Chinese Tech Stock Weekly Summary (Oct. 6-12)

Includes: CHA, CHL, CHU, ZTCOF
by: IRG Ltd

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

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Internet (NASDAQ:BIDU) appoints Li Yinan as new CTO. Prior to joining Baidu, Li served as chief  telecommunications scientist and vice president at Huawei Technologies, a telecom solutions provider. In that position, he oversaw the development of 3G mobile chipsets.


iWOW Communications, a developer of wireless communication solutions, announced the  opening of a new research and development office in China. Located in Chengdu, the new office  is an addition to iWOW’s existing R&D facility that is aimed to accelerate the build-up of its telecommunications expertise and R&D capabilities.

China added 68.71 million new mobile phone subscribers in the first eight months of 2008, pushing the country's total mobile phone users up to 616 million, while fixed-line subscribers numbered 354.1 million, down 11.6 million from the end of 2007. China's mobile handset penetration rate was at 45.6 percent, while the figure for fixed-line telephones was 27 percent. 99.5
percent of administrative level villages in China were connected with telephony services. Chinese mobile phone users sent and received 459.2 billion text messages; an increase of 21.3 percent on the same period last year.

China had 79.35 million broadband Internet users, with 12.9 million new broadband users signing on during the January to August period. China recorded 15.3 million dial-up Internet users, 4.13 million fewer than at the end of 2007. Revenue from telecom services totaled 538.45 billion yuan (US$78.8 billion) over the eight-month period, up 8.5 percent compared to the same period in 2007. The total investment in telecom fixed assets reached 146.42 billion yuan (US$21.4 billion) over the same time period, increasing by 10.8 percent year-on-year.

Amoi Electronics Co. Ltd. puts a 72.14 percent stake in its mobile phone shell unit Xiamen Amoi Engineering Plastics Co. Ltd. on sale at a price of 37.33 million yuan (US$5.5 million) on the Shanghai United Assets and Equity Exchange (SUAEE). With a registered capital of 35 million yuan (US$5.1 million), Amoi Engineering mainly produces mobile phone shells as well as shells
for laptops and TVs. As of October 31, 2007, its total assets reached 93.8 million yuan (US$14 million) and liabilities stood at 42 million yuan (US$6.2 million). The disposal is part of Amoi's efforts to recover capital and ease operating pressure. Amoi will be responsible for the mobile phone production
and sales after shedding the mobile phone shell business.

BYD Company Ltd. is expected to take over assets of bankrupt wafer maker SinoMOS Semiconductor Inc., putting an end to the recent eye-catching auction in China's integrated chip industry. BYD wins the bidding for the company's assets with an offer of nearly 200 million yuan (US$29.3 million), noting that the price stood close to the 170 million yuan (US$25 million) reference price in the previous auction. Shanghai Belling Microelectronics Manufacturing and Founder
Microelectronics were reported to be possible buyers. The acquisition signals BYD's attempt to leverage its existing mobile phone IC deployment. The company has successfully extended its reach from its profit-generating battery business to the information technology (IT) business, especially the
mobile phone OEM business. It was in a close tie with global mobile phone bellwether Nokia Corporation (NYSE:NOK).


ZTE Corp (OTCPK:ZTCOF) said its largest shareholder Zhongxingxin Telecom Equipment Ltd plans to  increase its stake by up to 2 percent in the coming 12 months through purchases on the open market. Zhongxingxin purchased 2.3 million A-shares of ZTE, or 0.2 percent of its total equity, in trading on the Shenzhen bourse. Before the purchase Zhongxingxin held a 35.08 percent stake in ZTE.

Chinese telecom operators tapping SNS market. All three of China's major telecom operators have launched trial social network service (SNS). 20 percent of China Mobile's (NYSE:CHL) revenues come from data services and more than half of that data revenue is contributed by text messaging. SNSes can help to drive up mobile Internet usage for operators. A major telecom operator in Japan generates 30 percent of its revenues from data services and a very small portion of that comes from text messaging. China Telecom (NYSE:CHA) and its partner launched the closed beta testing of a 3D virtual community named ChinaQ. Both China Mobile's and China Unicom's (NYSE:CHU) SNS sites are primarily computer-based while China Mobile already allows users to post pictures and blogs to their spaces through MMS and text messaging from their mobile handsets. China Telecom is the only one of the three that has already introduced paid-for functions to its site.

Huawei Technologies intended to set aside the plan of selling stakes in its mobile phone unit to investment companies, in consideration of the global financial crisis. To postpone the planned share sales was the best way to protect its interest, given the current global market conditions and economic uncertainty. Huawei previously hired Morgan Stanley as consultant for the auction of controlling rights of its mobile phone unit. And informed people disclosed last month that private equity firms Bain Capital LLC and Silver Lake Partners were leading bidders in the auction. The unit would worth about US$4 billion. Kohlberg Kravis Roberts & Co., Carlyle Group, Blackstone Group LP and TPC Inc. lost interest in the unit after failure in the first round of bidding.

China has ordered its telecommunications operators to share their core infrastructure to cut down on the duplication of investment in the sector. The Ministry of Industry and Information Technology will set up a task force of officials from the ministry, the State-owned Assets Supervision and Administration Commission, and the operators, China Mobile, China Unicom and China Telecom to implement the arrangement. Penalties will be imposed on companies that don't follow the order, which came into effect Oct. 1. The move is part of the restructuring of China's telecommunications sector, which involved merging six of the country's state-owned mobile phone and fixed-line operators into three nationwide carriers that offer both fixed-line and wireless services, instead of dividing coverage in terms of region or type of service.

China Telecom and its partner Shenzhou Hengji Network Technology Co. Ltd. launched the closed beta testing of ChinaQ. Shenzhou Hengji primarily provides the technology for the ChinaQ community while China Telecom is responsible for its operation. Individuals can use the ChinaQ community without charge and revenues will mainly come from advertisers. Individuals are awarded free virtual land and merchandise when they sign up at ChinaQ. They can later increase their land holdings by paying or redeeming their accumulated experience points. Companies can pay for their products, such as clothing, cars and real estate properties, to appear in digital form in the ChinaQ community. China Telecom has many advantages over other Chinese 3D virtual world operators. ChinaQ has very high computer system requirements such as memory, screen resolution and graphics card, as well as network speed. China Telecom needs to lower the entry barrier for ChinaQ if it wants to make the service more popular.

Huawei Technologies Co., Ltd. has reached a patent license agreement with Nokia (NOK) and Nokia Siemens Networks. Under the agreement, the three companies are entitled to use each other's standards essential patents around the world, including GSM, WCDMA, CDMA2000, optical networking, datacom and WiMAX in mobile devices, infrastructure and services. Huawei is the 35th
company to license Nokia cellular standard-related patents in the world. The agreement will help the competitors expand their businesses in the global telecoms market, and more importantly, set up a healthier intellectual property rights environment, pointed out market observers.

China Unicom's SNS site has attracted more than 217,000 registered users. Although "U-Power" is China Unicom's brand for its prepaid mobile service targeting young people, the site is open to all. China Unicom has been testing this new SNS site in Liaoning Province for several months. China Unicom will promote the new site on a larger scale after the completion of its merger with China Netcom. China Unicom's SNS is based on the UCenter backend platform that is normally used for small sites. China Unicom, a major operator with a much bigger user base than most Web sites, should develop a platform of its own that can support around 1 million users.

Three new China Telecom units, the China Telecom Broadband Application Laboratory, the China Telecom Base Network Security Protection and Evaluation Center and China TelecomNavigator (Beijing) Information Consulting, were established recently in China Telecom's Beijing Institute. The three new units will help China Telecom in its transition from a traditional voice service provider to a versatile telecom service provider. The China Telecom Broadband Application Laboratory will mostly focus on R & D into broadband speed acceleration and broadband value-added services. Broadband services are the basis of the operator's non-voice services. By the end of 2007, 38.5 percent of China Telecom's revenue came from non-voice services, and the figure is expected to reach 55 percent by 2010. The China Telecom Base Network Security Protection Support and Evaluation Center will provide services such as base network security management, risk evaluation and recovery services, in response to the growing importance of network security.

China Mobile will set up a research and development center in Silicon Valley next year. China Mobile plans to locate its first overseas research and development center in Silicon Valley. The operator is conducting research on mobile Internet applications to diversify its source of revenue, as at present most of the company's revenue comes from voice services. China Mobile considers Silicon Valley a unique place for its research, as there are currently many mobile Internet pioneers located there. The absence of a unified mobile Internet operating platform was a major obstacle for the rapid development of the mobile Internet, and that China Mobile is currently in talks with other operators in
regard to building a unified mobile Internet operating platform.

ZTE Corp. has signed an investment agreement with Xi'an Hi-tech Industrial Development Park Management Committee for the investment in and construction of ZTE Corp. Xi'an Research and Development and Production Base. The total investment will amount to Rmb 6 billion, while the base will occupy a site area of 1.332 million sqm. The committee also agreed to
provide services and preferential policy support for the company's construction and investment. It will allot land sites in different stages based on the company's overall planning to meet the construction needs of the project.

ZTE so far has shipped 100 million mobile phones. ZTE has set its goal of becoming the third largest handset maker in the world in the coming five years. ZTE has reached partnership with Vodafone, the second largest mobile telecom operator in the world, to launch ZTE-Vodafone dual-brand handsets in the fourth quarter of 2008. Such move will further shore up the brand recognition of
ZTE globally. That means ZTE will have to boost up its sales to 100 million by 2010 to squeeze into the top five brands. ZTE shipped more than 20 million mobile phones, representing an increase of 66 percent from the comparable period one year ago. Its overseas sales accounted for 80 percent of its
total shipment. Foreign telecom carriers have been the biggest contributors to ZTE. ZTE it is targeting 20 percent of its global sales and will enter the retail market with its own brand by this year-end. It has reached 100 million sales globally.

Fonix Corp. announced the Chinese government approvals are nearing completion for the acquisition by Fonix's subsidiary of 80 percent of the common stock of G-Soft Ltd, the sole shareholder of Shanghai Gaozhi Software (GaozhiSoft), a software developerand solutions provider. The remaining 20 percent will be acquired by funds managed by Southridge, LLC. Total
consideration includes cash, Fonix Series L convertible preferred stock contributed by Southridge, Series P convertible preferred stock issued by Fonix, and a promissory note. The closing is subject to final due diligence review and certain governmental approvals. GaozhiSoft’s first 3G contract with China Telecom, one of the three 3G mobile network service providers in China. This contract with China Telecom is for 8 of 29 provinces of China. GaozhiSoft provides 2G and 3G network OSS software and services to all three Chinese mobile network service providers, including: China Mobile, China Unicom, China Telecom, and fix line carriers China Netcom and China Digital. In addition,
GaozhiSoft is the exclusive Chinese XFS and HFS mediation software provider to Alcatel-Lucent for Asia market.

Media, Gaming and Entertainment

Pay88 Inc. announced that the company has signed an exclusive agreement with Shenzhen Changtong Web Technology Co Ltd for sales and distribution of the Play-for-Fun video chess games in Chongqing. The two companies are also expected to sign another agreement soon, whereby a program to sell and distribute Shenzhen Technology games in 20 new provinces in China will be implemented by Pay88.
Shenbi Group, an advertisements and animated cartoons producer, will get 50 million yuan (US$7.3 million) of venture capital investment from Beijing Zhengrun Investment Co., Ltd. Shenbi Group inked agreement with China Mobile, to jointly develop mobile cartoon MMS, and digital multimedia products. Shenbi Group was founded in 2003 by well known Chinese painter Zuo Jin,
director Zang Zhixin, and reputed children educationist Chen Peng. It is a leading player in Hangzhou's national cartoon industry base. It has four cartoon bases in Beijing, Shenzhen, Hangzhou, and Harbin in the form of subsidiaries, one product sales company in Shanghai, and one brand promotion company in Beijing. Besides Shenbi Group, other 38 cartoon projects also got investments amounting to over 1.4 billion yuan, winning favor of VC and private equity funds.