Chinese Tech Stock Weekly Update

by: IRG Ltd

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


Sina (NASDAQ:SINA) reported a 4 percent rise in its net profit to US$10.4 million, in the second quarter as turnover gained 16 percent to US$53.7 million. The firm, considered as China’s most popular portal ascribed the performance to a strong second-quarter advertising revenue growth. Sina said the recent World Cup contributed some 45 percent boost to advertising fees, a contribution valued at some US$8 million. Sina said its third-quarter sales would be within the range of US$51 million to US$54 million, with advertising revenue forecast at US$31 million to US$32 million. Earlier the mainland government issued stricter regulations on sales of ring tones and other mobile phone services, prompting Sina to state about its uncertainty regarding a strong second-quarter revenue growth for wireless services. Sina said its advertising revenue, which accounted for 54.9 percent of second-quarter income, was US$29.5 million, higher than the company's forecast of US$26 million to US$27 million and 33 percent up on the first quarter. Its non-advertising revenue went down by 6 percent to US$24.2 million but still higher than the forecast US$21.5 million to US$22.5 million. During the second quarter, Sina announced an earning of US$2 million from the sale of its stake in a joint venture company formed with South Korean online game company NCsoft. Inc. (NASDAQ:SOHU) announced that it has completed its US$15 million stock repurchase program. Ever since initiating the buyback program in August 2005, the company has repurchased 690,581 shares, fully utilizing the funds allocated under the program. Sohu revealed it is continuing with a separate and additional US$15 million stock repurchase program, which is in place at present.

Reports are saying that Wei Zhe, the president of Kingfisher Plc's (OTCQX:KGFHY) B&Q in China, has resigned from his position after more than six years at the Britain-based home improvement retailer, to join Inc. No report about his new position was disclosed. Wei reportedly has a good relationship with Jack Ma, founder and chief executive of The firm has been reported as strengthening management to prepare for an overseas listing.


Industry observers are saying that big foreign mobile phone makers led by Finland's Nokia (NYSE:NOK) and South Korea's Samsung Electronics are making headway into the China market, as consolidation pushes smaller mainland players away. Industry experts cite expanded distribution and local alliances as factors that are making it easy for the world’s top three handset suppliers to be dominant forces in the China market. Observers say this development is indicated by the number of local companies that have ceased to be part of the mobile phone business. Some mainland companies that are not part of the sector include Guangzhou Soutec [Group] Technology, China Kejian and Nanjing Panda Mobile Communications Equipment. With the government allowing more suppliers into the domestic mobile phone market, more “casualties” are seen as being added to the list. According to Gartner, some 25-30 handset vendors would remain in China by the end of this year. Strategy Analytics said that Nokia continues to set the agenda in larger emerging markets such as China, allowing the company to capture a 33 percent market share worldwide in the second quarter. Nokia is working with local operators in rural markets to help make monthly tariffs affordable, with growth from China and other emerging markets seen as boosting Nokia's global mobile phone shipments to 101 million units this fourth quarter, up 20 percent from 84 million units a year earlier. Partnerships with local players are also helping to drive growth in overseas companies.

Analysts are saying the mainland's major mobile operators are expected to post far more robust first-half results than fixed-line carriers. According to a median of eight analysts surveyed by China Daily, China Mobile (NYSE:CHL), the world's largest mobile operator by subscribers, is likely to register a 21 percent growth in the January-June period to reach 29 billion yuan (US$3.6 billion). All the analysts reportedly agreed that the firm would hit a double-digit growth. BNP Paribas predicted the firm would gain 25 percent year-on-year to reach 30 billion yuan (US$3.7 billion), the highest estimate of all the analysts, citing weaker-than-expected market competition and its parent firm's rural penetration. An analyst at Philip Asset Management said that people subscribing to the broadband services of China Mobile Network are increasing, with more than 4 million new clients choosing to use the China Mobile network every month. The analysts estimate that China Unicom (NYSE:CHU), China Mobile’s main rival, may hit a lower growth rate in income of 11.6 percent, to 2.6 billion yuan (US$325 million). BNP Paribas said China Unicom is expected to gain momentum in the second half. Analysts said China Telecom and China Netcom’s (CN-OLD) first-half net profit could rise by 4.2 percent and 4.5 percent to 15.3 billion (US$1.9 billion) and 6.6 billion yuan (US$836.1 million), respectively.


Chinasoft International revealed its plan to switch its listing to the main board next year, a move it will do after it has completed its three planned acquisition. The software service provider, which is partly owned by Microsoft Corp., said it would raise the number of its workers to 5,000 before the switch. With HK$134 million (US$17.2 million) cash set aside for acquisitions, Chinasoft it is looking to acquiring three firms from the U.S., Japan and the mainland. Through these acquisitions, the company said it aims to expand in the IT outsourcing services industry. A top company official noting the fragmentation of the software market said that he expected over the next three years, a consolidation of the market. Chinasoft said it aims to be one of the three largest firms in the China software industry. In a separate development, Chinasoft announced its half-year profit as rising by 34.7 percent to 24.5 million yuan (US$3.1 million). The company said its sales went down by 18.2 percent to 133.7 million yuan (US$16.7 million), a situation it ascribed to giving up the low-end hardware business to focus on its core software business.


Lenovo Group (OTCPK:LNVGY) reported a decline of 89 percent in its first-quarter profit to US$5 million, which it ascribed to restructuring costs at the unit it acquired from IBM (NYSE:IBM). Lenovo said that it spent US$19 million to pay for job cuts and relocation. The company reported its sales going up by 38 percent to US$3.5 billion. Lenovo said it is cutting about 1,000 employees and moving offices at a cost of US$100 million after acquiring the personal computer unit of IBM for US$1.2 billion in May 2005. It looks to the restructuring as bringing it a saving of as much as US$250 million a year. It reported a loss in the quarter to March after booking US$70 million of restructuring costs. The remaining US$30 million will be taken into account this fiscal year. IDC said Lenovo’s share in the global market went up to 7.7 percent at the end of June from 7.5 percent a year ago. Notebook computer sales, which rose 23 percent in terms of shipments, accounted for 51.6 percent of total revenue, with desktop computer sales taking 41.8 percent. Its sales in the mobile handset business posted a 64 percent growth to US$174 million, making up 5 percent of total revenue. Sales in the Greater China region, which made up 38.5 percent of total sales, registered a 31.6 percent growth to US$1.3 billion. Its revenue in North and South America, making up 29.2 percent of total sales, went up by 43 percent to US$1 billion. Asia-Pacific sales contributed 13.3 percent of the total and posted a 45 percent rise to US$416 million, with the growth coming from India and Japan.

Microsoft Corp. (NASDAQ:MSFT) said it would spend US$700 million annually in the next five years to purchase hardware products from China. The company, however, did not mention if it plans to introduce the video game console Xbox in the Chinese mainland even though it will launch the product in 10 more countries this year. At present, most of Microsoft's hardware products are manufactured in southern China, and all Xbox consoles are manufactured in China.

Best Buy Co. (NYSE:BBY) disclosed that it is considering further acquisitions in China, including Beijing Dazhong Electrical Appliances Co., as the biggest US home-appliance chain prepares to open its first store in the world's most populous country. A top official of Dazhong revealed the plans to nullify an agreement to ally with China Paradise Electronics Retail Ltd. Best Buy's plan to enter China's US$75 billion home-appliance market has spurred mergers among domestic companies. Dazhong stores account for more than half of sales in Beijing, a prize for either Best Buy or Gome Electrical Appliances Holdings Ltd, China's biggest home-appliance retailer, as they vie for wealthy, urban consumers.