Chinese Tech Stock Weekly Summary (5/5-5/11)

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

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Hardware

• ASUSTeK Computer Inc. [ASUS] has recently laid the foundation for a 3 billion yuan (US$429.3 million) factory in Jianxi Province in the Chinese mainland. In the preliminary stage the factory in Ji’an city will produce copper wire yarn and computer accessories. It will produce mainboards and assemble notebook computers in the future. Annual production at the factory is expected to reach 10 billion yuan (US$1.4 billion). ASUS has a global staff of more than 100,000. Revenue for 2007 reached US$6.9 billion.

Telecommunications

• Shares of China Unicom (CHU) and China Netcom Group Corp (CN) (Hong Kong) surged as investors raised their exposure to the stocks on hopes the long-delayed telecom industry restructuring would finally start on May 17. There has been speculation in the markets that China will announce a restructuring plan for the telecom industry on May 17, coinciding with World Telecommunications Day.
• China Mobile (CHL) has invested 14.2 billion yuan (US$2.03 billion) so far to install a 3G cellphone network based on homegrown TD-SCDMA in eight Chinese cities. The parent firm has installed 14,300 base stations, including 3,400 in Beijing and 2,600 in Shanghai. On restructuring of the Chinese telecommunications industry, preparatory work is under way but the company has yet to receive official notice of the start date.
• Huawei Technologies, a telecoms equipment maker, is mulling the sale of a multi-billion dollar stake in its mobile devices unit to a foreign investor. The potential sale is at an early stage and could be among the largest foreign investments in a Chinese firm. The move could help the company navigate the North American market. Huawei plans to invite strategic investors and private equity companies later this month to bid for a significant stake in the business, with a foreign investor possibly taking a majority shareholding in it.
• Huawei Technologies Co. targets to lift its mobile phone and data card sales volume by 150 percent to 50 million units in 2008, in a bid to replace ZTE Corporation as the largest mobile phone manufacturer across China. Huawei sold 20 million mobile phones and data cards in total last year, compared with 31 million units of ZTE. The company is about to outsource part of its mobile phone manufacturing contracts to Foxconn International Holdings Ltd. With a broad range of equipments and solutions, Huawei has witnessed a rapid growth in its business and gained reputation around the world, where carriers such as Vodafone and British Telecom have chosen the company to be their trusted partner.
• China Mobile is now aggressively brewing it's A-share listing. However, there is still no specific timetable for the listing. The return of China Mobile will speed up China's telecom industry long-waited restructuring. It is rumored that China Mobile will merge with small fixed-line firm China Tietong. Fixed-line giant China Telecom (CHA) will acquire China Unicom's CDMA network, while the remainder of Unicom will merge with fixed-line carrier China Netcom and operate a GSM network. China Satcom will join a national aerospace consortium.
• China Telecom plays dominantly broadband market in Guangdong with up to 63.65 percent of respondents of the latest survey say they were subscribers of China Telecom. The rest of the market was grabbed by Great Wall Broadband, eHome, and Zhujiang Broadband, with a market share of 9.16 percent, 18.08 percent, and 9.11 percent, respectively. There were no respondents using the broadband Internet access service of China Netcom, the biggest rival of China Telecom.
• China Mobile has built the world's highest internet cafe in Tibet, mainly aimed at meeting the robust communications demand of China's Olympic torch relay team across Mount Qomolangma. China Mobile has built a business office and Internet cafe at an altitude of 5,200 meters at Mount Qomolangma base camp to provide mobile services and Internet services to government officials, mountain climbing members and journalists. The internet cafe and the business hall serve 40 to 50 customers each day. In addition, China Mobile has also expanded the bandwidth in Tibet, in a bid to guarantee the staff at many of the work units on the Everest areas can access the Internet smoothly.
• The five-star Internet Data Center [IDC] that is funded by China Netcom was recently established at the company's Guangzhou Scientific City's International Communications Center. This signals the improvement of China's Netcom's IDC service regulation and brand value and marking a key step for the company in entering the information services outsourcing field. The Guangzhou Scientific City is one of Chine Netcom's eight five-star IDCs, covering an area of 22,800sqm and accommodating China Netcom Group's international communications center and its Guangdong Branch's network management and operations center. Multiple internationally well-known companies, such as Hong Kong's PCCW Limited, have already settled in the City.

Media, Entertainment and Gaming

• Giant Interactive Group Inc. (GA), a Chinese leading online game operator and developer, announced that the peak concurrent players of Giant Online have exceeded 344,000. Immediately after the release of the news, Giant Interactive's stock rose 9.31 percent, and closed at US$17.15 on May 5, 2008. Its market cap reached US$4.41 billion, far more exceeding Shanda Interactive Entertainment Ltd.'s (SNDA) US$2.61 billion and The9 Limited's (NCTY) US$637.39 million. Giant Online started an open beta test on March 28. Its peak concurrent players exceeded 237,000 on the very day. Previously, the company's first proprietary online game ZT Online has saw its peak concurrent players exceed 2.1 million.

Software

• Sales of Linux software in China reached 38 million yuan (US$5.4 million) in the first quarter of 2008, representing an increase of 22.6 percent form the comparable period one year ago. In contrast to the slight decline of Unix operating system, Linux's proportion climbed 0.2 percent, underscoring the vitality of Linux in this emerging country. Linux market has been penetrating to the vast northwest and southwest areas. In the east and north China sectors, Linux software vendors have been taping into the secondary and tertiary cities based on their achievement made in the first-level cities.

Mobile/ Wireless

• Nokia (NOK) announced the launch of the Nokia 6122c mobile phone model, exclusively available for China Mobile Communications Corp. [CMCC], which increases Nokia's commitment to the China market. Based on S60 and Symbian OS, the Nokia 6122c offers CMCC customers rich entertainment features and powerful applications scalable ability. With CMCC keys specifically dedicated to the internet, customers have faster and easier access to all of CMCC's Internet services and contents.

Internet

• Alibaba.com Ltd.'s net profit more than doubled in the first quarter from a year ago as the company attracted more paying customers. Net profit rose to 300.7 million yuan (US$43 million) from 142.1 million yuan (US$20.3 million) in the same period in 2007. Sales grew 53.2 percent to 680.1 million yuan while its registered users climbed 37.3 percent to 29.7 million. The credit crisis and the looming slowdown of the U.S. economy are creating pressure on the global trade environment. Nearly 84 percent of the company's registered users were from China, which recorded a 36.4 percent increase to 24.8 million. Its paying customers grew 35.6 percent to 327,118.

Semiconductor

• Semiconductor Manufacturing International Corporation (SMI) Hong Kong representative Chen Wai-yui says she hopes to confirm the cooperation with strategic investors in the first half of the year. SMI has enough capital for cooperation with strategic investors. The discussion to bring in strategic equity investors or convertible tool investors has seen progress at this moment. As at the end of March 2008, the company has cash on hand of US$506 million. In the first quarter, SMI reported a 10 percent rise in sales in the U.S.