Chinese Tech Stock Weekly Summary

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

Internet

• Baidu.com (BIDU) announced that it had set up a Japanese subsidiary and would officially unveil it as early as this month. The company said it has already registered its web address for its Japanese language portal, a move that finally marks the mainland Internet search leader's first overseas expansion. The company said it is also employing a spider collection program on Japanese websites, which is a program that searches for information on the Internet and is used by search engines to index web pages. In February, Baidu disclosed its plan to invest US$15 million in Japan this year although it did not give a timeframe for the launch of a Japanese unit or service. With the move, Baidu now competes with global leader Google (GOOG), which offers web search services in Japanese and Korean.

• Tom Online (TOMO) showed a quarterly loss as it reported its financial results for the fourth quarter and full year ended December 31, 2006, posting a 28.5 percent decline in its total revenues to US$33.6 million. The results also showed an 11.1 percent decline from the previous quarter. The Internet firm reported a 0.2 percent growth in its total revenues for the year ended December 31, 2006 to US$168.3 million from 2005, even as its revenues from wireless Internet services went down 3.3 percent to US$152.6 million for the year, from 2005. Tom Online reported online advertising revenues of US$3.1 million, representing a 1.3 percent decline from the same period last year and 10.6 percent decrease from the previous quarter. Online advertising revenues made up 9.4 percent of the company's total quarterly revenues. The firm registered a quarterly net loss of US$0.5 million, a decrease of 109.6 percent from the last quarter and a decrease of 104 percent from the same period last year, with Tom Online ascribing the results to the provision for goodwill impairment of US$4.6 million for the company's Indiagames under discontinued operations.

• Internet portal Netease.com (NTES) reported that its board of directors has approved a new share repurchase program of up to US$100 million of the company's outstanding American Depositary Shares for a period not to exceed three months. This authorization follows the portal’s completion of a share buyback program previously announced in August 2006 in which approximately 3.6 million of the company's issued and outstanding ADSs were purchased for an aggregate purchase consideration of US$60.1 million. Under the terms of the newly approved program, Netease may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. With the announcement, Netease released its plans to fund repurchases made under this program from available working capital.

• Google China announced its formal launching of a website search engine navigation service. The firm explained its decision to offer this service as a response to market surveys, which indicated that many new Internet users log into web sites through direct visits. Industry observers see the service as directly competing against Baidu.com's Hao123 navigation service. Earlier, Google China reported entering into a strategic partnership with Xunlei, a downloading service provider, in a bid to boost its web site traffic flow.

• Industry sources indicated that the Agricultural Bank of China, Industrial and Commercial Bank of China and China Construction Bank are working on plans to create an online joint transaction platform expected to extend their services and share resources. According to an official of the e-banking department at the Agricultural Bank of China, the further development of the Internet will push each commercial bank to move their services from traditional counters to online areas. The official noted that these commercial banks will naturally deal with other business through the online platform as security levels increase for online transactions.

• 51job.com (JOBS) announced that it has updated revenue guidance and provided earnings targets for the first quarter ending March 31, 2007. The Chinese online recruitment service firm said that, based on current market demand and operating conditions, the company is increasing guidance and now expects first quarter 2007 revenues in the estimated range of 192 million yuan (US$24.8 million) to 202 million yuan (US$26.1 million). The announcement also mentioned that co-founder Michael Lei Feng is moving from his position as Senior Vice President to a Strategic Advisor of the company, and that David Weimin Jin has been promoted to Senior Vice President of Sales.

Media, Entertainment and Gaming

• Computer game operator Tencent announced its decision to close down its service for exchanging game coins into its virtual Q coin money. Currently, some sellers buy virtual equipment with Q coins and exchange it for some other game coins, and then they sell the game coins to other users for real money. Some officials have expressed their worries that the circulation of Q coins may affect China's currency and may even lead some teenagers to crime. The announcement of Tencent follows the issuance of a circular from different Chinese government ministries further regulating the management of Internet cafes and online games. The circular indicated that no new Internet cafes be set up in China this year and no virtual coins can be used to buy tangible items.

• Sina.com (SINA) announced that it has secured a strategic agreement with five international music groups – BMG Universal, Sony (SNE), Warner, EMI (EMIPY.PK) and Rock Records – to jointly launch a new music platform called Sina Music Storeroom. Under the agreement, the new music platform will offer free online music as well as wireless music services such as mobile ring tones, color ring tones and IVR services for Internet users. Sina says it will share the income from the online advertisements and wireless value-added services of this platform with the five partners and they might also try a paid download service at a later time. Market figures show that the digital music market will reach US$14.9 billion by 2010, while the traditional music market will decline to US$19.6 billion compared with the US$27.3 billion in 2005.

Mobile/Wireless

• Telestone Technologies Corporation (TSTC), a wireless communication company, announced that it has secured a new US$4.5 million contract with China Mobile (CHL). Under the deal, TSTC will use its RF (radio frequency) products to integrate service from China Mobile for its wireless indoor coverage for 2007. TSTC will provide eight types of products that will be used in numerous configurations including repeaters, line-amplifiers and passive components. This marks the first time for TSTC to win the bid from China Mobile.

• Hurray! (HRAY), a mobile value-added services, disclosed its plans to shell out some 120 million yuan (US$15.5 million) in a bid to acquire 65 percent of the stake of Secular Bird, a privately-owned music company in China. With the agreement, Hurray!'s affiliate Hurray Digital Media will be responsible for the transaction and the company will be renamed Hurray Secular Bird Culture Company. Hurray Secular Bird will jointly manage the copyright music with Secular Bird, and Yang Haoyu, CEO of Hurray Digital Media, and Wu Feng, President of Hurray Digital Media, will work as President and Executive Director, respectively, at Hurray Secular Bird. With the latest acquisition, MVAS firm Hurray! now has four music companies under its umbrella: Feile, acquired in November 2005 for 60 million yuan (US$7.7 million); Huayi Brothers in December 2006 for 35 million yuan (US$4.5 million); and New Run Entertainment, which was acquired in November 2006 for 18 million yuan (US$2.3 million).

• Industry sources indicated that China Unicom (CHU) will formally launch GPRS service in no less than 50 cities across China at what the company called the “appropriate time” this year. According to the general manager of China Unicom's value-added service department, China Unicom would take the lead promoting GPRS service in 65 to 100 cities in China and gradually launch valueadded services like WAP, Java and MMS. Earlier a report indicated that Beijing Unicom, one of China Unicom's subsidiaries, has already launched GPRS limited value-added service in the Beijing area around the Spring Festival holiday this year and is planning to put it into widespread commercial use very soon. In addition, Shanghai Unicom, another affiliate of China Unicom, also upgraded its GSM network to GPRS at the end of last year and the related value-added services have already been opened on a trial basis.

• Reacting to the reports about Datang Mobile and Shanghai Putian talking about a merger, Dating Mobile issued a statement through its spokesperson that such a merger is impossible for Datang Mobile to consider. Datang Mobile explained that it is not looking to a merger as it has a better brand than Shanghai Putian. The company spokesperson also issued a denial about Datang Mobile being recombined with Datang Group's listed company Datang Stock. In previous reports, sources mentioned the State-owned Assets Supervision and Administration of the State Council commenting about the feasibility of merging Putian and Datang and that it would encourage the tandem. Analysts have also commented that there are still possibilities for the merger, seen as being good for the development of Putian.

Semiconductors

• Government sources said Intel Corp. (INTC) has received approval to build a US$2.5 billion chip plant in China. The announcement follows a surge in the demand for chips in China and the massive increase in its population of mobile phone users. The country’s National Development and Reform Commission said the factory is planned for the northeastern Chinese city of Dalian. The Intel factory approved for Dalian would use 90-nanometer technology. That suggests that Intel plans to use the facility to manufacture flash memory chips and chipsets, which act as a PC's central nervous system by sending data from the microprocessor to other parts of the computer. Intel has 6,000 employees in China and factories in Shanghai and the western city of Chengdu making memory chips, microprocessors and other products. Information Technology

• First Data International and China UnionPay [CUP] announced the launching of a joint service capability that enables Chinese visitor access to their cash via First Data's ATM network, Cashcard, the largest ATM network in Australia. Under the partnership, the two companies are aiming to enhance their working relationship to promote the use of CUP cards in markets outside China, with First Data providing transaction routing and payment processing services. China UnionPay is a shareholding financial service institution with the registered capital of 1.6 billion yuan (US$206.8 million) through capital contributions by more than 80 domestic financial institutions. At the end of 2006, some 1.1 billion Chinese bankcards have been accepted via CUP network, with 189 member institutions having issued CUP cards and 520 thousand merchants able to accept CUP cards. First Data International maintains operation across Europe, Middle East and Africa, Latin America, Canada, Australia and Asia-Pacific, and serves 4.9 million merchant locations, 1,900 card issuers and their customers.

Telecommunications

• ZTE announced that its entire set of TD-SCDMA equipment has successfully passed the tests of the Ministry of Information Industry and is one of the first recipients of the country’s TDSCDMA network entry certificate. Covered by the new license are the four types of ZTE telecom equipment, including the core network equipment, wireless network control equipment, base station equipment and service platform equipment. The company explained that it has tested the entire set of TD-SCDMA equipment in Xiamen, Qingdao and Shanghai and is putting it into trial use in Beijing, Baoding, Qingdao and Xiamen. Even with this license granted to ZTE, nothing definite has been issued about the time frame for 3G being put into full commercial service throughout China.

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