Chinese Tech Stock Weekly Summary (Mar. 2 - Mar. 8, 2009)

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Includes: AABA, AAPL, ALBCF, BIDU, CHA, CHL, CHU, GA, GOOG, HTX, LNVGY, NTES, PWRD, SNDA, SOHU, SOL, TCTZF, TSL, YGE
by: IRG Ltd

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

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Internet

• Google Inc. (NASDAQ:GOOG) saw its share of the Chinese online search market climb 3.5 percentage points year on year to 20.7 percent in 2008. Baidu (NASDAQ:BIDU), the world's biggest Chinese-language search engine, again took the lion's share in the year, with its market share increasing 0.6 percentage points from 72.6 percent in the previous year to 73.2 percent. Following the two outrunners came Tencent Holdings (TCEHF.PK) and China Yahoo! (YHOO), which had 3.3 percent and 1 percent of the Chinese online search market, respectively. Notably, China saw 46.8 billion web search requests in the fourth quarter of 2008, up 25.8 percent from the previous quarter. The requests surged 63.2 percent from 91.1 billion in 2007 to 150 billion in the entire year, averaging the monthly requests to 12.5 billion.
• Tencent Holdings Ltd. expands its service to 16 areas across China, on the strength of general packet radio service of China Unicom (NYSE:CHU). China Unicom's GPRS users can install the latest version of Mobile QQ, a cellular messaging service provided by Tencent, in their mobile phones and chat with their friends anytime. The latest version will be available in succession in other areas in the country. The latest version is expected in the 16 areas including Guangdong Province, Zhejiang Province, Hubei Province, Shanghai, Jiangsu Province, Fujian Province, Tianjin, Jilin Province, Henan Province, Shandong Province, Hebei Province, Hainan Province, Jiangxi Province, Heilongjiang Province, Xinjiang Uygur Autonomous Region, and Guangxi Zhuang Autonomous Region.
• Alibaba.com (OTC:ALBCF) is in talks with China's three major telecom operators China Mobile (NYSE:CHL), China Telecom (NYSE:CHA) and China Unicom, to launch a web-enabled mobile payment service. Alibaba recently launched a trial 2G mobile service for its online store owners who subscribed to its TrustPass identity verification system. The service allows subscribers to respond to messages from Alibaba users by SMS. Even though the 2G mobile service does not include mobile payments, it is expected to bring the company closer to setting up its 3G mobile transaction service. However, it will take years to establish a mobile B2B market in the country since China's 3G market is still in its infancy. He
concluded that the time is right for Alibaba to prepare a 3G mobile transaction service as commercial 3G services are getting more popular in China.

Mobile/Wireless

• China will see 20 percent of its mobile phone subscribers choose 3G networks in three years. The construction of 3G networks in China is less expensive. It would a long time to gain returns from the investment on 3G networks. Chang also said that the price of 3G service is still under discussion. China Unicom obtained the 3G license earlier this year. It plans to invest as much as 95 billion yuan (US$13.9 billion) this year in expanding and upgrading its existing networks, including 3G networks based on the WCDMA technology. In addition, the company is in talks with Apple Inc (NASDAQ:AAPL), expecting to sell iPhone in the country in May, when the telecom operator will launch the 3G services nationwide.
• A Motorola (MOT) unit in east China is stopping cell phone production after the first quarter of this year, underlining the extended woes of the U.S. communication giant's troubled mobile phone business. Hangzhou Motorola Cellular Equipment Co Ltd, a joint venture between Motorola Inc and Hangzhou Eastern Communications, said its cell phone sector would be integrated into production lines in Tianjin Motorola after the first quarter of this year. The company will instead focus on TV set-top-box business, broadband and mobile network equipment. On January 15 of this year, Motorola announced plans to lay off 4,000 employees worldwide, the bulk of which would be from its mobile device department. Motorola posted a full year loss of more than US$4.16 billion in 2008. The mobile devices sector contributed to more than half of that loss and eroded the business revenue of other sectors including enterprise mobility solutions and home and networks mobility.
• China Mobile Ltd. will focus on the domestic market for the time being, but it still sees opportunities to acquire telecommunication assets abroad. The comments mark a shift in emphasis for Chairman Wang, who has stated several times recently that telecom assets abroad look cheap and the world's largest mobile operator by subscribers will take advantage to invest overseas at the opportune time. Wang reiterated that he believes international telecom assets are cheap currently. China Mobile bought 100 percent of Paktel in 2007 for US$460 million, renaming it from CMPak Ltd. Wang still sees room for growth in China's rural areas without impacting profit margins. Though average revenue per user is lower in rural markets, costs are lower too. China Mobile earned an average revenue per user of 83 yuan (US$12.1) per month. During the same time period, China Mobile posted an EBITDA of 159.2 billion yuan (US$23.3 billion) on revenue of 301.4 billion yuan (US$44.1 billion), for an EBITDA margin of 52.8 percent, down from 53.9 percent a year earlier.

• China Mobile plans to invest 58.8 billion yuan (US$8.6 billion) this year to build 60,000 3G base stations. The plan would increase the number of China Mobile’s 3G base stations to more than 80,000 across China. The Ministry of Industry and Information Technology awarded China Mobile a license to operate a 3G network based on the domestically developed TD-SCDMA standard. At the same time the ministry gave approval to smaller rivals China Unicom and China Telecom to develop WCDMA and CDMA 2000 networks, respectively. Spending on 3G equipment by carriers would total US$41 billion over the next two years. Intel began offering its partners a discount bundle deal including a Core i7 CPU and solid state drive (SSD) hoping to increase demand of the two product lines and to clear stockpiled inventory. Intel is offering a 10-15 percent discount on the combined price of the CPU and drive as part of the promotion which is mainly targeting markets in China, Europe and North America.
• China Unicom Ltd. is in talks with Apple Inc. about introducing the iPhone in China. An exclusive deal with Apple to distribute the popular phone in China would give China Unicom a much needed competitive edge over its larger rival The third-generation iPhone runs on Wideband CDMA, which China Unicom is rolling out in China currently, making it a natural partner for Apple. China Mobile is the world's largest mobile phone service provider by subscribers, which makes it an attractive partner for Apple in China. However, the 3G iPhone isn't compatible with China Mobile's locally developed TD-SCDMA network. If Apple signs an exclusive deal with China Mobile, its phones will either have to run at slower, second-generation speeds, or it will have to develop a TDSCDMA compatible iPhone.
• The Macau government launched a tender to award the fourth license to provide 3G mobile telephony services. The tender is open until 26 April, and the bids will be opened on 4 May, after which a six-month period will pass until the final decision of the government. Macau currently has more than 900,000 mobile telephony subscribers, of which 220,000 use 3G services. CTM, Hutchison Telecom (HTX) and China Telecom currently provide 3G services in Macau.

Media, Entertainment and Gaming

• Chinese online game designer Giant Interactive Group (NYSE:GA) posted a quarterly profit of US$42.5 million that beat market estimates on the strong performance of ZT Online, its flagship game, and set a better-than-expected first-quarter revenue outlook. Giant’s revenue of US$51.7 million came ahead of analysts' estimates of US$48.5 million. For the first quarter, the company forecast revenue of US$54 million to 57 million, above analysts' estimates of US$52 million. Rivals Sohu.com (NASDAQ:SOHU) and Shanda Interactive Entertainment (NASDAQ:SNDA) forecast sequential growth, NetEase.com (NASDAQ:NTES) kept a flattish outlook while Perfect World Co (NASDAQ:PWRD) expects sequential contraction in the first quarter. The online gaming market had 3 million users in 2007 and will grow by 85 percent annually until 2011 when it is expected to reach 34.8 million, a Beijing-based research firm. However, Giant saw average revenue per user (ARPU) of 272.7 yuan (US$39.9) in the fourth quarter of 2008, a drop of 3.3 percent from the previous quarter and an 11.6 percent fall year-on-year. Company executives suggested that in order to increase its number of users at a relatively low cost, the company could launch different versions of its current games to suit more players and increase the number of paying accounts. Giant changed its business model by launching a pay-by-time version of its key product ZT Online at the end of 2007, which generated revenue by charging users by length of playing time, rather than by selling virtual products.

Hardware

• Yang Yuanqing, chief executive officer of Lenovo Group Ltd. (OTCPK:LNVGY), said that the company had no plans to cut more jobs and they would seek opportunities overseas to carry out acquisitions. Lenovo finalized its plan of housecleaning in Europe, Middle East, and Africa to lay off 450 of its workforce. It was not true that Lenovo was considering buying the PC unit of Japan-based Fujitsu (OTCPK:FJTSY), but it didn't mean Lenovo would not make deals with others. Fujitsu was considering selling the PC business under Fujitsu Siemens Computers, a subsidiary under the aegis of Fujitsu, and Lenovo was one of the prospective buyers. The CEO's confirmation was made against the backdrop of huge losses for the third quarter of last year, setbacks in overseas expansion, and the return of Liu Chuanzhi, founder and former chairman of the Chinese PC maker. Mr. Liu this time vows to lead the company he sets up to make a turnaround. Lenovo has US$735 million in sales from Europe, Middle East, and Africa in the third quarter of 2008, making up 20 percent of its total revenues. Shipment and sales of PCs in theses areas were down 3 percent and 32 percent, respectively.
• China will try to guarantee the steady growth of its flat-panel display industry in 2009, said Shao Hua, head of electronic information department of the nation's Ministry of Industry and Information Technology. The nation will enhance domestic demand for flat-panel display products, expand the application of electric information products, add investment in six key projects like the upgrading of integrated circuits and the transformation of the TV industry, and back up the development of innovative display products like TFT-LCD. Remarkably, in the second half of 2008, many photoelectric display projects started operations, such as BOE's sixth-generation production line of TFT-LCD and Infovision Optoelectronics' sixth-generation production line. In addition, the cooperation between Tianma Microelectronics Co., Ltd. and BOE in the mid- and small-sized panel sector also signals the boom of the domestic flat-panel display industry in 2009.
• IT market research firm IDC said the year 2009 will be the toughest year for China's PC market, with merely 3 percent in growth, adding that the market won't pick up until 2010 with an expected increase of 16 percent. The report expects China's PC market to see a shipment of 40.61 million PCs in 2009, up 3 percent year on year. Desktop PCs will record the biggest decline with a sales volume of 24.8 million sets, down 6 percent from 2008. Sales growth of notebook computers will also contract sharply to 19 percent, with a yearly sale of 15.8 million sets in 2009. China's PC market took a fall amid the global financial crisis and a sharp economic slowdown in the second half of 2008. The market will remain bleak this year according to IDC. As mini laptop computers are catching on, IDC expects 1.9 million mini notebook computers will be sold in China this year, while Chinese consumers will be moving from desktops and laptops to a more diversified product line. Sales of PCs with compact chassis will be growing rapidly. Demand from small and midsize businesses for such PCs will be mounting. Notebook computers featuring 13-inch screen will become the bright spot out there in a market that has been flush with 14-inch products.

Alternative Energy

• Yingli Green Energy Holding (NYSE:YGE) announced that its three subsidiaries have received 420 million yuan (US$61.4 million) of loans from domestic lenders and an affiliate of the company. Specifically Baoding Tianwei Yingli New Energy Resources Co., Ltd. obtained 180 million yuan (US$26.3 million) of loans from local Shijiazhuang City Commercial Bank and Yingli Energy (China) Co., Ltd. got 90 million yuan (US$13.2 million) and 50 million yuan (US$7.3 million) from Shijiazhuang City Commercial Bank and Bank of Communications' Hebei Branch, respectively. Fine Silicon Co., Ltd. succeeded in borrowing 100 million yuan (US$14.6 million) of loan from Baoding Yingli Group, an affiliate of Yingli Green Energy, with the deal entrusted by Baoding Urban District Rural Credit Union. Each of the three lending has a term of 12 months with annual interest rate of 5.31 percent. With tight cash flow, Yingli Green Energy hopes to expand PV production capacity, start polysilicon manufacturing and reinforce financial position through borrowings.
• Trina Solar Ltd. (NYSE:TSL) posted a fourth-quarter loss, pressured by declining prices for solar modules, and said sales volumes would slip in the first quarter. Solar companies have suffered in recent months as a glut of new production has entered the market, shrinking prices and margins even as the financial crisis has dried up much of the funding for new products. Changzhou, China-based Trina posted a fourth-quarter net loss of US$673,000. But the loss was smaller than the 33 cents per ADS that analysts on average had forecast. Trina said its first-quarter shipments of photovoltaic modules would be 50 to 55 megawatts, down from 57.59 MW in the fourth quarter. Full-year 2009 module shipments are expected to be between 350 to 400 MW, with about 300 MW of shipments currently contracted. Trina's non-silicon production costs are expected to drop by 15 percent to 20 percent this year.
• ReneSola (NYSE:SOL) announced that sales for 2008 rose to US$669 - US$671 million on production of 363 megawatts but the company had a fourth quarter loss of US$125 - US$130 million due to inventory writedown of US$130 million to US$140 million caused by the drop in the price of polysilicon. The company in November forecast sales of US$640 million to US$670 million on production of 340-350 megawatts. ReneSolar is the world’s largest recycle of scrap wafers in solar panels. For 2009. the company forecast sales of US$650 – US$700 million on production of 620-670 megawatts.