Chinese Tech Stock Weekly Summary (7/7 - 7/13)

by: IRG Ltd

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

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• Macquarie Group and Seek agreed to invest a combined US$105 million in Zhaopin , owner of China's third-biggest recruitment web site, to capitalize on a market where sales have almost doubled in the past two years. Australia's biggest investment bank will buy 29 percent of the Beijing-based company for US$60 million and Seek will pay US$45 million to raise its stake to 43 percent. The sale will help unlisted Zhaopin hire workers in smaller Chinese cities, where the demand is growing faster than in major municipalities such as Beijing and Shanghai. Online recruitment in China generated 277 million yuan (US$40.4 million) in sales during the first quarter, almost double from two years earlier.

• Alibaba Group will invest 2 billion yuan (US$293 million) over the next five years in wholly owned, China's leading online auction site by transaction value. The investment will be spent on technological innovation and attracting new employees. Alibaba Group has invested a total of 1.45 billion yuan (US$212million) in Taobao since it was established in 2003. Alibaba Group expects Taobao's transactions to total 100 billion yuan (US$15 billion) this year.


• Around one million iPhones have been unlocked and brought into China and are running on China Mobile's (NYSE:CHL) network. According to In-Stat China, the number of unlocked iPhones potentially in use in China has more than doubled in the last six months (from around 400,000 in December 2007), a figure that does not include iPhones running on rival China Unicom's network. Apple had shipped 5.4 million iPhones globally by the end of first-quarter 2008, which means the one million devices could account for a sizable proportion of all iPhones in circulation. Negotiations between China Mobile and Apple over an official launch of the iPhone reportedly broke down over Apple's insistence on securing a portion of China Mobile's iPhone revenue.

• DoCoMo (NYSE:DCM) has established DoCoMo China, as a wholly owned subsidiary in Shanghai, China. DoCoMo China will focus mainly on providing mobile solutions for corporate customers, especially locally based Japanese companies. The office is expected to begin operating from the end of July, once the necessary governmental and commercial approvals have been obtained.

• China’s CDMA subscribers had exceeded 43 million by the end of the first quarter this year. It is predicted that by 2011, global CDMA subscribers will surge to 720 million, with a compound annual growth rate of 13.8 percent. At present, the Middle East and Africa remain the most valuable areas to be tapped. The increase in the number of subscribers ushers in the prosperity of CDMA equipment manufacturers, and ZTE, Alcatel-Lucent, Huawei, Nortel and Motorola all become big gainers in the world network equipment market.

• Nokia Siemens Networks is to power China Mobile's expansion drive, signing a 550 million euros (US$874.4 million) network expansion frame agreement. Under the contract, Nokia Siemens Networks, a joint venture between Finland's Nokia Corp. and Germany's Siemens AG, will build the radio and core network for China Mobile, in provinces and cities across China. The deal represents the strengthening of our position as a leading solution provider to China Mobile. The deal has strategic importance as it may help pave the way for larger 3G orders in China later on.


• China's telecoms reshuffle unlikely to deter Korean operator from participating in market, but could make its plan to offer mobile services there difficult. SK Telecom Co. may have to reevaluate its expansion strategy in China's fast-growing telecommunications market following a telecom sector revamp in the mainland. While the South Korean mobile carrier isn't likely to withdraw from China altogether, the company may find it increasingly difficult to raise its stake in local operators due to stiffer competition from foreign telecom firms and China's policy of preventing significant foreign influence in its telecoms sector. Facing slow revenue growth at home, with more than eight out of every 10 people carrying a cellphone, SK Telecom, with a market capitalization of 15.5 trillion won (US$14.8 billion), has been looking to expand overseas. SK Telecom has helped China Unicom run its code division multiple access network for a second-generation wireless service.

• Pacnet set up a joint venture with China-based firm Zhong Ren Telecom, to offer internet protocol services to Chinese companies and expand its presence in the country. Pacnet and Zhong Ren Telecom will each hold a 50 percent stake in the joint venture. The two firms did not disclose financial details. Pacnet, formed from China Netcom's former Asia Netcom unit and Singapore internet services provider Pacific internet, teamed up with a group of companies including Google and SingTel in February to build a trans-Pacific undersea cable.

• BT Group (NYSE:BT) plans to expand its workforce on the mainland by 10 to 15 percent within a year to meet increasing demand from the banking and logistic sectors. On the mainland, the company's customers include Industrial and Commercial Bank of China, Bank of Communications, Air China Logistics and China Shipping Container Lines. Multinational customers include Reuters, Nestle and PepsiCo. China Netcom and China Telecom provide BT with network support in the country while Huawei Technologies and ZTE Corp supply hardware to the company.

• China Telecom (NYSE:CHA) has appointed Shang Bing as president and chief operating officer of the company, replacing Leng Rongquan who resigned from his posts. The mainland telecom operator did not give any reason for Leng's resignation. Shang Bing, a 52 year-old senior economist, is currently a vice president of China Telecommunications Corp, the controlling shareholder of the listed company. China Telecom also appointed Yang Xiaowei as an executive vice president of the company. Yang, a 44 year-old senior engineer, is also a vice president at China Telecommunications Corp.

• Huawei Technologies Co. said its profit rose 32 percent in 2007 on increased orders from clients such as Vodafone Group Plc (NASDAQ:VOD) and China Mobile. Net income climbed to US$674 million, from US$512 million in 2006. Sales rose 48 percent to US$12.6 billion. The company had sales of US$12.6 billion in 2007, up from US$8.5 billion a year earlier. The company realized global contract sales of US$16 billion in 2007, up 45 percent year-on-year. International markets accounted for 72 percent of revenue. Huawei has achieved a growth rate of over 150 percent in developed markets, such as Europe, the U.S. and Japan, while managing strong growth in emerging markets, including the Asia-Pacific, Latin America, the Middle East and North Africa. In mobile networks, Huawei won 45 percent of all new UMTS/HSPA contracts in 2007, making it a top-three supplier for GSM globally.

• ZTE Corporation’s global sales of mobile phones will leap 61 percent to 50 million units this year. The company grew into the world's sixth largest mobile phone maker following Nokia, Motorola, Samsung, LG, and Sony Ericsson in 2007, but it gained only 1.3 percent growth in its mobile phone revenues in the first quarter of this year. ZTE will seek booming growths in the coming two years thanks to China's telecom industry regrouping and the to-be-expanded TD-SCDMA networks. The company will gain 11 billion yuan (US2 billion) revenues from the telecom industry regrouping in 2009 because China Telecom and China Unicom will spend more money on network upgrading. Moreover, if the third-generation mobile license is granted, it will obtain 6 billion yuan (US$878 million) revenues at least next year thanks to the 3G infrastructure construction.

• China Telecom sets a strategic goal to lift the number of CDMA subscribers to 100 million in 2009, rivaling its peer China Mobile. China Telecom, which is taking steps to achieve the goal, have mapped out a plan to set up a mobile business operation that is said to be under the charge of Yang Xiaowei, deputy general manager for China Telecom. The telecoms operator has already nominated management executives for all the divisions under its newly formed operation except the terminal customizing unit. In a bid to come up with the demand for CDMA terminals, China Telecom earlier set up a terminal customizing unit engaged in customization, procurement and distribution of mobile devices.

• Sales outlets of China Netcom (CN-OLD) began accepting GSM mobile telecom business of China Unicom in Beijing. However, it is still pending when China Unicom is able to carry out businesses of China Netcom. Insiders from China Netcom say that China Netcom's Beijing branch is not alone as China Netcom has started to accept businesses of China Unicom in many cities around the country. Even before the completion of the merger, China Unicom and China Netcom had sent employees to each other for trainings.

• ChinaTel Group has completed the installation of the first phase of an internet wireless network in Beijing. The wireless network is live and provides internet access services across approximately 100 sq km of metropolitan Beijing. Wireless broadband services will be provided on the 3.5 GHz radio frequency spectrum that the Chinese government has granted use to Chinacomm for its WiMAX broadband services.

Media, Entertainment and Gaming

• Perfect World Co. (NASDAQ:PWRD) announced that “Zhu Xian” was launched in Taiwan through Game Flier International Corp., a subsidiary of Soft-World International Corp. on June 30, 2008. “Zhu Xian,” an online game developed based on a popular Internet novel with the same name, has been well-received by domestic online game players since its launch in China in 2007. Licensing agreements for exporting the game to nine countries and regions including Taiwan have been signed so far.

• The9 (NASDAQ:NCTY) announced that it would soon kick off inner beta test on Audition2. The Chinese cyber game vendor was licensed the exclusive operation right in May last year from South Korea-based game developer G10 Entertainment under a cooperative agreement. Audition2 is the upgraded version of Audition. It is an online 3D leisure dancing competition cyber game, with unbeatable music experience. The game recorded 780,000 game players simultaneously at maximum. Based on its predecessor, Audition2 has added new features and online community-oriented functions. Chen Xiaowei, president of The9, says that lately it joined hands with South Korean game vendor T3 to set up a joint venture to run and manage a series of cyber games including Audition2. The partnership with T3 deepens the cooperation between the two companies in cyber game development and localization.


• Lenovo Group (OTCPK:LNVGY) will see sales growth in its core domestic market slip in its fiscal first quarter, weighed down by the impact of the Sichuan earthquake. Add that to lingering slow demand in North America, the company could see lower than forecast global shipments and revenue in the quarter to June. Lenovo's personal computer shipment growth on the mainland was 15 percent in the quarter to June, down from 24 percent in the quarter to March. Lenovo's Greater China sales geography makes up its largest market worldwide. It accounted for 34.5 percent of company's revenue in its fiscal fourth quarter to March, while its Americas geographical market contributed 27.5 percent. Sichuan accounted for 3 percent of total personal computer shipments on the mainland.