Chinese Tech Stock Weekly Summary

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

Internet

• Alibaba announced that it has initiated a beta test on its new online advertising distribution web site Alimama, which is scheduled to be formally launched in the second half of this year. Under the new offering, Alimama is expected to share resources with Alibaba's other services including B2B areas, Taobao.com, Alipay and Alisoftware. To satisfy the requirements for a B2B business listing in Hong Kong, Alibaba has transformed each of the above service departments into subsidiaries, creating a set of independent board of directors for each of them.

• Netease.com (NTES) reported total revenues for the second quarter of 2007 of 558 million yuan (US$73.4 million), compared to 554.6 million yuan (US$73 million) and 575.3 million yuan (US$75.7 million) it posted for the preceding quarter and the second quarter of 2006, respectively. Netease said its revenues from online games were 475.1 million yuan (US$62.5 million) for the second quarter of 2007, compared to 481.9 million yuan (US$63.4 million) for the preceding quarter. The company said gross profits for the second quarter of 2007 was 437.8 million yuan (US$57.6 million), compared to 430.1 million yuan (US$56.6 million) for the preceding quarter. Total operating expenses for the second quarter of 2007 were placed at 142.8 million yuan (US$18.8 million), compared to 117.7 million yuan (US$15.4 million) for the preceding quarter. Netease said its net profit went up to 312.6 million yuan (US$41.1 million) for the second quarter of 2007 from 301.5 million yuan (US$39.6 million) for the preceding quarter. As of June 30, 2007, Netease's total cash and time deposit balance was 3 billion yuan (US$395 million), compared to 3.9 billion yuan (US$513.4 million) as of December 31, 2006.

• eLong.com (LONG), an online travel company reported an operating loss of 2.2 million yuan (US$289,664), compared with the operating loss of 1.2 million yuan (US$158,000) it posted for the second quarter as part of its unaudited financial results for the second quarter ended June 30, 2007 even as it remains confident that it can improve on its performance. The company said its travel revenues grew 16 percent to 75.4 million yuan (US$10 million) for the second quarter 2007 compared with the prior year period. It reported a 12 percent year-over-year rise in its hotel commission revenue, which it ascribed to higher room volume. eLong said its air ticketing commission revenue posted a 44 percent rise, which it ascribed primarily to a 41 percent increase in air segments to 347,000, as well as a modest 2 percent increase in commission per air ticket to 40 yuan (US$5). The company recorded a net loss of 1.8 million yuan (US$237,000) for the second quarter, compared with a net income of 10.2 million yuan (US$1.3 million) for the second quarter of 2006. As of June 30, 2007, eLong reported cash and cash equivalents of 1.1 billion yuan (US144.8 million), a decline of 2 percent from 1.2 billion yuan (US$158 million) it posted on December 31, 2006. It looks to total revenues for the third quarter of 2007 within the range of 79 million yuan (US$10.4 million) to 87 million yuan (US$11.4 million), which stands for a 6 percent to 17 percent increase from the third quarter of 2006.

• Media sources indicate that China Yahoo (YHOO) is gearing to resume its 3721 network real name service. The new service will be called Chinese Online 2007 instead of 3721, but will still feature the same functions as 3721, which allow users to use the Chinese address search function after installing a plug-in.

Media, Entertainment and Gaming

• CDC Games, a subsidiary of CDC Corporation (CHINA), announced its decision to invest in Xiakexing Network Technologies Company (XNet), a China-based developer of online games. The report described the investment in XNet as coming by way of multiple tranches, with the valuation at each tranche based on the achievement of certain milestones. Under the agreement, CDC Games will have exclusive global distribution rights for all games developed by XNet and Peter Yip, CEO of CDC Games, will serve on the board of directors of XNet upon closing of the investment. The investment by CDC Games is subject to the successful completion of customary due diligence and final documentation. The deal will also let XNet develop and publish new games in partnership with CDC Games. The agreement makes XNet the fourth CDC Games investment, in addition to Gorilla Banana, Mgame and Auran. The value of the investment was not disclosed.

Mobile/Wireless

• Qiao Xing Mobile announced that its subsidiary CEC Telecom [CECT] has entered into an agreement with Bei Dou Communication & Equipment Company, one of the largest mobile handset Internet sales platforms in China, to establish a new e-commerce and promotional outlet for selling the company's handsets. The agreement is valued at 1 billion yuan (US$131.6 million). With the alliance, the two companies have agreed to strengthen their ties related to Internet sales, retail channel development as well as other value-added services. The partnership will also enable CECT to deal with retail outlets as well as customers directly via Bei Dou's handset ecommerce platform. Under the partnership, CECT will provide a set of training programs to retailers, including product education, pricing management, customer targeting and other selling techniques, as well as technical support.

• Motorola (MOT) announced that it has secured contracts valued at US$394 million with China Mobile (CHL) for GSM network expansion. Stating that about 60 percent of the revenue from these agreements was counted already in the first half of 2007. Motorola and China Mobile have been working for some twenty years. As of April 2007, China Mobile has registered more than 330 million wireless subscribers on its nationwide network.

• Industry sources noted the decline in Hurray’s (HRAY) revenues reflected in its unaudited financial results for the second quarter ended June 30, 2007. The company posted a 12.3 percent quarterover-quarter drop in its total revenues to US$14.6 million. The amount misses its previous guidance of revenues between US$15-16 million. Its wireless value-added services revenues went down 14.7 percent quarter-over-quarter and 23.1 percent year-over-year to US$12.7 million. Hurray posted a net income of US$0.2 million, which represents a 79.8 quarter-over-quarter and 88.7 year-over-year decline. As of June 30, 2007, the company reported US$67 million in cash and cash equivalents.

• China Mobile Ltd. the world's largest wireless operator, posted for April-June net profit of 20.3 billion yuan (US$2.6 billion). Compared to the 15.8 billion yuan (US$2 billion) it posted a year earlier. According to the seven analysts polled by Reuters, the results went beyond the average forecast placed at 19.1 billion yuan (US$2.5 billion). Its full-year net profit is seen as climbing 18 percent to 77.9 billion yuan (US$10.2 billion), according to an average from the forecasts of 24 analysts made by Reuters Estimates.

Software

• Kingdee (KGDEF.PK) revealed plans to join China's e-commerce market after IBM's infusion of funds into the company. The company said it aims to use an e-commerce strategy that will enable it to provide an e-commerce platform that provides one-stop services. The company says their e-commerce strategy is an extension of their program of creating customized ERP for clients. According to the manager of IBM Greater China Region Service Flow Subcontract Department, IBM sees the assistance it is giving to Kingdee as making Kingdee an excellent SaaS supplier in China.

• Micrologo Coding Limited announced that it has signed a global strategic partnership memorandum of understanding with Microsoft (MSFT). Under the agreement, the two parties will work on a series of projects geared at creating the “informationization” of traditional industries in China. Media sources indicate that Micrologo is the eighth Chinese firm to sign this type of partnership agreement with Microsoft.

Hardware

• Gateway (GTW) announced the official launching in China of its products by way of the introduction of its new Gateway notebook and desktop PCs, as well as displays for Chinese customers. The agreement is seen as enabling Gateway to deliver industry-leading quality, performance and service at a superior value to PCs currently available in the market. Gateway products can be found at PC malls and retail stores nationwide, including Best Buy's flagship Shanghai store.

• Nanjing Panda Electronics Co. reported a 47 percent climb in its first-half profit to 53.1 million yuan (US$7 million) from the 36.3 million yuan (US$4.7 million) it posted a year earlier. The company attributed the surge to added income from ventures in China with Ericsson AB and Sony-Ericsson Mobile Communications Ltd. The company also saw a deferred income tax credit valued at 14.1 million yuan (US$1.8 million) added to its profit. Nanjing Panda owns 27 percent of a network equipment company with Ericsson and a fifth of a handset business jointly owned with Sony Ericsson.

Semiconductors

• NEC (NIPNY) said it plans to widen its sales network in China in the coming three years, a move that is seen as a response to the surge in China’s semiconductor market. The Japanese firm said it aims to boost sales in China from 50 billion yen (US$437.7 million) in 2006 to 100 billion yen (US$875.5 million) in 2010. Currently, NEC maintains four business sites in China: Beijing, Shanghai, Shenzhen and Hong Kong. Media sources said NEC anticipates that China's electronic market will post an annual growth of 10 percent. Part of the plan is NEC’s aim to add about 100 new sales and marketing staff in China each year in the coming three years.

Ventures/Investments

• Market sources announced the debut of 3NOD Digital Group on the KOSDAQ, a move that makes it the first foreign company to list on the junior bourse. 3NOD, a Chinese digital audio manufacturer, has been seeking to go public on the South Korean stock market since last year. The firm went through an initial public offering [IPO] this month with Shinyoung Securities as the underwriter after submitting a listing application to the Korea Exchange [KRX] in July. The company secured more than 1.2 trillion won (US$1.2 billion) worth of subscriptions for 12 million shares from investors, setting its IPO price at 2,500 won (US$2.6) per share. 3NOD is based in Shenzhen,Guangdong Province in southern China and maintains some 600 branches throughout China, with a sales network reaching about 30 countries, including the U.S. and Japan.

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