Chinese Tech Stock Weekly Summary

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

Internet

• Surging domestic demand is spurring ChinaCache, a content-delivery network [CDN] service provider claiming a 75 percent market share, to double its capacity by year-end. To meet rising demand, ChinaCache has been doubling capacity every year for the last two years, reaching 500 megabytes. An industry analyst pointed out that the relatively high fees of CDN providers had hindered wider user adoption. But competition is heating up. Besides ChinaCache, a number of telecommunications carriers and data center operators have started to offer CDN services on the mainland.

• Movius Interactive Corp., a provider of messaging, collaboration and mobile media services, expects rising mainland sales to boost its Asia-Pacific revenue to about 30 percent of total sales within two years from the current 10 percent. The company sees great market demand for mobile instant messaging and video messaging services in China. Sales in the Americas accounted for about 55 percent of the company's total sales last year while sales in Europe, the Middle East and Africa represented 35 percent of total sales. Revenue from traditional voice-mail and short-messaging solutions accounted for about 70 percent of the company’s sales while new applications accounted for the rest. Movius recently launched an interactive mobile advertising service that supports multichannel video mixing. According to researcher Frost & Sullivan, Movius held about 10 percent of the global market for voicemail and messaging services last year.

• European internet firm Babelgum, which operates a free-to-view global Web television network, plans to start broadcasting in the mainland next year with programs tailored to domestic requirements. According to the company, China is a very important market because of its massive internet penetration rate and it’s aiming to enter this market next year. The company will consider speaking with companies on possible strategic alliances to facilitate the Babelgum China platform.

• China's rapidly growing population of Internet users may have surpassed the U.S. last month to become the world's largest Internet user base. According to official estimates by government research group China Internet Network Information Center [CINIC] that are released every six months, the number of Internet users grew at an average of 6.1 million users per month in 2007. According to CINIC, the country's total internet population grew 53 percent to reach 210 million last year from 137 million in 2006. Internet usage in rural areas grew particularly fast, contributing 40 percent of the 73 million new internet users last year. In its own research, BDA China Ltd., a Beijing-based technology consulting firm, estimates that China has as many as 228.5 million Internet users, compared with 217.1 million in the U.S.

• BDA estimates that China's online advertising market reached US$1.3 billion in revenue in 2007, while U.S. Internet ad spending was expected to reach US$21.4 billion in the same period, according to research company eMarketer Inc. Though the two numbers aren't directly comparable, analysts agree the disparity of ratios of user numbers to advertising dollars is vast. BDA says the Internet makes up only about 5 percent of advertising spending in China compared with 10 percent in the U.S. But if China's economy continues to grow and China's young Internet users increasingly choose the Internet over traditional forms of entertainment, China is bound to catch up. BDA adds that advertising grows with the growth of the economy and media. In the next five years, BDA estimates that the number of Internet users in China will grow at a compounded annual rate of 18.5 percent, while the U.S. will grow at only 2.2 percent. By 2012, that would give China 590 million Internet users.

Mobile/Wireless

• In 2007, China mobile phone output reached approximately 594.4 million units, among which, 548 million units were legal products from official mobile phone producers and 46.4 million units were illegal products from official mobile phone producers. Sales volume reached 180.7 million units, amounting to 16 percent of the world total. In the same year, the global mobile phone output reached 1.1 billion units, of which 52 percent was from China, exceeding 50 percent for the first time.

• H3C Technologies Co., Ltd. announced that it will introduce in China the first enterprise-level 802.11n wireless products and integrated mobile Internet solutions, such as wireless access points and controllers. H3C Technologies aims to assist customers establish a more stable, safe and flexible wireless network and further promote the application and popularization of China's enterprise-level wireless network.

• Nokia Oyj, the world's biggest maker of mobile phones, will sell handsets valued at about US$2 billion to China Postel Mobile Communications Equipment this year, 20 percent less than in 2007. The order is part of a partnership with China Postel, Espoo, Finland-based Nokia said in a release on its Web site. China Postel, a subsidiary of China P&T Appliances, is the country's biggest distributor of mobile phones. Last year, it agreed to buy US$2.5 billion worth of Nokia devices.

Telecommunications

• China Telecom (CHA) bought the network assets of the Beelink Information Technology Co., Ltd. via its local branch in Jinan. The acquisition will help change the competition status on Jinan’s broadband market. Beelink used to charge the local branch of China Netcom on claimed unfair competition on January 29 this year. China’s fixed telecom service operators still have room to lower their fixed phone charges, said Zhang Chunjiang, general manager of China Network Communications Corporation [CNC]. Zhang said it is possible for the charges to go down along with technological advancement but the price-cut launched by mobile phone operators casts heavy pressure on fixed phone operators, by attracting fixed telephone users to adopt mobile telecom services. Under the pressure, the fixed telecom service operators, namely China Telecom and China Netcom (CN) will have to opt for full-play operation or 3-network convergence.

• ZTE Corp. announced that it had inked a contract to arrange a buyer's credit program for MobilKom a.s. This is the first telecom financing program a Czech company has made in China. It is also the first time for ZTE to deploy a CDMA2000 1xEV-DO Rev.A network in Europe. China Development Bank will be responsible for financing a total of 19 million euros (US$9.5 million) for MobilKom a.s., in line with a contract it signed with the Czech mobile phone operator at the end of 2007.

Media, Entertainment and Gaming

• Indian media company UTV Software Communications is eyeing fresh opportunities in the mainland's gaming and entertainment sectors, months after acquiring Tom Online's former mobile and online games unit. In December, UTV completed its earlier announced acquisition of the 59 percent controlling stake in Indiagames for an undisclosed sum from Beijing-based Tom Online, the wireless internet unit of Tom Group. UTV had earlier acquired a controlling stake in British gaming company Ignition. The company declined to provide any specific initiatives, but said it wanted to follow the path other Indian IT services firms, such as Tata Consultancy Services and Infosys Technologies, had taken on the mainland.

• The online gaming sector's strong momentum in China is continuing with most industry leaders posting better than expected profits in the final months of last year. Of the top five online gaming companies, Netease (NTES), Shanda (SNDA), The9 (NCTY) and Perfect World (PWRD) beat analysts' revenue and profit forecasts for the fourth quarter. The9 reported the best results, after launching Burning Crusade, the highly anticipated upgrade to its hit game World of Warcraft in September. The9 benefited from a complete quarter of the Burning Crusade, said a Citigroup analyst. Sales growth of 34 percent quarter on quarter and 50 percent year on year again made The9 the mainland's third-largest online gaming company. Revenue was US$61.3 million in the fourth quarter, beating Giant Interactive's US$59.6 million. The9’s profit soared 125 percent to US$11.8 million from last quarter, though still 18 percent lower than a year earlier. Citigroup added that The9 may struggle to keep up the pace since the launch of Burning Crusade had been delayed since last summer, and that anticipation drove up sales substantially in the fourth quarter.

• CDC Games announced that it has licensed “Digimon RPG” and “Digimon RPG2,” the massively multiplayer online role playing games [MMORPG] based on a Japanese television animated series, for distribution in North America and China from SK Telecom. Digimon RPG and Digimon RPG2 are developed by Digitalic and are also jointly planned by Digitalic and Bandai Korea Co., Ltd. CDC Games intends to launch Digimon RPG in North America later this year. Digimon RPG2 is currently under development and is expected to be launched first to the Korea market later this year. Digimon RPG and Digimon RPG2 are the latest in several new games licensed in North America and China by CDC Games International [CGI]. CGI already has launched games outside of China, including Minna de Battle in Japan and Lunia in North America.

• China Digital TV Holding Co., Ltd., (STV) a provider of conditional access [CA] systems to China's rapidly growing digital television market, announced a collaboration with Intel Corp. (INTC) for the mutual development of advanced digital television products. Under the terms of the agreement, China Digital TV and Intel Corporation will cooperate to enable China Digital TV's CA solution to use the Intel CE 2110 Media Processor. The relationship is said to fit with the company's strategy of expanding into value-added services that will require more advanced processing capabilities as it prepares for increased digital television penetration in China. China Digital TV will modify its CA software to run optimally on the Intel CE 2110 Media Processor, a complete system-on-a-chip that features an advanced processing unit supporting MPEG-2 and H.264 hardware video decoders, DDR2 memory interface and 2D/3D graphics accelerators. The cooperation will allow China Digital TV to package its CA software with the Intel CE 2110 Media Processor to sell to China's set top box manufacturers. The integrated solution will enhance the system's ability to encrypt and decrypt signals for digital television systems.

• China Media Group Corp. [CMG] (CHMD) announced that it is in advanced discussions with the board and major shareholders of Guangzhou Waho Culture & Media Co. Ltd. [GWCM] to acquire the majority interest in GWCM. GWCM is engaged in online advertising, managing information portal websites, print media and valued added services. GWCM holds the operational rights to the print and online edition to Guangdong Tietong Yellow Pages. Guangdong Tietong is the provincial arm for China Tietong Telecommunications, one of the 6 licensed telecom carriers in China. CMG currently owns approximately 18 percent of GWCM and wants to increase this stake to become the controlling equity owner. In China, the online advertising revenue is expected to grow from US$621 million in 2006 to US$2.2 billion in 2010, an annualized growth rate of 37 percent.

• Giant Interactive Group Inc. (GA) announced its plans for Giant Online to begin open beta testing on March 28, 2008. Giant Online is the company's second self-developed game. It is a free- to-play 2.5D massively multiplayer online role playing game [MMORPG] featuring a modern military theme. Players may choose their characters in one of fourteen different roles, such as engineers or spies. Giant Online will provide players with a wide selection of modern weapons and equipment, such as guns and airplanes, and allow players' characters to engage in friendship and even romance. To further enhance the level of interactivity, Giant Online will utilize the Company's server technology that allows for single-shard play by 1 million concurrent users. Giant Online is said to be doing well during the closed beta testing process with positive feedback from its beta testers.

Software

• Microsoft China plans to set up an IT training center in Wuxi to turn out skilled professionals to work in the city's emerging IT industry. Microsoft [China] Co. Ltd. and the Wuxi government signed a deal to establish the training program. Wuxi New District will provide infrastructure for the training center, while Microsoft will bring the technical platform and program. The center is expected to offer professional IT training to 10,000 students a year. Wuxi plans to have 100 companies providing 2,000 staff and will have an export volume of US$30 million.

• Kingdee International Software Group has incorporated Kingdee Software (Sichuan) Co., Ltd., with registered capital of 10 million yuan (US$1.4 million), which will be the company's third independent legal-person company following the first two ones in Beijing and Shanghai. The company plans to establish a software park in Chengdu, capital of China's Sichuan province, aiming to strengthen local research & development. Moreover, it is building Chengdu into its western management center in the following three years from 2008 to 2010. The company will combine its business in the southwestern and northwestern areas this year, with Chengdu as a tactics-making center and a resources support center to manage business in ten provinces and one city.

Hardware

• The PC shipment of Personal System Group [PSG] under China Hewlett-Packard Company [CHP] jumped 84.5 percent from the fourth quarter of the previous year. In the 2007 full year, the company's shipment of commercial PCs surged 84.4 percent, and shipment of consumer PCs grew 153.4 percent. In detail, shipment of commercial desktops gained 29 percent, commercial notebooks 80 percent, consumer desktops 98 percent, and consumer notebooks 273 percent. China's third- to sixth-tier cities contributed 40 percent of PSG's current total operating revenue. The company said it will focus on the youngster and small- and medium-sized company markets in 2008.

• IBM Corp. (IBM) has opened its first supply-chain research facility to meet the growing demands of companies that are struggling to manage their globally expanding trading networks. The facility is located in Beijing because of China's role in the global supply chain. The company believes that China is a key link from being a major procurement center for sourcing activities to a manufacturing center to now even an R&D center. IBM's supply-chain practice includes 7,500 consultants world-wide. Global services, including the supply-chain practice, are a big growth driver for the company and registered a 17 percent revenue increase in the fourth quarter of 2007 from a year earlier, compared with a 9.9 percent companywide revenue increase to US$28.9 billion.

Semiconductor

• Renesas Technology [China] Co., Ltd. disclosed that the company generated more than US$500 million in sales income in 2007 on the markets of China and Hong Kong. In 2008, the company will expand the semiconductor chip monthly production capacity at its Chinese plant from 60 million units to 100 million units. In the next five years, China will become Renesas Technology's largest semiconductor chip manufacturing base, with the monthly semiconductor chip output up to 200 million units.

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