Chinese Tech Stock Weekly Summary (Sept. 8-14)

by: IRG Ltd

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

• • •


  • The workforce of Amoi Electronics has been cut to 5,000 by now from 13,000. The company will further narrow its losses in the third quarter of 2008 as a result of a series of cost-control measures adopted by Lu Zhenyu, president of the company. The interim financial report released on August 9 by Amoi Electronics shows that it recorded total sales of 1.2 billion yuan (US$170 million), down 24.2 percent from the corresponding period one year ago, with net losses of 412 million yuan (US$60.2 million).


  • Huawei Technologies, ZTE and Haier Group were the three leading Chinese software vendors by revenue in 2007. Huawei maintained its top position for the seventh year running since the annual list's inception, recording revenue of 41.6 billion yuan (US$6.1 billion) from its software business in 2007. ZTE overtook Haier to take second place, with software revenue of 11 billion yuan (US$1.6 billion) for the year, while Haier slipped to third place with 9.1 billion yuan (US$1.3 billion).


  • (NASDAQ:SOHU) announced on Sept. 8 that it will begin beta testing a new massively multiplayer online role-playing game [MMORPG] at the end of this month, in preparation for the game's launch in China next year. The new MMORPG, "Legend of Ancient War", is a martial arts game set in ancient China. The game will adopt the free-to-play business model popular among China's large game developers, a model that depends on the sale of virtual in-game items to generate revenue. Sohu's success with online games that feature martial arts began with the launch of "Dao Jian" in December 2006 and "Tian Long Ba Bu" [TLBB] in May 2007. TLBB, adapted from a popular novel by Taiwanese writer Jin Yong, is Sohu's most popular game and the main driver behind Sohu's surging revenue.


  • KongZhong Corp. (KONG), a wireless value-added service provider in China, announced that its online game Tian Jie Online had been launched on the Mobile Online Game Platform of China Mobile (NYSE:CHL). The game is a MMORPG developed by KongZhong Kammoth, a mobile game R&D company acquired by KongZhong in 2005. It has developed over two million registered players since it started open testing in Q3 2007. Tian Jie Online is among the first three games launched on China Mobile, which spent one year to develop the mobile online game platform to promote mobile value added service. Three Kingdoms Online, another game developed by KongZhong, has also passed China Mobile's testing, and is expected to be launched before September 25, 2008.


  • Telefonica (NYSE:TEF) is ready set to raise its 5 percent holding in China Netcom (CN-OLD), China's second fixedline company, to 7.2 percent. Under the new plans, two tranches of acquisitions will take its holding up to approximately 12 percent, although the group's imminent merger with mobile carrier China Unicom (NYSE:CHU) will leave Telefonica's share of the combined group at 5.5 percent. China had an estimated 530 million mobile subscribers at the end of 2007, representing 46 percent penetration; from 2004 to 2007 total revenue doubled from US$32.7 billion to US$61.5 billion, and now represents 1.8 percent of GDP. China Mobile's profits were up 45 percent to US$8 billion with 82 million new subscribers. In contrast, China Telecom, which relies on fixed-line voice calls for more than half its revenues, was down 4 percent to US$1.7 billion.
  • Alcatel-Lucent's (ALU) flagship company in China, Alcatel Shanghai Bell, and Datang Mobile announced that they have signed a Memorandum of Cooperation (MoC) to facilitate the widespread commercial deployment of TD-SCDMA systems in China and overseas. The memorandum calls for Alcatel Shanghai Bell and Datang Mobile to form a joint team responsible for developing a comprehensive strategy to create the resources and manufacturing infrastructure required to meet future demand for TD-SCDMA technology in China and the rest of the world, through developing standard manufacturing, quality controls and testing procedures. In China, Datang Mobile will designate Alcatel Shanghai Bell as its privileged partner for TD-SCDMA market cooperation and the two parties plan to jointly bid on key projects.
  • China Mobile Communications Corp. cut tariffs on third-generation mobile services it is offering on a trial basis in China, ratcheting up the competition for subscribers among the  country's largest telecommunications operators. China Mobile Communications, the parent of China Mobile Ltd. and the world's biggest mobile operator by subscribers, wants to build up its 3G user base before China Unicom Ltd. and China Telecom Corp. (NYSE:CHA) are granted 3G licenses as part of the country's telecom sector restructuring. China Mobile's voice tariff per minute for 3G customers will be 45 percent-73 percent cheaper than the existing 2G service plan, according to the company's Web site.
  • According to state media, consumer electronics and computer firm Apple (NASDAQ:AAPL) and mobile network operator China Mobile are in the final stages of talks that would pave the way for the official launch of Apple’s iPhone in China. The two companies will complete talks soon. China Mobile, which has over 415 million subscribers, had previous stated that the main obstacle to bringing the iPhone to China had been swept away when Apple dropped its revenue sharing demands. China Mobile will procure the handsets for their full price, and then on-sell subsidized handsets to consumers.
  • China Communications Services Corp. said its first-half net profit rose 11 percent from a year earlier on an increase in demand for telecommunications support services. The Hong Kong listed company expects favorable growth potential in the coming few years because of the restructuring of China's telecommunications industry. The country's telecom operators are investing heavily to prepare for increased competition following the reform of the sector. China Communications Services' net profit for the six months ended June 30 was 567 million yuan (US$83 million). Revenue rose 37 percent to 13.6 billion yuan (US$2 billion).
  • China Mobile Communication Corp announced its plan to cut 3G tariffs in 10 cities include Beijing in a bid to attract more subscribers. China Mobile's voice tariff per minute for 3G customers will be 45.7 percent cheaper than the existing 2G service charge. China Mobile Communications is running commercial trials of China's homegrown 3G wireless standard TDSCDMA, hoping to replace the other widespread ones, W-CDMA and CDMA2000.
  • China Communications Services Corporation Ltd. posted net profits of 567 million yuan (US$83 million) for the first half of 2008, up 11.3 percent from a year earlier. Basic earnings per share stood at 0.101 yuan (US$0.014). Operating revenue climbed 37.6 percent year on year to 13.6 billion yuan (US$2 million). Revenue from telecommunication infrastructure services went up 9.7 percent from a year ago to 5.9 billion yuan, accounting for 43.3 percent of the total revenue. Revenue from business process outsourcing services surged 83.7 percent to 6.1 billion yuan (US$888 million), of which 1.7 billion yuan (US$243 million) were generated from applications, contents and other services.  Notably, revenue from China's Big Three telecommunications operators added up to 8.0 billion yuan (US$1.2 billion), rising 23 percent and accounting for 58.6 percent of the total revenue. Revenue from China Telecom contributed 41.9 percent to its total revenue and from China Mobile and China Unicom, 16.7 percent.
  • China Unicom will establish a new handset procurement and distribution company as it has agreed to sell Unicom Vsens Telecommunications Technology Co. Ltd. to China Telecom. All employees of Vsens's provincial subsidiaries will join China Telecom. The new China Unicom handset company will be named Hua Kai, and that China Telecom's personal handy-phone system handset procurement department will merge with Vsens.
  • China Telecom Corp. received approval from the China Securities Regulatory Commission to sell 20 billion yuan (US$2.9 billion) worth of fixed-rate bonds in the first batch of a planned 80 billion yuan (US$11.7 billion) issuance. The company plans to issue the bonds as soon as late September, said one person who is close to Citic Securities Co., one of the deal's underwriters. The company is likely to offer the 20 billion yuan worth of bonds in three-year, five-year and seven-year  tranches. The deal's underwriters include Citic Securities, China Galaxy Securities and UBS Securities. China Telecom planned to sell up to 80 billion yuan (US$11.7 billion) worth of bonds to help finance the acquisition of China Unicom Ltd.'s mobile business. The acquisition forms part of the restructuring of China's telecommunications industry, which will consolidate six state-owned operators into three.

Media, Gaming and Entertainment

  • ViXS Systems, a developer of video processing solutions, and China Digital TV Holding Co. Ltd. (CDGT), a provider of conditional access (NASDAQ:CA) systems in China, announced the launch of a line of secure PC-based digital TV tuner products. This new line of smart card secured, DVB-C tuner products will serve digital cable television customers in China, and allow users to turn their PCs into powerful and secure high-definition home theaters. Working with both PC manufacturers in China and ViXS Systems, China Digital TV has created DVB-C products for PCs that are compatible with over 180 digital cable TV network operators across China.
  • NetDragon Websoft Inc. bought back 47,000 ordinary shares on Sept. 8, 2008 at a price range between HK$5.17 (US$0.66) and HK$5.25 (US$0.67) a piece, or HK$245,610 (US$31,500) in total. The Hong Kong-listed company had purchased back its shares four times since Sept. 3 at an average price of HK$5.07 (US$0.65) a share. The move is believed to accord with shareholders' interests, noted Liu Dejian, president and executive director of the online game developer, adding that the current share price cannot reflect the company's potential value, thus, NetDragon will not rule out the possibility of more share purchases at proper time. The company posted net profits of 115.3 million yuan (US$17 million) for the first half of 2008 in its unaudited interim report, down 25 percent from a year earlier.
  • China's State Administration of Radio, Film and Television [SARFT] will offer more than eight channels on a free-to-air basis to China Mobile Multimedia Broadcasting [CMMB] mobile TV users, industry insiders told Interfax on Sept. 8, 2008.
  • China Cablecom Holdings, Ltd. announced its unaudited financial results for the second quarter ended June 30, 2008. Hubei revenues for the first six months of 2008 increased to US$12.5 million, up 35 percent from the same period last year. Hubei EBITDA increased to US$3.2 million, up 31 percent from the same period last year. Hubei paying subscribers as of June 30, 2008 were 862,983, up 19 percent over the same date last year. Binzhou revenues for the second quarter of 2008 increased to US$2.3 million, up 18 percent from the same period last year; revenues for the first six months of 2008 declined slightly by 3 percent to US$4.3 million from prior year comparison. Binzhou EBITDA increased to US$0.9 million, up 15 percent from the same period last year. Binzhou paying subscribers as of June 30, 2008 were 470,111, up 6 percent over the same date last year. Consolidated pro forma paying subscribers for China Cablecom as of June 30, 2008 were 1.3 million.


  • BigBand Networks, Inc. announced that Jiangsu Cable is deploying its Broadband Multimedia-Service Router [BMR] to process and deliver digital television services, including high definition [HD] and interactive television. The BigBand BMR will be deployed in the provincial capital and nine cities, and provide digital television services to millions of subscribers. Jiangsu Cable, located on the east coast of China, has a long-term strategy of providing a suite of ondemand and interactive services, in standard and high definition, to 15 million subscribers. Jiangsu Cable is consolidating its existing infrastructures into a single network in order to accelerate the pace of its digital migration. At present, more than 250,000 Jiangsu Cable subscribers receive digital television services.