China Stocks Weekly Update: BIDU, CHU, CN, GOOG, JOBS, NCTY, NIPNY, YHOO

Internet

• Baidu.com Inc (BIDU) remains the most frequently used search portal as it accounts for some 56.6 percent of the market in China, according to iResearch. Google (GOOG) comes in at the No.2 slot, with a market share of 32.8 percent. Combined, Baidu and Google hold nearly 90 percent of China’s online search market. Yahoo (YHOO) holds a mere 5 percent share of the market. The report noted that Baidu was No. 2 three years ago. The research firm said Baidu is still expanding, with the report stating that China’s users of search engines hit 97 million in 2005, a figure that stands for 87.4 percent of all netizens in the country. This number is expected to grow to more than 100 million in 2006, according to iResearch.

• Yahoo! China announced its completion of the adjustment it was making to its Chinese search engine, a move that saw it abandoning the search mode using "one search box". The portal said lack of interaction was one of the basic problems of the search mode with only one search box as it could not have the features that would allow communication, interaction and community. Web 2.0, according to Yahoo! China is what is needed to cope with the number of web pages available for search now that is approaching almost 1 billion. Aside from adjustment to the homepage, Yahoo! China said it will launch a series of vertical search services such as movie search, shopping search and tourism info search. It disclosed that it will deploy a new shopping search this year. The services will be available in its own web sites like Taobao and Alibaba.com and also in other domestic web sites that would include eBay (EBAY), Dangdang and Joyo (AMZN).

• 51job, Inc. (JOBS) a leading provider of integrated human resource services in China, announced that it has reached an agreement to sell a 15 percent stake to Recruit, a Japan-based human resource service provider. The share is priced at US$13. As part of the agreement, Recruit will acquire at most 40 percent of 51job shares within the next three years. Recruit, one of the largest human resource providers in Japan, reported sales revenue of US$3.5 billion during the annual fiscal year ending March 31, 2005.

• The9 Ltd. (NCTY) a leading gaming company in China, announced that it is entering an agreement with NCsoft Corp, a leading developer and publisher of online games based in Korea, which secures for it an exclusive license to operate the Guild Wars game, a Competitive Online RolePlaying Game, CORPG, in Mainland China. Under the agreement, The9 will possess the license for three years from the date of the commercial launch of Guild Wars in mainland China. More than one million units of the game have been sold in less than five months since it was launched in late April 2005. The new chapter of the Guild Wars franchise, Guild Wars: Factions, is expected to be launched in late April 2006. Currently, Guild Wars is available in South Korea, the U.S., Europe, Japan and Taiwan.

Mobile/Wireless

• NEC Corp. (NIPNY) announced that it has invested an additional US$225 million into its wholly owned cellular phone subsidiary in the city of Wuhan with the aim of bringing improvement to its money-losing cell phone business in China. With the capital infusion, NEC has lifted the unit’s total capital to US$248 million. The company saw its number of cell phone sales agents decline from 2,500 to 2,000 and the varieties of cell phones it sells down to 15 bringing about losses that the extra investment will be used to cover. NEC said it aims also to boost its presence in the country by veering away from the mid-end market and moving into high-end phones. Given the 12-percent expansion of the cell phone market in China to 93 million units in 2005, NEC posted in 2005 sales of some 2 million units, which flat compared to 2004 and way below its target of 3 million units.

• With a production volume of 68.3 million units, Tianjin produced 10 percent of the world’s mobiles phones in 2005, according to data released by the organization committee of the 2006 International Mobile Industry Expo and Forum. The Tianjin figure represents about 25 percent of the China’s total production of mobile phones in 2005. Currently, there are about 200 processing enterprises for Motorola, Sanyo and Samsung in TEDA (Tianjin Economic-Technological Development Area), producing over 400 kinds of completed products with a total value of about 20 billion yuan (US$2.4 billion).

Media, Entertainment and Gaming

• Observers note that A8 and Rock Mobile are two of the Mainland companies poised to tap what appears to be next stage of the mobile music. Both firms purchase rights from musicians and record labels and licensing those rights to mobile operators and other consumers. Shenzhen-based A8 and Guangzhou-based Rock Mobile have both launched projects to work with unsigned artists. The two firms said they negotiate with provincial radio programs, music contests and web sites that allow users to upload their self-produced material. A8 said it is boosting its Internet presence through a newly opened online music store. One of the firm's most popular services allows aspiring and professional musicians to upload their songs to A8-hosted blogs. A8's competitors in this area include top100.cn, and aigomusic.com, operated by one of China's biggest sellers of digital music devices. Rock Mobile is pursuing a combined mobile-Internet business model that will allow buyers of MP3-enabled phones to use Rock Mobile's services. The firm has been making acquisitions since it received a US$30 million venture capital infusion last year. It bought wo99.com, the mainland's largest online karaoke site, and a Tianjin-based company that the company said would help Rock Mobile sell services to China Unicom (CHU) and China Netcom (CN).

Telecommunications

• An industry source said that China Netcom had agreed to US$350 million price with the group, which includes Simon Murray's General Enterprise Management Services, GEMS, Spinnaker Capital Group and Ashmore Investment Management, for the sale of Asia Netcom. Murray is a former managing director at Hutchison Whampoa. Ashmore Investment Management also has a stake in C2C, a major Asian cable firm. The report said the group edged out of the deal three Indian bidders – VSNL, Reliance Communications and Bharti Group. The source said China Netcom has been looking for a buyer for Asia Netcom, which is composed of the former Asia Global Crossing that the company acquired out of insolvency for US$120 million plus assumption of unspecified liabilities in 2003.

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