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

• • •

Internet

Alibaba Group (OTC:ALBCF) is likely to march into the online game market in the future. China Yahoo, one of the units of Alibaba, has contacted with a large-sized online game developer in the nation, expecting to dip toe into the online game market like Internet giant NetEase.com Inc. (NTES). China Yahoo participated in the sixth China Digital Entertainment Summit Forum on July 16, 2008, revealed an online game company executive, noting that the company was possibly taking the opportunity to approach online game developers.

Mobile/Wireless

KongZhong Corp. (KONG) announced on August 18 that its co-founder Zhou Yunfan will resign as chief financial officer (CEO) because of personal reasons, effective from October 13, 2008. Mr. Zhou will continue working as chairman of the board for the Chinese wireless value-added service company after the resignation. Nick Yang, co-founder, president and chief technology officer for the company, has been elected as vice chairman of the board, effective immediately. The company will select a new CEO from some candidates in the near future.

Kongzhong.com posted its second-quarter financial report ended June 30, 2008. The company recorded total sales of US$23.52 million during the period, representing an increase of 10 percent from the previous quarter and 39 percent from the comparable period one year ago. Net profits hit US$300,000, up 241 percent from the first quarter and 669 percent from a year earlier. Total WVAS revenues for the second quarter increased 9 percent sequentially to US$23.13 million. Revenues from 2.5G services accounted for approximately 33 percent of total WVAS revenues and revenues from 2G services represented the remaining 67 percent.

Linktone (LTON), a provider of mobile value-added services in China, announced the termination of agreements with some of its Chinese affiliates with regard to a Qinghai Satellite TV cooperation deal. Linktone's impairment charge is expected to be US$6 million to US$7 million.

Mobile phone sales in China will top 205 million sets in 2008, rising 17.55 percent over 2007, predicted CCID Consulting, a IT consulting company in China. CCID's data shows that the mobile phone sales volume on China market in the first half of this year reached 96.4 million, up 17.5 percent over the same period of 2007, and the output hit 279 million sets, up 21.2 percent. Foreign brands, which have adjusted their product prices and devoted more efforts to occupying low-end market, maintain a high market share on China's mobile phone market.

Telecommunications

China Telecommunications Corp. (CHA) said it has awarded tenders for code division multiple access network equipment to ZTE Corp., Huawei Technologies Co. and an Alcatel-Lucent unit (ALU). The company didn't specify the value of the contracts in a note and posted on its Web site, but some local media reports speculated that the total value of the contracts is about 10 billion yuan (US$1.46 billion).

China Unicom Ltd. (CHU) said it aims to gain one-third share in the mainland 3G mobile telephone market upon the completion of its merger with China Netcom in October. The new entity will focus on exploring existing and newly developed high end markets in a bid to increase business income and enhance profitability. The company will invest up to US$14.6 billion in wireless communication infrastructure in the coming two years. The cell phone carriers announced it planned to invest more than 100 billion yuan (US$14.6 billion) on its mobile business development in 2009 and 2010.

China Unicom says that it will have 259 million subscribers after the merger with China Netcom (CN), which will consist of 128 million GSM users, 109 million fixed line telephone users and 23.4 million broadband users. What is more, the self-run sales outlets will top 18,000 after the merger, of which 5,000 will belong to China Unicom and 13,000 for China Netcom. The new company will have about 170,000 mobile base stations and 430,000 PHS base stations.

China Telecom (CHA) is quickening its steps to deploy the CDMA network in a bid to operate the CDMA business in October 2008 as planned. China Telecom, which was encouraged to take over the CDMA business from China Unicom in the nation's telecoms industry reshuffle, is scheduled to unveil the result of the bidding for procurement of CDMA equipment next week.

China Satcom Guomai Communications Co. reported net profits of negative 35.9 million yuan (US$5.2 million) in the first half of 2008, sagging 163 percent year on year, mainly caused by increased loss from short-term investment. Operating revenues amounted to 163 million yuan (US$24 million), rising 64.92 percent from a year ago. Operating profits reached negative 45.9 million yuan (US$7 million), dropping 194.71 percent. Return on equity was negative 3.29 percent. The loss was attributed to the weak profitability of its four major businesses, namely digital trunking services, telecommunication business agency, calling center operation and information engineering, in the period.

China Electricity Company Technology , a subsidiary of Qiao Xing Mobile Communications (QXM), will put two CDMA handsets with VIT Technologies' chipsets onto market later this year. CECT reveals that it will cooperate with VIA Technologies to win over China Telecom's CDMA cell phone bundle sales contract. China's telecom industrial reshuffle has provided a great opportunity for the development of CDMA handsets market, and bundling cell phones with carriers' services will be an important sales channel in future.

China Netcom Group Corp (CN) said its fixed-line users at the end of July stood at 108.208 million, down 302,000 from June. In June, the company added 160,000 fixed-line subscribers while in May it lost 389,000 users. At the end of July, Netcom's broadband subscribers stood at 23.98 million, up 625,000 from June. In June, the company added 710,000 broadband users.

Huawei Technologies Co Ltd. launched its R&D center in Chongqing Municipality, in line with its accelerating development pace, said industry sources. Huawei Technologies will strive to develop the center into one of its most important R&D and production bases. The company plans to expand its R&D staff number to more than 1,000 over the next 3 years. Huawei Technologies is also in talks with the local government on the production of 3G products, establishment of data center and staff training, which will help enhance the software R&D and service outsourcing business and electronic products production capability in the city.

Huawei Technologies' sales revenue from optical transmission equipment was the highest among all telecom equipment manufacturers in China in June. Huawei produced optical transmission equipment valued at 1.56 billion yuan (US$227.8 million) in June. Over the course of the month, it attained revenues of 463.5 million yuan (US$67.5 million) from domestic sales of optical transmission equipment, and revenues of 1.05 billion yuan (US$153.3 million) from exports of such equipment.

Nokia Siemens Networks shipped more GSM mobile network equipment than any other telecom equipment manufacturer in China in June. Nokia Siemens Networks shipped GSM network equipment capable of supporting 469,000 lines to the domestic market and exported equipment capable of supporting 404,000 lines during the month. The company's production volume of GSM network equipment in June was capable of supporting 937,000 lines. Huawei Technologies ranked second place in June in terms of GSM equipment shipments in China. It shipped GSM network equipment with the capacity to support 158,000 lines to the domestic market.

ZTE Corp. aims to boost its mobile-telephone sales by 60 percent next year and become one of the top five vendors in the world within three years, says vice-president of handset marketing. ZTE expected mobile-telephone shipments to hit 80 million units next year, up from the targeted 50 million units this year. The company sold 20 million units in the first half of this year.

Shanghai Mobile Communications Co., Ltd., the regional communications service branch of China Mobile (CHL), has finished the sixth round of TD-SCDMA network optimization to expand signal coverage and eliminate blind areas in the city. The upstream speed of network card is 128k and downstream speed of it is 384k at present.

Latest statistics from Telecommunications Management Bureau of Fujian Province show that Fujian newly added 3.26 million mobile phone users during the first seven months of 2008, bringing its total cell phone subscribers to 21.34 million. The penetration rate of cell phone was 59.6 handsets per hundred persons. At the same time, the number of fixed line telephone users decreased 150,000 as a result of the fast proliferation of cell phones. By the end of this July, the total volume of telecom business in Fujian recorded total sales of 49 billion yuan (US$7.2 billion), representing an increase of 13.4 percent from the corresponding period one year earlier. Total sales of telecom services reached 18.6 billion yuan (US$2.7 billion), an increase of 11.39 percent year on year.

The Chinese fiber communication equipment market will increase by 18.5 percent year-on-year to reach 24 billion yuan (US$3.5 billion) in 2008, and will be worth around 45 billion yuan (US$6.6 billion) by 2011. Kong also pointed out that the OTN+PTN (Optical Transmission Network + Packet Transmission Network) framework for fiber network construction will become increasingly popular. Although the telecom industry restructure will cause a decrease in network construction investment by operators in the short term, the whole market will expand in the long run.

Hardware

ZTE saw Africa revenues surge 107 percent on year, as group sales rose 30 percent to hit US$2.88 billion. ZTE announced its first half net profit surged 21.2 percent on year to 557.3 million yuan (US$81.3 million) from 459.8 million yuan (US$67.1 million) a year earlier, following robust growth from its international operations. In the first six months of 2008 the Chinese equipment maker saw group revenue increase by 29.5 percent from 2007 to 19.7 billion yuan (US$2.9 billion) from 15.2 billion yuan (US$2.2 billion). The improvement was spurred by its international operations, which saw sales growth of 58.9 percent to 12.7 billion yuan (US$1.85 billion) from 8.0 billion yuan (US$1.2 billion) in 2007.

Alternative Energy

Chinese solar power company Trina Solar Ltd. (TSL) said that quarterly earnings more than doubled, driven by increased solar module shipments. Second-quarter net income rose to US$17.1 million, or 68 cents per American Depositary share, from US$7.4 million, or 32 cents per ADS, a year earlier.

Chinese PV companies are extending industrial chains by squeezing themselves into downstream and upstream industrial sectors. One example is Silicon material producer GCL Silicon Technology Holdings (GCL), which just concluded a production agreement on the production of silicon ingot and wafer with a total investment of US$1.1 billion. The project with an annual production capacity of 2,700 mw of silicon ingot and wafer is expected to go into full production in 2010 with annual sales of 30 billion yuan (US$4.3 billion).

 

Source: Chinese Tech Stock Weekly Summary (Aug. 18-25)