Chinese Tech Stock Weekly Summary

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

Internet

• UUSee, a mainland Internet TV and interactive video operator, announced that it had raised US$23.5 million in new financing. Draper Fisher Jurvetson Growth Fund and Highland Capital Partners led the financing round. Beijing-based UUSee’s services allow users to watch interactive videos and television online, and counts among its partners, broadcasters and television programmers CCTV, and Shanghai Media Group. The mainland is the world's second-largest Internet market after the United States, with about 137 million web users, and has seen a boom in local video web sites. Mainland YouTube clones, including Tudou, 56.com and Yoqoo, have become popular online destinations for the country's Internet surfers. Major companies such as Sina Corp (SINA), Sohu.com (SOHU) and Baidu.com (BIDU) are considering expanding their online video services. UUSee's existing investors include SIG and Sequoia Capital. According to consultancy firm Zero2IPO, local and international venture capital funds invested a total of US$1.7 billion in China from January to November last year, an almost 60 percent increase over all of 2005.

• Market sources say 11 record companies are suing Yahoo (YHOO) China, including international major companies like EMI, Sony BMG Music Entertainment, Warner Music and Universal Music. Led by the International Federation of the Phonographic Industry [IFPI], the group seeks 5.5 million yuan (US$710,000) in damages. The group claimed Yahoo China's website allowed illegal downloads of songs by providing links to the unlicensed music. IFPI said it has been talking to Yahoo China since April of 2006 about illegal music downloads on its web site. The case, filed on January 3, was accepted by Beijing's Intermediate Court, the same court that acquitted Baidu, the mainland's largest search engine, from similar charges in November last year. It must be noted in the case of Baidu that one of the original petitioners, EMI, withdrew its case after it made a separate agreement in January under which its music was made legally available on Baidu while sharing advertising revenue with the search engine. Yahoo China said it might seek a similar arrangement.

•Shares of Beijing-based online travel company eLong Inc. (LONG) posted a decline following the company announcement that it missed its fourth-quarter forecast. The company reported a fourth-quarter loss of US$234,000, much narrower than last year's loss of $1.1 million, but below third-quarter profit of US$337,000. It did not help the company when a statement from a analyst from Susquehanna Financial commented that eLong is losing market share to Ctrip (CTRP). The company said its total sales went up to US$8.9 million from US$7.2 million a year ago, but the results also fell short of forecasts. eLong's fourth-quarter hotel commissions went up 23 percent to US$7.2 million, but a 3 percent drop from third-quarter results. Air ticketing commissions posted a 31 percent growth to US$1.2 million, from the previous year, but down 12 percent from the third-quarter.

• Tom Online (TOMO) released the confirmation that it will be privatized, a move that will be followed by its return to the control of its parent company Tom Group. Both Tom Online and Tom Group have stopped their respective transactions on the Hong Kong Stock Exchange and NASDAQ. Tom Group currently holds 65.7 percent of the stock of Tom Online. Based on the stock price of Tom Online in Hong Kong, Tom Group needs to pay US$206.6 million to purchase the circulating stock of Tom Online at US$516.5 million to US$645.6 million to take Tom Online private.

Media, Entertainment and Gaming

• CDC Games, a business unit of CDC Corporation (CHINA) and pioneer of the "free-to-play, pay-formerchandise" model for online games in China, announced entering into a definitive agreement to invest in Auran, a leading developer of online games in Australia. Under the agreement, CDC Games will invest about US$3 million in Auran, and in exchange for providing Auran with strategic advice, CDC Games also will obtain certain rights to receive a percentage of revenues received from Fury, an innovative game that blends MMORPG (massively multiplayer online role-playing game) and FPS (first person shooter) genres. This is CDC Games' latest investment as part of its previously announced establishment of CDC Games Studio, a wholly owned subsidiary of CDC Games that will have up to US$100 million in investment funding. CDC Games Studio invests in strategic games development partners to accelerate the development of new and original online games for the China market.

• Shanda Interactive Entertainment Ltd. (SNDA) announced plans for its board approval to repurchase US$50 million of the company's American Depositary shares effective this month of March. As of Dec. 31, 2006, Shanda had about US$71.6 million outstanding American Depositary shares. Shanda said it will buy back the shares over the next 12 months. Semiconductors

• National Semiconductor Corp. (NSM) announced a 45 percent decline in its third-quarter profit to US$71.5 million from US$130.1 million. The company ascribed the drop to slow sales and increased expenses. The company said revenue for the quarter went down 21 percent to US$431 million from US$547.7 million.

Hardware

• Palm (PALM) announced that it would launch its Treo 680 handheld in China. With the launch of the product, the company said it aims to boost its presence in the Chinese market by opening a research and development (R&D) center there. The company said the smartphone will be sold in cooperation with CEC Telecom Science and Technology Co., and distributed by Beijing Riverwill Communication Technology Co. Industry observers note that PDAs have not yet made their mark in China, although they are growing in popularity, mostly thanks to aggressive pushes by manufacturers such as Lenovo Group (LNVGY), Dopod International, and Motorola, (MOT) all of which have tailored their devices to the local market. One key design factor is recognition of handwritten Chinese characters. Ventures/Investments

• Legend Holdings, the parent firm of mainland computer maker Lenovo Group, disclosed its plans to engage more companies under its investment portfolio to list in the A-share market. The decision follows after one of its units recently raised US$570 million, a record for a domestic buyout fund. Hony Capital, one of Legend's three investment units, closed its third buyout fund after raising US$570 million, more than five times the US$108 million raised by the first two combined. A company official said another unit, technology-focused Legend Capital raised US$170 million. Analysts note that the mainland's venture capital industry has been growing at a rapid pace over the past few years. Government sources said the central government is also encouraging direct investments by private equity and buyout firms as a means for local companies to raise funds, so as to reduce the reliance on bank loans. An official said Legend would look to more cooperation with foreign funds.

Disclaimer: IRG is not responsible for the accuracy of the news compiled within this article, which is based on publicly available information.