Chinese Tech Stock Weekly Summary (Sept. 29 - Oct. 5)

by: IRG Ltd

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

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  • (NASDAQ:BIDU) sold its internet television channel to UiTV because it was unwilling to further develop the online video business. Infrastructure and bandwidth requirements for providing online video services are huge. Baidu did not think the investment was worthwhile for the traffic it could  bring. Baidu sold the channel to UiTV, a Beijing internet television platform operator. There would also be fewer problems with copyright issues as UiTV would handle them. Baidu will keep its video search business, The service allows users to locate video content provided by other online video service providers such as and Many of those have copyright-infringing materials. The mainland's online video sites prosper on pirated movie and television programs.

Mobile/ Wireless

  • China TechFaith Wireless Communication Technology Ltd. (NASDAQ:CNTF) announced that its Board of Directors has approved a share repurchase program pursuant to authorization previously obtained from its shareholders. TechFaith is authorized, but not obligated, to repurchase up to US$10 million worth of its outstanding American Depositary Shares. The repurchases may be made from time to time, depending on market conditions, share price and other factors, as well as subject to the relevant rules under U.S. securities regulations and are subject to restrictions relating to volume, price and timing. The share repurchases may be made on the open market and in negotiated purchases. TechFaith plans to use its available cash balance to fund the repurchases.

Media, Gaming and Entertainment

  • Perfect World Co., Ltd. (NASDAQ:PWRD) will launch its popular online game Legend of Martial Arts in South Korea, the second game licensed to the nation after Perfect World II. Perfect World inked an agreement with its South Korean peer EYA Interactive Co., Ltd. to introduce the 3D cartoon  massively multiplayer online role-playing game ((MMORPG)) to South Korea with a Korean version. Rolling out the new game in South Korea will help Perfect World strengthen its customer awareness in the country. Legend of Martial Arts debuted in markets out of China in 2007 and thereafter made its presence in many countries like Malaysia. Perfect World is engaged in developing 3D online games based on its proprietary Angelica 3D game engine and game development platform.
  • Greece's Intralot, a large lottery system provider, agreed to buy a 21 percent stake in Chinese gamer Melco LottVentures for 27.4 million euros (US$40.1 million). Intralot and MLV intend to enter into additional discussions regarding a further increase of Intralot's participation in MLV, which will be the main vehicle for lottery and gaming business in China and possible expansion in Asia. MLV develops and provides technology systems and services for use in lottery operations in China and Asia, while it also manufactures lottery terminals and lottery-related applications and manages a network of retail outlets.
  • Pay88, a reseller of online multiplayer game cards and Internet game time in China, has signed an exclusive agreement with Shanghai Hongli Digital Technology, an interactive amusement game company, to distribute two new online game cards that are part of the company's Goldcool One Card series. The two new online game cards to be distributed by Pay88 are Devildom and Twelve Animals' Legend. The new Devildom game is the first video talking internet game developed by Hongli. The Goldcool games will add to the growing list of online multiplayer games distributed by Pay88 to the Chongqing market and 20 other cities in China. Pay88 has distributed a number of Goldcool One games for Hongli in the past with great success.


  • Chinese telecommunications equipment maker ZTE Corp. plans to focus on organic growth in the near term and isn't in acquisition talks. ZTE isn't interested in acquiring the handset business of U.S.-based Motorola Inc. (MOT) and also isn't keen on purchasing Nortel Networks Corp.'s (NT) technology business. Both companies have been struggling with tepid demand and fierce price cuts by rival vendors in China, and are in the midst of a restructuring program. ZTE's growth strategy is markedly different from its rival Huawei Technologies Co., which has been looking at overseas assets to grow. Late last year, privately held Huawei attempted to acquire Marlborough, Mass.-based 3Com Corp. (COMS) in a US$2.2 billion deal along with Bain Capital Partners LLC. That deal failed to pass a U.S. government vetting process for foreign investment in sensitive industries, because 3Com had contracts to provide security software to the U.S. government. Huawei is considering the sale of a stake in its mobile devices division to a foreign investor.
  • The Chinese telecom industry achieved a total revenue of 538.5 billion yuan (US$79.0 billion) in the first eight months of 2008, up 8.5 percent year on year. Guangdong, Jiangsu, Zhejiang, Shandong and Shanghai ranked the top five among Chinese provinces and municipalities. 54.4 percent of the total revenue came from the mobile telecoms sector, compared to 50.9 percent in the comparable period of 2007. The volume of local and long-distance calls with mobile phones reached 1.8 trillion minutes and 127.8 billion minutes in the eight months, surging 30.9 percent and 31.5 percent year on year, respectively. The number of fixed-line telephone users in China dropped 11.6 million to 354.1 million, including 239.9 million and 114.2 million in the urban and rural areas, down 8.7 million and 2.9 million. The number of local calls and the volume of long-distance calls with such telephones reached 420.7 billion and 56.7 billion minutes in the eight months, down 7.6 percent and 17.3 percent year on year.
  • China Mobile (NYSE:CHL) is about to introduce Android, the first mobile phone launched by Google (NASDAQ:GOOG), to China in the second quarter of 2009. The telecom titan will sell Android in China by cooperating with HTC, the original equipment maker of Android. Being one of the members of the open-source mobile phone league, China Mobile started developing Linux mobile operating system as early as 2007 with Google, Marvell (MVL), and Borqs. To enhance its cooperation with China Mobile, HTC is scheduled to set up branches in China mainland soon. Android is an open-source platform. Samsung, Motorola, Sony Ericsson, and LG are all showing great interests in manufacturing Android handsets. Besides its traditional telecom businesses, China Mobile is also planning to provide broadband Internet access service after the national telecom restructuring. China Mobile is also trying to introduce Apple's (NASDAQ:AAPL) iPhone. If China Mobile launches the iPhone in the mainland, the handset may not support 3G and Wi-Fi functions. China Mobile hopes that Apple can provide Chinese users with a customized iPhone without Wi-Fi and 3G functions, because the 3G standard chosen by China Mobile is China's homegrown TD- SCDMA that is not compatible with WCDMA.
  • ZTE Corp. revealed its Broadband Easyservice enables service providers to reduce the operation, administration, and maintenance (OA&M) costs of delivering broadband access, while also cutting energy consumption. Studies conducted with Tier 1 customers using ZTE Easyservice including China Telecom, which has deployed ZTE's EasyMaintenance and EasyGateway modules have shown how ZTE is delivering major reductions in the OA&M costs of broadband services by optimizing management and failure diagnosis, while improving the overall efficiency of broadband maintenance. Gartner has ranked ZTE as one of the world's top three DSLAM vendors for three years running and highest growth of market share in the past two years.
  • Private equity firms Bain Capital and Silver Lake have submitted formal offers for a stake in Huawei Technologies' mobile handset unit. The unit was expected to be worth more than US$3.5 billion when the auction started earlier this year. Though a firm may still pay a premium for a 50 percent-plus stake in the business, growing pressure on the handset sector plus tumbling financial markets make it less likely buyers will want to pay up for the asset. Several private equity firms including AEA Investors, General Atlantic, Providence Equity Partners and Goldman Sachs' buyout arm are no longer part of the process, making the Huawei deal a two-horse race. Huawei's mobile devices unit doubled revenues last year to more than US$2 billion.
  • China Telecom (NYSE:CHA) would invest 80 billion yuan (US$11.7 billion) to upgrade its newly acquired CDMA network. Telecom Group will take over the network, which was transferred from China Unicom Group (NYSE:CHU), parent company of the wireless service provider China Unicom. The transfer is expected to be finished in three months. Broadening the wireless CDMA network coverage would be its top priority in the next quarter. The first phase of work includes building a batch of new CDMA base stations in cities, improving coverage in counties and townships, and beefing up indoor coverage by FMC (Fixed Mobile Convergence) services. Telecom group plans to increase cell phones wireless Internet speed over the next three years.
  • Nokia (NYSE:NOK) and its telecom equipment making venture Nokia Siemens Networks (NSN) have signed a cross-licensing agreement with China's Huawei covering essential patents for wireless standards. The agreement, which makes Huawei the 35th company to licence Nokia patents, covers all key technologies, including GSM and WCDMA, but also China's own TD-SCDMA. The cross-licensing deal gives Huawei access to Nokia's wide patent portfolio in standards like GSM and WCDMA, widely adopted around the world, while it also gives Nokia access to Huawei's patents, including those essential to China's own 3G. An essential patent is a patent which discloses and claims one or more inventions that are required to use a given industry standard.


  • China's import and export of electronic and information products reached US$504.9 billion in value in January-July, up 21 percent year on year, and the growth dropped 1.9 percentage points year on year. In the first seven months of this year, the export value of electronic and information products rose by 23.9 percent from the same period in 2007 to US$291.6 billion, and the import value posted an increase of 17.1 percent to US$213.3 billion. The trade surplus was US$78.3 billion, surging 47.1 percent and accounting for 63.3 percent of the national trade surplus in the same period. Of major electronic and information products, the export value of portable computers, hand/vehicular wireless phones, LCD panels, integrated circuits, and displays all exceeded US$1 million in January-July.