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

• • •

Internet

  • Social networking website 51.com plans to list in the U.S. by the end of next year, creating a company worth between US$2 billion and US$3 billion. One of the largest social networking sites on the mainland, 51.com has 120 million registered users, of whom 50 million log in at least once a month. Co-founded by Zhang Jiangfu in 2003 in Fujian as 10770.com, the site changed its name to 51.com after chief executive and co-founder Pang Shengdong bought it in 2005. The headquarters were moved to Shanghai. The company uses 50 gigabytes of bandwidth to support its site and plans to increase that to 60 gigabytes by year-end.
  • Sohu.com (NASDAQ:SOHU) says it will list its games business in the U.S. after reporting a sevenfold increase in second-quarter profit. With sales of online games and advertising soaring, Beijing-based Sohu is taking advantage of growing investor appetite for the mainland internet industry. Boasting 253 million internet users, the mainland has passed the U.S. as the largest Web market in the world. Sohu reported net income of US$40.2 million in the second quarter, compared with US$5.7 million a year earlier.
  • Online education provider China Distance Education Holdings (NYSE:DL) raised US$61.25 million through an initial public offering, lower than its planned US$115 million offering. Share prices closed its first day of trading at US$6.63, below its US$7.0 offering price. Citigroup and Merrill Lynch were the joint bookrunning managers. The Company runs a network of 14 websites that offer professional certification training and test preparation courses in many industries including law, accounting, and healthcare as well as websites for online language learning.

Investments

  • Nokia (NYSE:NOK) is more than doubling the size of its direct venture investment fund with an injection of $150 million, with a view to putting some of the money to use in China and India. Menlo Park, California-based Nokia Growth Partners was set up in 2004 to directly manage $100 million of Nokia's money. Its investments have included Bitboys, a Finnish developer of graphics chips that was bought by ATI in 2006 for US$44.5 million, and Global Locate, a U.S. maker of GPS chips that was bought by Broadcom Corp. (NASDAQ:BRCM) for at least US$146 million last year. Qualcomm (NASDAQ:QCOM) has a venture fund with a broad portfolio, much like Nokia Growth Partners. Research in Motion (RIMM), which makes the BlackBerry, announced in May that it had set up a $150 million fund with outside partners to invest in companies creating software for BlackBerrys and other mobile devices. In March, Apple (NASDAQ:AAPL) said it would set up a $100 million "iFund" for the development of iPhone and iPod Touch applications.

Mobile/Wireless

  • Telegent Systems announced that it has been selected by Shenzhen ZTE Mobile Telecom to provide its free-to-air mobile TV solution for selected ZTE mobile handsets sold worldwide. Under the agreement, Telegent will be the exclusive supplier for the free-to-air mobile TV feature for a period of two years. Solution enables consumers worldwide to receive local TV broadcasts.  Telegent’s mobile TV solution enables consumers to receive all local broadcast channels no matter where they are, providing consumers with a compelling, free and easy-to-use method of watching the same news, sports and other programming that they receive on their TV sets at home.

Telecommunications

  • The state parent of China Telecom (NYSE:CHA) plans to invest up to 80 billion yuan (US$12 billion) to expand and upgrade a newly acquired mobile network over the next three years, said the listed firm's president, Shang Bing. China Telecom's parent agreed in June to pay 66.2 billion yuan (US$10 billion) for the Unicom group's CDMA web, a long-underperforming network once regarded as a cheaper alternative to China Mobile's (NYSE:CHL) Global System for Mobile Communications. The company also agreed to fork over 43.8 billion yuan (US$6.4 billion) for Unicom's CDMA customers and business, as part of a government-led shake-up of the world's largest telecoms industry.
  • China Mobile has recently won regulatory approval from the Ministry of Industry and Information Technology of China for its second-phase TD-SCDMA construction solution. The solution is aimed at 28 major Chinese cities except the previous eight cities. China Mobile has been in contact with telecommunications equipment providers. A telecom equipment provider disclosed that the solution included about 30,000 base stations. However, a top China Mobile executive did not confirm the number. China Mobile actually invested 15 billion yuan (US$2.2 billion) in the eight-city TD-SCDMA solution, Wang Jianyu, president of China Mobile, said in an interview. By now it has built 14,688 base stations, and it plans to add to 18,000 at the end of 2008. The new solution is predicted to have a total investment of more than 30 billion yuan (US$4.4 billion).
  • China Mobile is to decrease the number of mobile phone console games on its telecoms platform by about 66%, citing a report. In early July 2008, the biggest mobile telecoms operator in China sent an announcement to its game providers, saying that from August 1, the number of A- Band C-class console games on its mobile console game platform called Mybox would be decreased to 40, 30 and 20 at most, compared to 130, 100 and 80 presently. The number of ordinary games and games of low credit would be pressed from 60 and 30 to not more than six and two. The plan was made after China Mobile executives' visit to Europe, where they found many telecoms operators offer a small quantity of high-quality games for players to download.
  • Chinese telecoms are ordered to freeze network construction work to avoid traffic disruption during the Olympic Games. Chinese telecommunications operators have been ordered not to install new phone lines during the Olympics to avoid disrupting network traffic. The paper said the operators aren't allowed to carry out network construction work, upgrades and new connections from July 20 to Sept. 20 in the cities hosting Olympic events. A similar ban applies to other Chinese cities that aren't hosting the Games, during the period from Aug. 1 to 25. The arrangement will affect major operators such as China Mobile, China Unicom (NYSE:CHU), China Telecom, and China Netcom (NYSEARCA:CN).

Media, Entertainment and Gaming

  • Giant Interactive (NYSE:GA) is reportedly talking about acquiring a domestic online game operator for US$500 million. The person in the know reveals that Giant Interactive is likely to become China's largest online game services provider after the acquisition. Currently, there are a few online game operators in China that are worth USD 500 million each. Most of them have debuted on the stock market. Thus, 9you Information Technology (Shanghai) Co., Ltd., which has put off its listing in Japan due to a lawsuit with T3 Entertainment, a major South Korean MMO developer and publisher, is the most likely target of Shi Yuzhu, boss of Giant Interactive. Though 9you has nearly 50 million yuan (US$7.3 million) of cash flow each month, VCs are anxious to cash in and quit because its IPO is delayed indefinitely. They may be interested in Giant Interactive's offer. On the other hand, Giant Interactive hopes to enrich its product range, so that it is able to resist lager risks. Giant Interactive remarked on July 30, 2008, that there was no such an acquisition, while 9you has no response to the news.
  • Beijing Gehua CATV Network announced that it is considering setting up a new subsidiary in charge of data business. According to Beijing Gehua's filing, the new data business subsidiary will also be in charge of a broadband joint venture, in which the new data subsidiary will have a 51 percent stake. Industry sources say the broadband JV, with a registered capital of 30 million yuan (US$4.4 million), will be jointly established by LGI China Holdings, BV (Bejing Gehua's joint venture with the world's biggest international cable group Liberty Global Inc) and PRCVP Beijing Broadband L.P. The three sides have signed the relevant contracts on the cooperation. The move is seen as the company's efforts to reduce risks in broadband investment, which is not the company's core business.

Hardware

  • China Security & Surveillance Technology (NYSE:CSR), a provider of digital surveillance technology in China, has announced its intention to acquire three Chinese security and surveillance companies. Letters of intent have been signed with Shenzhen Coson Electronic (Coson), DIT Digital [DIT] and Shenzhen Skyrise Technology (Skyrise) for 100 percent ownership of each business. The total amount of consideration payable for all three acquisitions will be approximately 268 million yuan (US$39.1 million), with consideration to be paid in cash and restricted common stock. The number of China Security's shares to be included in the equity portion of the purchase price for each acquisition will be subject to the achievement of certain net income performance targets over a three year period. All three transactions are expected to be accretive to earnings upon closing and are expected to close within 2008.

Semiconductor

  • Semiconductor Manufacturing International Corp. (NYSE:SMI) says its second-quarter loss widened sharply as it has yet to fully convert its dynamic random access memory [DRAM] manufacturing capacity into higher-margin logic wafer production. Its net loss totaled US$45.62 million for the June quarter, compared with a US$2.1 million loss in the year-earlier period. Sales declined 8.5 percent to US$342.9 million. Gross margin was 6.1 percent. The Shanghai-based company has reached an agreement with customers to exit the low-margin dram business in the first quarter, leading to an impairment loss of US$105.8 million.
Source: Chinese Tech Stock Weekly Summary (7/28-8/3)