Chinese Tech Stock Weekly Summary

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

Internet

• Baidu.com (BIDU) beat expectations with a 79 percent surge in quarterly profit as it attracted more online advertising in the run up to the Beijing Olympics. Revenue more than doubled to 571.1 million yuan (US$79.2 million). Fourth-quarter net income rose to 219.8 million yuan (US$30.5 million) compared with 122.8 million yuan (US$17.0 million) in the year-earlier period. But Baidu said recent winter storms that paralyzed wide parts of China and cut power would lead to a 4.3 - 7.1 percent fall in first quarter revenue. This would be the firm's first recorded sequential fall in quarterly revenue, according to JPMorgan. Baidu predicted first-quarter sales of 533 million yuan (US$74.2 million) to 548 million yuan (US$76.3 million), an increase of as much as 99 percent from a year earlier. The forecast missed the average estimate of seven analysts surveyed for revenue of 566.7 million yuan (US$78.9 million). The company also said it was still interested in listing shares in Hong Kong but that a flotation was not likely this year. According to Analysys International, Baidu's share of the Chinese search market rose to 60 percent in the fourth quarter from 58 percent a year earlier. Google's (GOOG) share climbed to 26 percent from 17 percent, while Yahoo's (YHOO) fell to 9.6 percent from 13 percent. Sohu's (SOHU) share dropped to 1.2 percent from 5 percent.

• The Chinese central government has targeted illegal websites, computer markets and Internet cafes as part of a campaign to rein in juvenile crime. The crackdown is also aimed at websites offering unregistered playing platforms or services for gamers that can be downloaded. Unlicensed internet cafes would be closed down and supervision would be tightened over legal cafes, the report said.

• Xunlei, a download service provider in China, announced that it had lost a piracy suit brought forward by the Shanghai Youdu Broadband Technology Co. [Youdu] and will have to pay 150,000 yuan (US$20,833) in compensation. Xunlei had allegedly violated the "rights of network promulgation and reaping profit," off Youdu promulgation rights. Youdu, which is a content provider for broadband users, paid 600,000 yuan to get the network promulgation rights for a Chinese blockbuster film. The agreement allowed the company to provide the movie for download for one month. Xunlei however did not have rights, yet provided download links on its site for free.

• China plans to cover more than 95 percent of its villages by broadband service this year. Broadband connection has already reached 92 percent of the villages in China, which has about 122 million broadband users to put the country in the top rung in the world. Telephone service would be expanded further in rural areas, with some 99.5 percent of the country's villages already having access to telephones, according to the Ministry of Information Industry. Last year, China saw addition of 73 million people to its total population, 40 percent of them living in rural areas. The total number of rural internet users is now estimated at 52.62 million as at the end of last year, a 127.7 percent jump year-on-year.

• The Chinese government has decided to allow private video-sharing websites to continue operation as long as they do not broadcast illegal content. The State Administration of Radio, Film and Television [SARFT] and the Ministry of Information Industry [MII] said on its website that all video-sharing websites established before January 31 are qualified for a license and can continue operation. The license was needed for any website providing online video services and could have been granted only to State-owned or State-controlled enterprises, according to an earlier regulation.

Mobile/Wireless

• China's phone subscribers, mobile and fixed line combined, are expected to grow by more than 60 million in 2008 to hit a total of 976 million, according to the Ministry of Information Industry. According to the Ministry, the continuous falling of mobile communication charges has directly led to a sharp increase in mobile phone subscribers and some people even replaced their fixed lines with mobile phones. In 2007, China's mobile phone subscribers increased by 86.2 million, while fixed-line subscribers fell by 2.3 million. By the end of 2007, China had 370 million fixed-line subscribers and 530 million mobile subscribers, the two figures combined accounted for a fifth of the world's total phone subscribers, according to statistics from the ministry.

• China's Ministry of Information Industry [MII] and National Development and Reform Commission [NDRC] jointly announced the country's mobile roaming service charges would be lowered starting from March 1 amid fervor of consumer expectation to entirely abolish them. Mobile phone users would be charged 0.6 yuan (about US$.08 cents) per minute for making calls outside the local service area, and 0.4 yuan (about US$0.05 cents) per minute for receiving calls when they travel to another province, according to the new plan. It compares with current charges of 1.3 yuan to 1.5 yuan per minute for the roaming service for Chinese cell-phone users under different payment schemes, prepaid or paying monthly. This means that the country's 539 million mobile subscribers would be able to enjoy price cuts ranging from 54 percent to 73 percent from next month on, or no later than May 1.

• China Mobile (CHL) is expected to lend its support to LTE, the wireless broadband standard that looks set to become the flagship 4G technology. LTE, or Long Term Evolution, is gaining strong momentum as the next generation wireless technology to provide super-fast web surfing on mobiles. Vodafone (VOD) also expressed that it would join China Mobile and Verizon Wireless to promote LTE. It suggests LTE will emerge as the leading 4G technology, rather than WiMax or Ultra Mobile Broadband, which are the main alternatives. Vodafone suggests that WiMax should be harmonized with LTE and further added that Vodafone is planning to roll out 4G networks from 2010.

Telecommunications

• Six handset makers, including Lenovo (LNVGY.PK) and ZTE, were awarded the first post-trial period access licenses to China's homegrown third generation [3G] network, according to the TDSCDMA Industry Alliance. The move indicated that the technology TD-SCDMA was entering the commercial stage. The licenses would immediately give Lenovo, ZTE, Hisense, Samsung, LG and New Postcom opportunities to win procurement deals from China Mobile. In December, China Mobile said it planned to purchase 30,000 TD-SCDMA mobile phones and 10,000 data cards for 3G network trials. China Mobile, China Telecom (CHA) and China Netcom (CN), three major Chinese phone operators, are conducting network trials of TD-SCDMA in 10 cities. China has promised to provide 3G mobile communications services in time for the 2008 Beijing Olympics.

• ZTE Corp. said shipments of its Global System for Mobile Communications [GSM] base stations surged 300-fold last year, ranking it the fourth-largest supplier in the sector. ZTE shipped about 340,000 GSM wireless base stations, essentially mobile phone transmission sites, last year. The products are compatible with 3G mobile technology, according to the company. The company's product lines for the US-developed Code Division Multiple Access [CDMA], a standard that competes with GSM, also performed well in the market. As of the end of last year, ZTE was the biggest supplier in the CDMA market with a 43 percent market share of new CDMA infrastructure contracts.

• China's telecommunications industry faces a huge bill after the worst winter in decades, with millions of users cut off and thousands of kilometers of phone lines damaged. Preliminary statistics from the Ministry of Information Industry showed the bad weather has led to losses of 1.1 billion yuan (US$139.3 million). Ten million mobile and fixed-line subscribers were affected. Some 10,000 mobile-phone base stations remained out of service, and for fixed-line services, 150,000 poles had collapsed while 16,000km of lines had been damaged. It reported that 80,000 telecommunications workers had fanned out across the country trying to restore services as the Lunar New Year holiday added to the demand for phone services.

• China's ZTE is to supply modems to Hutchison 3G UK. The company said it has signed a deal to supply 3G modems to Hutchison 3G U.K. Ltd, a unit of Hong Kong-listed Hutchison Whampoa. Under the agreement, ZTE will supply its HSDPA MF622 modem to Hutchison 3G's operating companies 3UK and 3 Ireland. No financial details were provided.

Investments/ Ventures

• Citigroup (C) and Central China Securities will soon apply to Chinese regulators to set up an investment banking joint venture. The new company would be Citigroup's first investment banking venture in China. It already helps Chinese mainland companies list in Hong Kong, but involvement in the country's mainland investment banking business would be an important expansion. Under its deal with Central China Securities, Citigroup would apply for permission to own the maximum allowable 33 percent stake in the venture. Central China Securities has more than 500,000 securities business clients and about 40 offices in major cities including Beijing and Shanghai, where its investment banking business is based, according to data from the company.

Semiconductors

• China Resources Logic said the proposal of disposing its semiconductor businesses to CSMC Technologies Corporation and the proposal for acquiring Redland Concrete Limited are approved by its shareholders. It also said, as more time is needed to fulfill certain internal procedures before the capital reorganization can be effected, with the consent of the shareholders of CR Logic, the SGM was adjourned after dealing with the above ordinary resolutions.

Software

• China’s software industry saw an increase in revenue of more than 20 percent last year, boosted by particularly swift growth in income from services. The mainland software industry generated revenues of 580 billion yuan last year (US$80.5 million), citing the Ministry of Information Industry. Software and technology services saw the steepest growth, rising 24.8 percent to 97.8 billion yuan (US$13.6 million). China has vowed to raise the contribution to growth from technology-intensive industries such as software.

• AsiaInfo (ASIA) reported fourth quarter and 2007 full year results and announced several significant contracts with China's telecom carriers. Total revenue for the fourth quarter of 2007 was US$40.8 million, a 27% year-over-year increase and 26% increase from last quarter. Net income excluding share-based compensation expense, amortization and impairment charges, after-tax dividend income and gain on discontinued operations was US$8.1 million in the fourth quarter of 2007, a 189% year-over-year increase and 76% increase from last quarter. The Company also announced its agreements to: (i) develop a Customer Relations Management system for China Telecom in Xinjiang; (ii) develop a mobile e-commerce platform for China Mobile; (iii) expand China Mobile's Business Operation Support Systems [BOSS] in Zhejiang, Gansu and Shanghai; (iv) expand and upgrade Business Intelligence [BI] systems for China Mobile in Qinghai and Beijing; and (v) expand China Netcom's CRM system in Jiangsu.

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