Chinese Tech Stock Weekly Summary

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

Internet

• Baidu.com (BIDU) announced that it has widened its agreement with the China Patent Information Center of the State Intellectual Property Office to supply authoritative and professional patent searching services for Internet users by January 2008. Industry observers note that the development of innovations in China has caused the number of patent applications in the country to also increase. According to the statistics from the State Intellectual Property Office, by November 2007, the total number of patent applications received reached almost 4 million. With Baidu reportedly receiving millions of searches from nations around the world, it is expected that this new patent search service will assist researchers outside of China to check on many things about the country.
• According to iSuppli, China failed to meet expectations for subscriber growth and shipments in 2007 for its IPTV. Earlier, Chinese operators had predicted 1.3 million mainland subscribers by the end of this year. The figures from iSuppli show only some 846,000 people will have subscriptions by end of 2007. An industry analyst from China Research noted that the slow rates of adoption could discourage investments required for expansion, and the industry was waiting for some companies to succeed like Shanghai Media Group (CHA), China Telecom, and China Netcom (CN). The analyst cited the failure of the industry to develop a business model that could be replicated in other places.
• Leading Chinese search engine Baidu has signed a deal with Mozilla to have its search tools included in the Firefox browser in China. It’s a similar deal to that signed by Google (GOOG) in the U.S., where its relationship with Firefox generated US$56 million for Mozilla in its most recent fiscal year. Baidu will be paying Mozilla for the inclusion of its search tools in Firefox. However, the deal is not likely to be quite the same windfall for Baidu as it has been for Google; according to Search Engine Journal, Firefox has only 1.5-2% share of the browser market in China, versus the 15-25% share it enjoys in most other parts of the world. This move is significant for Firefox given that most web sites of Chinese banks and B2B portals such as Taobao.com do not support Firefox. According to iResearch, Baidu.com is further consolidating its dominance in China's Internet search market as it holds now 66.2 percent of the market. Firefox said that its partnership with Baidu.com is a part of its long-term strategy in China, which aims to provide more personalized and localized services for Chinese Internet users.

Media, Entertainment and Gaming

• Shanda (SNDA) announced its goal to bring its interactive entertainment content to its Chinese consumers by providing its games products to Changhong's ITV. The plan begins with an agreement entered into by Shanda with Changhong and Intel (INTC) jointly promoting a sports game called X-Ping-Pong. The game can run both on computers and Changhong's TV sets fitted with Intel chips. A Shanda spokesperson said it is looking to adding more sports and leisure games under the agreement in the future.
• Hupo.TV, a Chinese online video web site, announced that it has secured an exclusive partnership with Music Radio, which is part of China Central People’s Broadcasting Station. Under the agreement, Hupo.TV will manage Music Radio’s web site as well as its online marketing and events. Hupo.TV boasts of drawing in more than 30 million unique monthly visitors. Hupo.TV is financially backed by Brad Greenspan, chairman of BroadWebAsia.
• CDC Corp. (CHINA), a gaming and software company, disclosed that its directors and executives repurchased about 467,825 of its own shares under a prearranged trading program in the last nine trading days. The company said the latest buyback adds to 366,000 shares it has already repurchased in the current quarter at a cost of US$2.3 million. CDC Corp. initiated its share repurchase program on May 2, 2006. Since then, the company and its subsidiaries have acquired back around 9 million shares at an average price of US$5.6 per share.

Mobile/Wireless

• The latest report from Analysys International indicates that the size of China's Wireless Application Protocol [WAP] market will reach 52.2 billion yuan (US$7.1 billion) by 2011. The report states that from 2007 to 2011, the average annual compound growth rate of the WAP market will be 44 percent.

Software

• CDC Software, a wholly owned subsidiary of CDC Corporation and a provider of industry-specific enterprise software applications and business services, announced that it has joined the Open Applications Group Inc. [OAGi], a leading open standards group in the enterprise application industry. Nigel Davies, vice president, Supply Chain Solutions for CDC Software, will continue to serve as chairman of the board of directors of OAGI until his term ends in early 2008. Then he will join the five-member Executive Committee of the OAGi, which oversees the Open Applications Group Integration Specification [OAGIS] standard. OAGI is a non-profit development organization focused on building business language standards for enterprise application interoperability.
• Shenyang Neusoft Company, a subsidiary of Chinese software firm Neusoft Group Ltd., announced that its share-swap merger plan with Neusoft Group Ltd. was approved by the Restructuring Committee under the China Securities Regulatory Commission. Neusoft Co., Ltd. currently has a share capital of 280 million yuan (US$38.3 million). Under the plan, Neusoft Co., Ltd. is to exchange its shares with Neusoft Group Ltd. at a ratio of 1:3.5 to complete the merger. It is expected that Neusoft's total capital stock will go up to 520 million yuan (US$71.1 million) after the merger.

Hardware

• Sony China announced the opening of a Sony Style sale and experience store in Shanghai. The store is the first of its kind in the Chinese mainland. Other than providing a display site for Sony (SNE) products, Sony Style will provide sales and repairs. Before this, the company has been relying on retail dealers to market its products in China.
• According to industry sources, China-based Amoi Electronics may shift the focus of its business from mobile phones to PC systems after its president’s resignation. Earlier, Amoi announced that its president, Li Xiaozhong, had resigned due to personal reasons. Other sources, however, cite the accumulated losses of 460 million yuan (US$64 million) posted by Amoi in the first three quarters of 2007 as the main cause for the resignation. Amoi’s appointment of Lu Zhenyu, a former top executive of TCL Computer, as its new president, is seen as an indicator that Lu may change the focus of the company’s business to PC systems.

Semiconductors

• Semiconductor Manufacturing International Corporation (SMI) and IBM (IBM) announced their entering into an agreement to license IBM's 45-nanometer bulk complementary metal-oxidesemiconductor technology to SMIC for 300mm wafer foundry service. Under the agreement, IBM will license bulk CMOS technology to SMIC. The technology can be used to fabricate devices in mobile applications such as handsets integrated with 3G, multimedia, graphics chips, and chipsets at the 45nm technology node. The technology can also support the manufacturing of graphics and other consumer devices.

Telecommunications

• Guangdong Telecom revealed its plan to invest some 5 billion yuan (US$684.4 million) to expand IPTV services. Guangdong Telecom began to deploy IPTV in the second half of 2004 and tested the IPTV system of mainstream manufacturers in early 2005. The company said it will release the bidding results before the end of the year. Currently, IPTV is the main source of income for Guangdong Telecom.
• Genesys Telecommunications Laboratories, an Alcatel-Lucent company (ALU), and IBM announced that they have expanded their global strategic alliance for contact center solutions. The move to develop and market a new collaborative solution in China marks the first time both companies are offering a solution targeting the growing call center market in this region, even as they continue their global work together. Contact centers have become increasingly strategic assets for businesses worldwide, with contact center application revenues in China posting a 15.6 percent growth in 2006 compared to 2005. The revenue is forecasted to register an annual growth of 18.2 percent in 2007 and 20.9 percent in 2008.

Ventures/Investments

• In a statement to Shanghai’s Stock Exchange, the China Securities Regulatory Commission announced its rejection of Sichuan Changhong Electric Co.’s proposal to sell new stock in a private placement to investors, including Microsoft (MSFT). In April, Changhong said it would sell 400 million new shares to 10 institutional investors. Proceeds from the sale is expected to be used to pay its affiliate 1.9 billion yuan (US$260.1 million) for a 75 percent stake in Sterope Investments BV, a Dutch firm that owns South Korea’s Orion PDP Co., a plasma-panel maker. In June, Microsoft China agreed to buy 15 million new shares for 94 million yuan (US$12.9 million).

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