Chinese Tech Stock Weekly Summary

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

Internet

• PayPal disclosed that it is cooperating with China International Travel Service [CITS] to offer a new payment service on CITS' web site. Under the partnership, CITS clients are expected to have ease in payment by using their personal PayPal accounts, a debit card, a bank account or a credit card. PayPal currently provides payment services in 17 kinds of currencies in 190 countries and regions across the world.
• Google (GOOG) announced its formal release of a new localized product in the form of mobile phone short message search in China. Google said that through this service, it can give information service for millions of Chinese. The product will allow mobile phone users to get a short message reply about a search result, and allow them to make inquiries about such information as stocks, weather forecasts, train schedules, language translation, and contact details for restaurants. Google said it will not charge any fee from mobile phone users for this service. The clients will just need to pay the regular SMS fee to the mobile service operators. Google indicated that it plans to add more search functions soon.
• According to media sources, Qunar, a Chinese Internet travel search engine, is a recipient of a round of financing worth US$10 million. The company has previously received funds from GSR Ventures and Mayfield, and this time Lehman Brothers Private Equity Partners led the financing. The reports indicated that Qunar will be using the funds to attract more clients from all over China. Qunar operates as a meta-search engine that aggregates and provides Chinese-language search results of travel deals around China.
• Alibaba.com announced the official launching of Alimama, an online advertising exchange designed to enable web publishers and advertisers to trade online advertising inventory. Alimama is a wholly owned subsidiary of Alibaba Group. Industry analysts see Alimama’s business model as formed to respond to the needs of the country’s fragmented market for online advertising. Fresh from its 100-day beta period, Alimama is now expected to be one of China’s largest online advertising exchange platforms.
• China Telecom (CHA) announced its decision to launch its own IM service, a move that follows the earlier initiative of China Mobile (CHL), China Unicom (CHU) and China Netcom (CN). China Mobile’s IM service is dubbed Fetion. Local media sources indicated that China Telecom is working on the development and research of the IM software, with China Telecom Information Development Co., Ltd, a holding company of its affiliate Beijing Telecom, tasked with the development and operation planning of the new service.
• Alipay, the largest electronic payment service in China, announced its decision to enter the Taiwan market through its partnership with Taiwan-based eDynamics. It is part of Alipay’s effort to help users in China to be able to do online shopping in Taiwan. Alipay is a member of the Alibaba Group in China. eDynamics provides e-commerce and online marketing services specifically for small enterprises and individuals in Taiwan.

Media, Entertainment and Gaming

• Hurray! Holding Co (HRAY), a China-based artist development and wireless music company, announced its decision to merge with Enlight Media, a China-based independent entertainment production company. Under the agreement, Enlight shareholders will receive the equivalent of 15.7 million American Depositary Shares, which stand for a 42 percent stake in Hurray!. The deal is expected to close in the first quarter of 2008. The newly formed entity is called Hurray Enlight. Hurray's reported total revenues for the third quarter ended September 30, 2007 were US$13.6 million, representing a 6.5% decrease from the preceding quarter, and a 23.9% decrease from the third quarter in 2006. Total wireless value-added services revenues were U$11.4 million, a decline of 10.7% from the previous quarter, and a decline of 30.6% from the third quarter of 2006. Recorded music revenues were US$2.2 million, a growth of 22.8% from the previous quarter and a growth of 47.8% from the third quarter of 2006. Net loss was US$11.5 million and net margin was negative 84.7% as compared to the previous quarter’s positive margins of 1.3% and 9.0% for the third quarter of 2006.
• Sohu (SOHU) announced that it has secured an advertising contract for China’s CCTV following a long intense bidding process played against traditional industry competitors. According to reports, Sohu has spent more than 20 million yuan (US$2.7 million) on the 7.5 seconds of advertising that is expected to be aired before the nightly half-hour news broadcast and before the weather forecast. Industry observers see the initiation of CCTV’s ads bidding as ushering in the expansion of portal web site competition for the Beijing Olympics.
• Giant Interactive (GA), a Chinese online game developer, reported a 164.2 percent surge in its net revenue for the third quarter of 2007 to 405.2 million yuan (US$54.7 million) over the third quarter of 2006. The company’s net income went up 152.6 percent to 290.2 million yuan (US$39.1 million).

Mobile/Wireless

• China Academy of Telecommunication Technology [CATT] is selling a 13-percent stake of Datang, China's leading 3G technology firm, for one billion yuan (US$133 million) to fill the capital shortage. Media sources indicate that PICC is interested to acquire the 15 percent stake of Datang Mobile for 1.5 billion yuan (US$202.7 million). Other investors identified as interested in Datang Mobile are China Yangtze Power Co., Ltd., China Life Insurance (LFC) and Ping'an Insurance (PIAIF), which are reportedly all aiming to shell out 1 billion yuan (US$135.1 million) each. Datang Mobile, a subsidiary of Datang Telecom Technology and Industry Group, is a major proponent of China's TDSCDMA standard.
• According to media sources, China Mobile will soon begin bidding for the first batch of TD mobile phones, with the first bidding to take place in late December or early January of 2008. The company said it plans to buy about 300,000 to 400,000 TD mobile phones to be used mainly for testing and optimizing TD networks and testing the mobile phone performance of each TD maker. The testing is in preparation for the company’s large-scale outsourcing planned for 2008. The bidding will take place while the company is conducting a TD test in some 8 cities across the country. According to China Mobile's plan, the company will spend a total of about 3 billion yuan (US$504.4 million) to 4 billion yuan (US$540.5 million) on 2 million to 3 million TD mobile phones.
• KongZhong (KONG) reported total WVAS revenues for the third quarter were $16.82 million, remaining flat sequentially. Revenues from 2.5G services accounted for approximately 33 percent of total WVAS revenues, and revenues from 2G services represented the remaining 67 percent. KongZhong reported the aggregate revenues from China Unicom, China Telecom and China Netcom accounted for approximately 25 percent of the total third quarter WVAS revenues, while revenues from China Mobile contributed the remaining 75 percent. The company said it expects to report fourth-quarter revenue of 17.5 million to 18.5 million versus the current consensus estimate of 17.4 million.

Software

• Longtop Financial Technologies Limited (LFT), a software provider, reported an 80.3 percent year-on- year rise in its total revenue to US$20.2 million compared to adjusted revenues for the quarter ended Sept. 30, 2006. The company said its software development revenues went up 115.6 percent year on year to US$18.2 million. According to its CFO, the strong revenue of Longtop can be ascribed to its increasingly diversified customer base. The company had its IPO in October this year.

Hardware

• The data from the State-Owned Assets Supervision and Administration Commission of China's State Council indicated that Panda Electronics Group's 50-inch High Definition SM Plasma Display Panel Industrialization Program had been included as a special program of the commission. As a special program, Panda’s project became the recipient of a support fund worth 20 million yuan (US2.7 million). The support came from the country’s National Development and Reform Commission. Nanjing Huaxian High Tech Company, an affiliate of Panda Electronics, will be responsible for the operation of the program.
• According to the general manager of Lenovo (LNVGY) Greater China’s Commercial Desktop Computer Marketing Department, the company is considering to recruit online agents for its PC products as a response to the significant sales generated by the group’s online selling. In a related development, the company said it is in talks with Alibaba on a possible cooperation in selling its products to Alibaba-registered middle and small enterprises.
• Intel (INTC) announced that it has entered into an agreement with Digital Video Networks [DVN], a leading Chinese digital TV solution provider to work on a double module set-top box [STB] that can support interactive digital services. The agreement is seen as providing Intel an entry into the country’s set-top box market. According to the general manager of Intel's Digital Home Group, their new STB is based on Intel's CE2110 processor, which features more functions, such as high definition film play and PC applications, plus more interactive experiences. According to industry observers, Chinese STBs can be used only for signal conversion.

Semiconductors

• According to industry sources, Shanghai-based Spreadtrum Communications (SPRD) has agreed to pay an estimated US$76 million for the acquisition of Quorum Systems, a company that designs CMOS radio frequency transceivers. Spreadtrum is a wireless chip designer. The acquisition is significant amidst speculations that China will soon issue 3G licenses.

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