Chinese Tech Stock Weekly Summary (7/14-7/20)

Includes: CHA, CHU, CN-OLD
by: IRG Ltd

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

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  • The China Telecom Group (NYSE:CHA) has invited telecommunications equipment makers to submit bids for the expansion of its recently acquired 2G cellular network, a project that could be worth as much as 30 billion yuan (US$4.4 billion). The upgrade is part of China Telecom's plan to meet growing demand for mobile services as it becomes a full service operator. The network uses United States-based code division multiple access technology. The service will be launched as early as October. China Telecom will pay 66.2 billion yuan (US$10 billion) to China Unicom Group for its CDMA mobile network assets as part of a restructuring of the mainland telecoms industry. The acquisition will make China Telecom a full service operator, able to offer both fixed line and mobile services. China Telecom will acquire China Unicom's CDMA subscriber base for 43.8 billion yuan (US$6.4 billion).
  • China Netcom Group (CN-OLD) recorded a net increase in subscribers for local access lines in services, resuming from the drop of 389,000 million units in May 2008 to a growth of 160,000 units in June. The total number of subscribers amounted to 108.5 million units by the end of June. In the month of June, the number of broadband subscribers increased by 710,000 units, rosed from the 527,000 units in May. The total number of broadband subscribers increased to 22.4 million units by the end of June.
  • Huawei Technologies said profit rose 31.5 percent as sales jumped 47.7 percent last year, overtaking Nortel Networks Corp. (NT) to become the world's fifth-biggest industry player by revenue. Huawei said profit grew to US$673.54 million from US$512.19 million in 2006 on revenue of US$12.56 billion, against US$8.5 billion previously. Huawei's revenue was the fifth-biggest in the world last year, surpassing the US$10.9 billion taken by Canada's Nortel. Cisco Systems (NASDAQ:CSCO) was the world's No. 1 with US$34.7 billion in revenue last year, followed by Stockholm-based Ericsson (NASDAQ:ERIC) with US$31.3 billion, Alcatel-Lucent (ALU) with US$27.9 billion and Nokia (NYSE:NOK) Siemens (SI) Networks with US$21 billion. Huawei has been boosting sales by expanding abroad and offering discounts of up to 80 to 90 percent to standard prices to grab contracts in developed markets.
  • China Telecom kicked off new round of procurement for 40G WDM transmission system equipment for the Shanghai-Wuxi project. It is the first time for China Telecom to buy 40G WDM equipment after it conducted the tests on 40G circuit long-term transmission and IP network at the end of last year. During the course of the tests, controversies had been aroused within China Telecom over whether it should use the current 10G WDM system and 40G Colorama routers or newly establish a 40G WDM system. As the bellwethers of the telecom equipment industry, Cisco and Juniper suggest China Telecom to upgrade its routers to 40G based on the existing 10G WDM system. Working this way, China Telecom has no need to carry out large scale reconstruction of its transmission system, instead, it only needs to upgrade its routers.
  • The restructuring of China's telecommunications industry will take about half a year. Chinese regulators said in May they will issue third-generation mobile-phone licenses after the restructuring, which will merge the country's six operators into three. There is uncertainty, however, when the restructuring will be completed. The mergers are expected to be finalized by the end of the year, but operational integration will take longer. Speaking at a press conference about telecom services for the Olympics, Xi didn't give a specific timeline for the industry restructuring. Confirming expectations, China won't provide services based on two 3G technologies developed abroad, Wideband Code Division Multiple Access and CDMA2000, during the Olympics.
  • China Unicom (NYSE:CHU) is working out a scheme to shake up the existing 48 divisions in a bid to secure smooth integrated mobile and fixed-line telecoms businesses after it merges with fixed-line operator China Netcom. Unicom, which has already had 27 divisions, is likely to see over half of its departments overlap in terms of function after take over 21 departments from China Netcom. Moreover, its headquarters will get 1,200 employees in total after sending more than 200 employees to China Telecom and getting around 700 ones from China Netcom's headquarters. The new China Unicom plans to reset divisions and send some employees to the new units. Later, it will cut some of the departments as well as employees step by step until its headcount reduce to about 600.

Media, Entertainment and Gaming

  • Scientific Games Corp. (NASDAQ:SGMS) had US$60 million of sales in China, suggesting about US$3 billion in annual revenue in China. Scientific Games began selling Olympic-themed lottery tickets in China in the first quarter, capitalizing on publicity for the games, which start next month in Beijing. Demand in China will hold up after the games as Scientific Games sells tickets in more stores. In the U.S., the slowing economy isn't hurting sales because states are expanding the use of lotteries to boost revenue. Scientific Games rose US$1.60, or 5.9 percent, to US$28.91, the biggest gain in two months. The company plans to start printing tickets at a factory in Beijing in the fourth quarter to increase profitability. It is currently shipping products by air to China from Georgia. First-quarter profit fell 20 percent to US$19.9 million from a year earlier while revenue rose 6.1 percent to US$257 million.
  • China's online game industry will grow at an annual pace of 20 percent in the coming five years, Wu Shulin, vice director of the nation's General Administration of Press and Publication, forecasted on July 16, 2008. The online game industry can directly generate revenues of 26.2 billion yuan (US$4 billion) in 2012 and bring revenues of 100 billion yuan (US$15 billion) to other industries. China's online game players amounted to 40.17 million as of 2007-end. Direct revenues from the industry leaped 61 percent to 10.5 billion yuan (US$2 billion) and indirect revenues for other industries hit 40 billion yuan (US$6 billion) last year. Chinese online game developers have made great improvement in their independent R&D abilities for original games, which have snatched more than 60 percent market share for three consecutive years.


  • TCL Multimedia Technology Holdings abruptly adjourned a shareholders' meeting seeking approval for its proposed HK$1.2 billion (US$154 million) share sale. The company won the approval for the sale agreements but voting on the parts authorizing its directors to issue them was adjourned while a loan agreement was rejected. Voting on the part related to a waiver for the subscribers to make a buyout offer was also adjourned. TCL Multimedia last month announced plans to issue 4.39 billion new shares to its parent TCL Corp., Chairman Li Dongsheng and 15 other investors. The offer price was a 15 percent discount to the most recently traded price at the time.