3 million) into Datang Group, which both companies denied. The state-owned China Academy Telecommunication Technology holds Datang Group. It has two subsidiaries, including Shanghailisted Datang Telecom, which focuses on telecommunications solutions and system integration business. Datang Mobile is the privately owned arm that is developing the TD-SCDMA network, technology and other related businesses. Earlier, Datang Telecom disclosed that it was aware of the report about the capital injection but had nothing to disclose. Datang Group licenses TD-SCDMA patent to various telecommunications vendors such as domestic firms ZTE Corp and Huawei Technologies as well as foreign players such as Nokia and Ericsson.

•Linktone, a Shanghai-based mobile value-added service provider, failed in its move to acquire Britain's Monstermob, with Monstermob, deciding to enter a partnership with Spanish Internet company LaNetro Zed. The British company said LaNetro Zed's 34 million pounds (US$66.1 million) cash offer would solve Monstermob's cashflow problem. In 2005, Monstermob, the developer of mobile-phone products such as games and ringtones acquired three Chinese companies to get into the mainland wireless market.

Hardware

• HASEE Group, a Shenzhen-based computer manufacturer, announced its shipment of 15,000 laptop computers to the United Nations. The company said it won the bid to supply the computers last year, with the UN using this batch of computers for the Nigeria government's election to be held in March 2007. A representative from HASSE says the company won the bidding mainly because of the stable performance and competitive price of its computers, which are important factors for such a meaningful political election. HASSE sells more than 20,000 laptops each month in the international market, accounting for 40 percent of the company's total sales. The company expects its sales in overseas countries to reach 80,000 in the first quarter of this year. The company also owns the HASEE Industrial Park in Shenzhen.

• Lenovo (LNVGY) revealed that it has recalled about 205,000 laptop computer batteries worldwide, warning that they could overheat and cause a fire. The battery recall was the second for the company in the past six months and came as Lenovo, the world's No. 3 computer maker, tries to gain ground on its better-known competitors. The latest recall included about 100,000 batteries in the U.S. and another 105,000 worldwide. The recall involved batteries made by Japan's Sanyo Electric. Lenovo said consumers should stop using the recalled products immediately. It said the batteries can overheat if the laptop is dropped a certain way, striking the battery on a corner edge. The advisory was made with the U.S. Consumer Product Safety Commission. An industry analyst said the recalls are not expected to have a major impact on the company. In a related development, Lenovo announced that a campus worth some US$150 million in Morrisville is expected to open this month.

Telecommunications

• China Netcom Group Corp (CN) disclosed that its total number of users registered a 3.4 percent drop in the four months to January. The company said it total users were 115 million by the end of January compared with 119 million users by the end of September last year, with industry observers ascribing the decrease mainly to a one-time cleanup of inactive users by the end of the year in a move to cut costs. China Netcom said it added 173,500 fixed-line users in January and 337,000 broadband users, bringing the total to 15 million. Industry sources said China added 6.3 million mobile-phone subscribers in January, the biggest monthly increase in almost a year, as more people in rural areas signed up for the services. The number of mobile subscribers in China, the world's biggest wireless market by users, went up to 467.4 million at the end of January, with the country gaining more than one million fixed-line telephone subscribers last month for a total of 369 million.

Ventures/Investments

• Industry sources said eBay (EBAY), the world's largest online auction company, will invest US$105 million for a 33 percent stake in a mainland electronic payment joint venture with Union Mobile Pay in a deal scheduled to be announced in two weeks. Industry analysts said that eBay looks to leveraging on PayPal, its wholly owned global platform for online payment, by linking up with the domestic player, itself a joint venture between China Mobile (CHL) and bank card provider China Unionpay. eBay launched PayPal in the mainland in 2005, two years after entering the country by acquiring online auction site Eachnet. Union Mobile Pay has a tie-up with Tom Online (TOMO) to provide mobile payment services in the mainland. However, its success has been limited.