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IRG Technology, Media and Telecommunications Weekly Market Review (Week of 28 Feb – 6 Mar 2011)

Mar. 08, 2011 2:39 AM ET
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Japan
Telecommunications
Softbank Mobile Corp announced a reduction of up to 25.4% in call connection fees that other mobile phone service providers pay to use Softbank networks for fiscal 2010 ending this month. The two other major Japanese mobile phone firm, NTT Docomo and KDDI have already offered substantial cuts in such fees for the year. As all three firms reduce call connection fees, they expect to see cuts in revenues, which is why they are reluctant to reduce charges for their subscribers. Softbank plans to lower the call connection fees in fiscal 2010 by 25.3% from the previous year to 22.86 yen per three minutes for local calls and by 25.4% to 26.46 yen for out-of-area calls.
Amazon.com Inc. begun operating a data center near Tokyo for its cloud computing services. The new facility is Amazon's fifth data center in the world and the second in Asia, following one in Singapore. For Japanese companies that utilize the U.S. group's cloud computing platform, the presence of a domestic data center will reduce data transfer lags. It will also meet the needs of those customers who want vital data to be kept within national borders.
Internet
Yahoo! is rumored to be in advanced talks to sell its stake in Yahoo! Japan to Softbank. Softbank currently holds 42 percent in Yahoo! Japan and Yahoo! holds 35 percent and the remainder is listed. The Yahoo! stake is worth approximately US$7.5 billion based on the latest share price. When asked for comment, a SoftBank spokesman said there was "no truth" to claims that Yahoo was planning to sell its stake back to SoftBank, but declined to comment on discussions. If and when a deal is reached, Yahoo! is likely to turn its attention to the China market, where it owns an estimated 40 percent stake in Alibaba, said Reuters. Softbank also owns a stake in Alibaba. A deal for Yahoo's stake in the mature Japanese market could bring a cash infusion that could be viewed favorably by investors, analysts have said. The ongoing negotiation between SoftBank and Yahoo! have turned up a number of potential deal structures to avoid paying a 38 percent tax bill. Tax-free options being discussed include an asset swap, where SoftBank would acquire a stake in Yahoo!, with which it would swap for Yahoo!'s Yahoo Japan! stake. Another option is for Yahoo! to set up a tracking stock giving its shareholders the ability to sell off the stock. A plan to set up a tracking stock, which does not require the approval of SoftBank founder Masayoshi Son, is seen as negotiating leverage for Yahoo!, according to Reuters. A tracking stock would likely depress the valuation of Yahoo Japan! shares, as it would dilute the value of the existing shareholders.
Semiconductors
Toshiba Corp. signed a deal to sell a non-memory chip manufacturing facility in Nagasaki Prefecture, western Japan to Sony Corp. for 53 billion yen (US$648 million) in the latest effort by the company to scale back investment costs in non-core areas. The two companies didn't disclose the value of the transaction at the time. Toshiba and Sony said that the transfer of the production line is scheduled to take place on April 1. Sony will convert the Toshiba facility to produce image sensors. By taking over the Toshiba line and refurbishing its existing line, Sony aims to double its image sensor production capacity to 50,000 wafers a month by March 2012, from 25,000 currently. The deal comes after Sony sold some facilities a few years ago that make chips used in its PlayStation 3 game console to Toshiba in Sony's series of divestitures aimed at refocusing the company around its core electronics business.
DRAMs for smartphones and other cellular phones are expected to account for 50 percent of Elpida Memory Inc.'s January-March sales. Demand for what the chipmaker calls premium DRAM is on the surge accompanying the growing popularity of smartphones. In contrast to PC DRAMs, prices for the mobile DRAMs are determined in negotiations with customers, so the risk of price declines is relatively limited. Premium DRAM has been increasing as a percentage of Elpida's sales since the July-September quarter and came to around 40 percent in the October-December term. Since the start of the year, demand for chips used in tablet computers due out from April has also been rising. The price computer manufacturers pay for PC DRAMs is in the neighborhood of 1 dollar for a 1-gigabit DDR3 chip, hurting profitability. Elpida swung to a 26.8 billion yen (US$325 million) operating loss in the October-December period.
Hardware
Fujitsu is planning to enter the market for electronic books in May, delivering digital content procured from Dai Nippon Printing to personal computers, smartphones and other devices. In addition to Dai Nippon Printing and its affiliate Mobilebook.jp, Fujitsu said it will seek collaborations with other e-book service providers. The initial catalogue will include 300,000 magazines, white papers, statistical information, survey reports, and other publications geared towards business people provided by G-Search, a Fujitsu Group company. The service will include business, IT, test prep and other e-book content from Fujitsu FOM's publication unit. Fujitsu will partner with internet service provider subsidiary Nifty, which has at least 1.8 million broadband subscribers and also sells content, for its payment system and marketing. Subsidiary Fujitsu Frontech also will debut a new type of e-reader that uses color electronic paper this summer.
Korea
Telecommunications
South Korean household expenses for telecommunications costs have grown substantially, aggravating the financial burden of consumers. According to the country's statistics service, monthly telecommunications bills averaged KRW 136,682 (US$121) per family last year, up 4.8 percent from a year ago and the highest since 2003 when the service began to compile statistics in the category. The sharp growth of mobile phone bills is due to the surging subscription costs for smart phones. Because of the accelerating number of smart phone users, the three telecom giants namely SK Telecom, KT and LG Uplus. Whereas subscribers suffered surged financial burdens, the three telecom giants reaped astronomical profits. The technology prowess of mobile phones and subscription rates in South Korea are among the highest in the world. The subscriptions for smart phones have reached 7 million and the number is seen to surge to 20 million by the end of this year.
KT Corp. said that it has expanded coverage of a high-speed wireless Internet network WiBro to 82 cities in Korea. KT plans to release at least one tablet computer each by Samsung Electronics Co. and HTC Corp., a smartphone and laptop computers equipped with WiBro connectivity before this summer to encourage users to take advantage of the high-speed wireless Internet network, the company said in a statement.
SK Telecom will start selling the Apple iPhone 4 from March 16, with pre-orders to begin from 7 a.m. March 9. This will end KT's exclusive distribution of iPhones here and signals mounting competition between the two leaders in the market.
SK Telecom has chosen four venture firms involved in mobile software development to provide them with financial and operational support. Under its “Open API Collaboration Project”, SK will provide Korea Data House, AddAdsFriend, Panez, and Geocaching Korea each with a minimum of KRW50 million (US$447,487), a workspace, and the necessary devices and equipment to develop apps, the Korea Herald reports. A total of 42 companies pitched ideas for the project. The four winners aim to integrate games, advertising, shopping, or social networks with T Map, SK's location-based service that provides a route guide and traffic information on a real-time basis. The company said it will invite other, smaller developers for support during the year as well.
Media, Gaming and Entertainment
South Korea's antitrust watchdog slapped major digital music providers with a combined KRW 18.8 billion (US$17 million) in fines for rigging prices of digital music content and online download services, said the Yonhap News Agency. Loen Entertainment and Mnet Media were fined KRW9.58 billion (US$8.5 million) and KRW1.98 billion (US$1.8 million), respectively, as mobile service providers and online music site operators SK Telecom and KT were slapped with KRW1.96 billion (US$1.7 million) and KRW811 million (US$725,902) fines, according to the Fair Trade Commission.
Mobile/ Wireless
LG Electronics India will be launching 35 to 40 mobile models this year, reports the Business Standard citing LG's business head Vishal Chopra. The company is focusing on mid and high-end phones. Of the 40 models that the company will be lining up for the domestic market, ten to twelve models will be 3G powered with a price tag of between INR 8,999 (US$200.50) and INR 35,000 (US$780.00).The company at present was enjoying an eight percent share of the Indian market, and expected this to surge to 10 percent in the current January-to-December financial year. The company would be adding four more 3G enabled variants to its LG Optimus series by March-April this year, besides looking at sub-INR 10,000 (US$223) models in the near future. The company had earmarked INR 2.5 billion (US$55.7 billion) towards above-the-line (ATL) and below-the-line (BTL) activities, including INR 1 billion (US$22.2 million) for the ongoing ICC Cricket World Cup and retail development for the current financial year.
China
Internet
Sina and subsidiary of China Dongxiang signed agreements to acquire an aggregate of 29% of China's online platform operator for apparel and accessories Mecox Lane from two major shareholders of Mecox Lane, Maxpro Holdings and Ever Keen Holdings, both wholly-owned by Sequoia Capital. Sina will purchase approximately 77 million ordinary shares or approximately 19 percent of the issued and outstanding shares of Mecox Lane, and DongXiang will purchase approximately 40.5 million ordinary shares or approximately 10 percent of the issued and outstanding shares of Mecox Lane. The selling shareholders will grant Sina and DongXiang options to acquire approximately 48.2 million ordinary shares and approximately 18.3 million ordinary shares of Mecox Lane, respectively. Upon the closing of share purchases, a representative from Sina will be appointed as a director of Mecox Lane and Kelvin Yu, a vice president with Sequoia will resign from the board. Each of Sina and DongXiang will be subject to a one-year lock-up with respect to the sale shares, starting from the closing date of the share purchases.
Sina's fourth-quarter net revenues amounted to US$110 million. Advertising revenues surged 30 percent year-over-year to US$82.5 million, as non-advertising revenues decreased 21 percent to US$27.5 million. Mobile VAS revenues for the fourth quarter declined to US$21 million. The year over year decline in Mobile VAS revenues was primarily due to China Mobile implementing a series of measures in late 2009 and early 2010. Gross margin surged to 58 percent from 56 percent. The company moved to a net loss of US$100 million from a net profit of US$372.1 million. Sina's cash, cash equivalents and short-term investments totaled US$882.8 million at the end of the period. Sina estimates that its non-GAAP net revenues for the first quarter will be between US$93-96 million, with non-GAAP advertising revenues to be between US$71-73 million and non-GAAP non-advertising revenues to be between US$22-23 million.
Mobile/Wireless
KongZhong’s fourth quarter net profit surged 149 percent to US$5.01 million. Revenues reached US$36.00 million, in line with guidance and surging 5 percent from US$34.44 million in the year-ago quarter. Mobile VAS revenues were US$20.78 million, mobile games revenues reached US$13.93 million, and online games revenues were US$2.96 million. KongZhong expects revenues for the first quarter to be in the range of US$38.5 to $39.5 million, comprising of US$20.3 million in mobile VAS revenues, US$13.5 million in mobile games revenues, and US$5.2 million in online games revenues. Net profit is forecast at US$2 to $3 million.
Telecommunications
Pacnet and the municipal government of Chongqing, China, have signed an MOU concerning the development of an international cloud computing hub in Chongqing. According to the MOU, data centers will be built on nearly a third of the land that the government has designated as a cloud computing zone. The building of the data centers will be completed in three phases, with investment for the first phase tagged at RMB 1 billion (US$150 million). One-fifth of this sum will be used for data center construction and cloud computing-related software and equipment. Pacnet Business Solutions, an equity sharing joint venture between Pacnet and Zhong Ren Telecom, will operate a data center with at least 1,500 racks to provide cloud computing services. Pacnet will also deliver capacity to the cloud computing zone through the EAC-C2C, Asia’s largest privately-owned submarine cable network, and the EAC Pacific, both of which it owns and operates.
China Mobile has nominated Fan Yun Jun as the new CEO of China Mobile Pakistan (CMPak), the holding company for its first overseas venture, Zong. Zong is the first international brand of China Mobile being launched in Pakistan.
China Mobile Ltd.'s biggest plan for this year is to list in mainland China. The specific timing of a listing depends on regulators who are forming a plan for the country's so-called red chip companies to return to the mainland market, China Mobile Chairman Wang Jianzhou said.Red chips are companies that have most of their assets in mainland China, but are registered and listed overseas. China doesn't allow companies registered overseas to list their shares on the mainland's exchanges at present, though the government has said it will change this. The remarks come as red-chip companies, like China Mobile and Alibaba.com Ltd., have said they're considering mainland listings. China Mobile could list via A-shares, Chinese Depositary Receipts or on an international board, Wang said on the sidelines of government meetings in Beijing.
The business volume of China's telecom industry surged 11.4 percent year on year in January to 86.99 billion yuan (US$13.2 billion); and the main operating turnovers totaled 72.71 billion yuan (US$11.1 billion), up 9.7 percent, said the Ministry of Industry and Information Technology (MIIT). Revenues from mobile communications surged year on year by 13.9 percent to 49.67 billion yuan (US$7.6 billion) in January, with the proportion in the industry's main operating turnovers climbing from 65.79 percent a year ago to 68.31 percent. Revenues from fixed-line communications surged 1.6 percent year on year to 23.04 billion yuan (US$3.5 billion), with the proportion in the industry's main operating turnovers dwindling to 31.69 percent from 34.21 percent for the same period of 2010. The country's overall telephone users stood at 1.16 billion by the end of January, including 869.72 million mobile users and 51.74 million 3G mobile users. Total broadband internet users hit 128.07 million by the end of the month.
China's investment in LTE is set to double this year as the country's major telecommunication carriers move to upgrade services, according to a study by IHS iSuppli. Capital spending for LTE this year is projected to reach US$100 million this year, double the US$50 million of 2010. It then will triple in size to US$300 million in 2012, jump to US$600 million in 2013 and then hit US$1.3 billion by 2014. In comparison, combined capital expenditures will decline during the next three years for the older 2G and 3G mobile technologies that continue to operate throughout the country. China Mobile is seen to launch LTE this year. Already, China Mobile has joined with Verizon and Vodafone in a cooperative LTE trial. Equipment vendors participating in the trial include Alcatel-Lucent, Ericsson, Motorola, Nokia Siemens Networks and Nortel. The trial aims to deploy at least 100 base station sites in each of six cities, covering at least 100 million subscribers.
Media, Entertainment and Gaming
· Shanda Games generated net income of 366.6 million yuan (US$55.8 million) for the fourth quarter of 2010, up 26.9 percent quarter-on-quarter but down 11.7 percent year-on-year. Net revenues in the quarter surged 5.1 percent quarter-on-quarter but decreased 13.7 percent on an annual basis to 1.15 billion yuan (US$174 million), with revenues from the company's MMORPGs climbing 7.1 percent sequentially but falling 17.0 percent annually to 1.04 billion yuan (US$158 million). Average monthly revenue per active paying account (ARPU) surged 4.0 percent quarter-on-quarter to 36.7 yuan (US$5.6). For the full year 2010, net revenues decreased 6.3 percent year-on-year to 4.50 billion yuan (US$684 million), as net income was 1.29 billion yuan (US$196 million).
· Kingsoft will release five to seven new games in 2010, 17173.com reported. The company will begin operation of 3D MMORPG Sheng Dao Chuan Qi in March, Da Hua Hong Lou, a 2D MMORPG adaptation of Chinese literary classic "Dream of Red Mansions" in the first half, as well as fantasy 2D MMO Rage in Heaven and an unnamed Q-style 3D martial arts MMO later this year, the report said. Kingsoft has also scheduled the launch of Rush Team, The Legend of Moon Online and New JX Online III for this year, according to the report.
Alternative Energy
JA Solar has signed a RMB 13.5 billion (US$2.05 million) strategic investment agreement with the municipal government of Hefei in Anhui Province to build a 3GW solar cell plant in the city.
JinkoSolar had solar product shipments of 162.6MW in the fourth quarter of 2010, exceeding guidance of 130-140MW and representing 20.6 percent sequential growth or 65.9 percent year-on-year growth. Total revenues surged 22.9 percent quarter-on-quarter and 156.9 percent year-on-year to 1.8 billion yuan (US$274 million), as gross margin declined to 28.5 percent from a third quarter level of 33.5 percent but up from 16.2 percent in the year-ago period. Net income came to 368.3 yuan million (US$56 million), up 41.9 percent quarter-on-quarter and 340.0 percent year-on-year, to record diluted earnings per ADS of 15.61 yuan (US$2.36). The company had a net foreign exchange gain from foreign currency forward contracts worth 87.9 million yuan (US$13.4 million) for the quarter, against a net FX loss in the prior quarter of 72 million yuan (US$11 million).
Hanwha SolarOne expects fourth quarter net revenues of between US$325 million and US$330 million, on shipments of 220MW at an average selling price of US$1.77/watt. Hanwha SolarOne also announced first quarter 2011 shipment guidance of 235-245MW, with expectations of a slight decline in ASP on a sequential basis. The company will release complete fourth quarter results on March.
Hardware
Noah Education, provider of interactive educational content and education services in China, had a net loss over the three months ended December 31 of 53.4 million yuan (US$8.1 million). Total net revenues for the second quarter decreased by 58.6 percent year-on-year to 64.2 million yuan (US$9.7 million), as the company's electronic learning product (ELP) business contribution declined 71.1 percent year-on-year to 43.1 million yuan (US$6.5 million). Net revenue from the education services business was 21.1 million yuan (US$3.2 million), a surge of 264 percent year-on-year. Noah president, COO and founder, Benguo Tang, has made a preliminary offer to acquire ELP business and operating assets for between 90 million yuan (US$14 million) and 120 million yuan (US$18.2 million), submitting his notice of resignation in connection with the offer, effective immediately.
Hong Kong
Telecommunications
Hutchison and SmarTone emerged victorious from a 3G spectrum auction in Hong Kong, paying a combined HK$1.9 billion (US$243 million) for 20MHz of spectrum. The pair beat off competition from three other mobile operators and one fixed carrier to win the paired spectrum in the 850 and 900MHz bands, following four days of bidding. SmarTone bid HK$875 million (US$112.4 million) for half the available spectrum, and Hutchison HK$1.077 billion (US$138 million) for the remainder. Ofta claims the auction of additional spectrum is necessary to match booming demand for mobile data in the city. Usage surged 189 percent year-on-year to 1.8TB in December. The additional spectrum will allow SmarTone and Hutchison to meet that surging demand by expanding their network capacity, and in turn surge the overall mobile market in Hong Kong. The operators will be granted 15 year licenses for the spectrum, and be required to cover 50 percent of the population within five years.
Telstra and PCCW have revealed that they have completed the restructure of their subsea cable joint venture, Reach. The operators have divided up the international assets owned by the 50/50 JV, leaving the remaining assets to be managed by Reach in Hong Kong. The restructure has given Telstra's international division direct control of subsea cable assets including the Reach North Asia Loop. The company has also acquired control over more global backhaul systems and POPs, extra satellite and PSTN capacity and a Global Roaming Exchange platform. Telstra International executive director of global sales Philip Mottram said the deal will allow Telstra International to achieve operational efficiencies, including by migrating the Reach international voice network to IP.
SmarTone said it nearly tripled its December-half profit to HK$321 million (US$41.2 million), on accelerating service revenue and device sales growth. Revenue surged 52 percent to HK$2.75 billion (US$353 million). Service revenue surged 29 percent to HK$2.1 billion (US$269 million), as device sales surged 307 percent to HK$614 million (US$79 million). The company's Hong Kong customer base surged 17 percent, despite what the company called a very competitive market. Blended ARPU from the region surged 12 percent to HK$241 (US$31). SmarTone's Macau operations swung to an operating profit of HK$16 million (US$2.05 million). Revenue surged 18 percent, but EBITDA declined 32 percent on rising operating expenses.

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