Chinese Tech Stock Weekly Update

by: IRG Ltd

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


Industry sources said that is in the final stages of talks to acquire online classifieds portal Zhongsou is considered the local rival of Baidu (NASDAQ:BIDU), China’s top Internet search firm. Zhongsou is reportedly seeking to expand its service portfolio ahead of an IPO, targeted at the end of 2007. The report did not give financial details about the deal or the amount it aims to generate through the offering. No information was given, too, about where Zhongsou wanted to list. Zhongsou counts among its partners Sina Corp (NASDAQ:SINA), (NASDAQ:SOHU) and (NASDAQ:NTES). (BIDU) reported a massive 900 percent surge in its net income for the third quarter of US$10.8 million from the same period last year. The company posted a 169.1 percent rise in its revenues to US$30.3 million. It forecasts its revenues to be between US$34.2 million to US$35.5 million, which represents a 135 percent to 143 percent rise over the same period last year. Baidu, which makes most of its money from advertising, said results were affected by its adoption of a system that uses multiple rounds of bidding to sell advertising space on its results pages. The China Internet Network Center stated that Baidu holds some 62.1 percent of China’s search market, with Google holding 23.5 percent at the second spot. Earlier this month, Baidu announced a deal this month with Viacom to sell music videos and programs from MTV and children’s channel Nickelodeon over the Internet.

The local media is writing about a rumor that Google (NASDAQ:GOOG) is setting up a joint venture company with, which owns an Internet Content Provider [ICP] license. Industry analysts see this move by Google as an attempt to avoid legal problems in China, as the ICP license is only available to Chinese domestic companies. Google currently partners with various companies in order to provide its search engine services in the country. The two companies have not confirmed the news about the joint venture. Google and Ganji have previously entered into a strategic partnership. said it has agreed to acquire a strategic stake in Koubei, a mainland site that features classified advertisements. Alibaba described, with more than 2 million registered users, as “one of the country’s largest classified listing and community websites.” Industry observers see the acquisition as further heating up the competition between U.S. portal eBay (NASDAQ:EBAY) and Alibaba’s, a consumer-to-consumer e-commerce site. Taobao, with its free business model, has been taking market share from eBay. Alibaba said Koubei’s classified listing format would complement its existing online payments Alipay and Taobao. No financial details about the deal were disclosed. Earlier, Alipay launched a card with China Construction Bank that can be used to purchase online from Taobao. According to iResearch, the number of consumer-to-consumer e-commerce users hit 22.5 million last year, and had posted an average growth of about 73 percent since 2001.

Media, Entertainment and Gaming (SINA) reported an 18 percent growth in its third-quarter profits, with the company attributing the increase to a surging growth in advertising. The company posted quarterly earnings of US$10.7 million. Sina said its revenue registered a 13 percent rise to US$56.1 million, beating analyst expectations of US$52.8 million, with its advertising revenue growing by 42 percent compared with the same period last year to US$32.7 million. Sina also launched a broadband video service in the third quarter and indicated the expansion of its popular sports offerings, with plans to launch a channel devoted to the 2008 Beijing Olympics. For its wireless value-added services and other non-advertising services, Sina’s revenue showed a 12 percent drop to US$23.4 million, partly because of billing changes by Chinese mobile phone companies that have hit all China's wireless services.

Industry sources said that the general manager of Dragon Mobile, a wholly owned affiliate of Shanghai Media Group [SMG], has announced the merger of the company with SMG New Media, another affiliate of SMG. The official said that the merger is expected to produce a new entity that will carry the name "Dragon New Media." The statement explained that merger is mainly for a business adjustment as both companies are into businesses related to mobile phones with mobile operators as their common partners. Dragon Mobile is drawing attention after becoming the first company to secure a license for mobile television integration and operation. SMG New Media offers valued-added and interactive services.

China Central Television [CCTV] announced its partnership with BBC in a bid to demonstrate high-definition services. Under the agreement, CCTV will work with BBC to co- produce a series in the run-up to the Beijing 2008 Olympic Games that will make the most of much sharper and enhanced images and richer color displays characteristic of HD technology. The production team will spend two years on production before the series airs in 2008 in China and Britain. The broadcasters are hoping the series will help boost interest in the format, which entails higher production costs and requires expensive upgrades to send out to viewers. The channel, operated by CCTV's Shanghai-listed China Television Media and Central Digital Television Media, carries 18 hours of programs a day.


China Mobile (NYSE:CHL) announced its move to focus its overseas expansion on emerging markets in Asia and Latin America, with the firm stating that it will work with countries sharing a similar stage of development as in China, or those who are even lagging behind. A key company official was quoted as saying China Mobile has no interest in the mature markets of North America and Western Europe taking note of the fact that in China, rural markets are contributing more to the company. China Mobile counts over 50 percent of new subscribers in the first half coming from the countryside. China Mobile has over 300 million total subscribers, with the overall mobile network in China from all providers having reached 97 percent of the population.

The State Administration of Radio Film and Television [SARFT] announced its selection of the mainland-developed CMMB, which will allow state-owned television stations to broadcast directly to mobile phones, cutting out mobile service providers. Other technologies considered included Europe-based Digital Video Broadcasting-Handheld, South Korea's Digital Multimedia Broadcasting and US chipmaker Qualcomm's (NASDAQ:QCOM) MediaFlo technologies. Industry analysts say the move is indicative of the government’s efforts to control core technologies by using domestic rather than international standards. The decision is seen also as benefiting mainland TV broadcasters and content providers, with mobile television service providers such as Shanghai Media expected to able to bypass mobile operators when offering the service. Mobile television services based on CMMB technology are expected to start in time for the 2008 Beijing Olympic Games, allowing users nationwide to watch programs on digital devices fitted with the appropriate digital signal receiver.


Advanced Analogic Technologies Incorporated (NASDAQ:AATI), a developer of power management semiconductors for mobile consumer electronic devices, announced the completion of its acquisition of the power management analog business of IPCore Technologies Corporation (IPCore), including IPCore's subsidiary Analog Power Semiconductor Corporation (AP Semi) and certain related assets. The acquisition of AP Semi is expected to double AnalogicTech's engineering staff and expand its presence in China with a fully staffed design center in Shanghai. In September, AnalogicTech announced an agreement to acquire AP Semi and related assets from IPCore, with the company paying US$21.5 million in cash. The acquisition is expected to be neutral to non-GAAP earnings in the second half of 2007. AnalogicTech is headquartered in California, with offices in South Korea, Taiwan, Hong Kong, Macau, Shanghai, Shenzhen, Beijing, Japan, Sweden, UK, and France, as well as a worldwide network of sales representatives and distributors. IPCore Technologies is a Cayman Islands registered company with offices in the U.S., Japan, and China. It is the first Pure Design Foundry Company in China to provide a One-Stop-Silicon-Solution to domestic and international IC product companies. With headquarters in Shanghai's CaoHeJing Hi-Tech Park, IPCore has partnerships with various wafer foundries, testing and packaging houses, and global tier- one IC companies. IPCore's investor base is composed of a notable consortium of international venture capital firms including Walden International, Pacific Venture Group, 3i, Vertex, Sycamore Ventures, and Pan- Pacific Venture.

Semiconductor Manufacturing International Corp. (NYSE:SMI) reported for the third quarter, net loss rising to US$35.1 million, including a net foreign exchange loss of US$10.1 million, from US$26.1 million for the same period a year ago. The company said its earnings were heavily affected by inventory piling up in the industry worldwide, which led to the decline in chip prices. The blended average selling price of its wafers fell to US$851 each in the third quarter, from US$888 in the second. SMI posted a 19 percent growth in sales to US$368.9 million in the third quarter from the same period last year, with direct sales in China contributing up to 10 percent of sales. The company indicated that it aims to cut its capital expenditure to US$1 billion this year, which represents a 9 percent decline from the forecast made early this year of US$700 million next year. SMI is looking to make more dynamic random access memory chips, a product that made up 30 percent of its third- quarter sales.

Actions Semiconductor (NASDAQ:ACTS), one of China's leading fabless semiconductor companies, posted a 19.3 percent rise in its revenue for the third quarter of 2006 to US$45.7 million, from US$38.3 million for the third quarter of 2005. The result shows a 16.3 percent increase, over revenues of US$39.3 million for the second quarter of 2006. The company said its net income for the third quarter of 2006 was US$20.5 million, compared to US$18.1 million, for the second quarter of 2006. For the quarter ended December 31, 2006, Actions Semiconductor forecasts revenue in the range of US$48 to US$50 million.


Symantec (NASDAQ:SYMC) announced its plan to increase the size of its China R&D Center. The company said it plans to make its Beijing-based R&D center one of the major research centers in the world through this expansion, which is expected to double its staff and create some 300 more jobs by March 2006. The chief technology officer of the company said that Symantec spends about 15 percent of its global revenue each year on R&D. In a related development, Symantec said it would work with Redflag Linux on the launching of a new solution called Storage Foundation based on the Linux system.

Microsoft (NASDAQ:MSFT) announced the licensing of technologies to two Chinese software companies, Comtech Group (COGO) and Hunan Talkweb, a move that marks the first time intellectual-property based technologies are receiving a license under Microsoft IP Ventures in China. The report said that the license will enable Comtech and Talkweb to tap business opportunities in the knowledge economy. Comtech is a leading provider of customized module design solutions as well as other engineering and business services for more than 200 domestic and international technology product manufacturing companies based in China.

Genesys Conferencing (GNSY) announced the opening of a new software development center in Shanghai, stating that the Chinese city offers a “highly qualified developer workforce.” The company said it sees the Asia Pacific as its high growth market, with the region contributing some 10 percent of its total revenue. Genesys Conferencing said it identifies product development and innovation as central to its business growth strategy. In 1988, the company launched the world's first automated conferencing service, followed by its first voice conferencing management software. It also launched of the world's first multimedia collaboration platform, integrating voice, web and video conferencing.


Following its report of a nine-month loss valued at US$192.8 million, TCL Multimedia Technology Holdings revealed its decision to close most of its European television-making operations. The company said its decision also includes the return of the Thomson trademark to the French video-technology giant of the same name. The nine-month loss was attributed to the European operations, originally part of a joint venture with Thomson. TCL Multimedia failed to meet minimum sales targets set out in last year's deal with Thomson, which gave the French company the right to terminate its agreement to grant TCL a 20-year license to use Thomson trademarks in Europe, North America and other countries. Under the new arrangement, TCL can use Thomson's trademarks in Europe for only two more years and seven more years in Russia, the Ukraine and Kazakhstan. TCL said that after giving up Thomson's brand business, TCL will focus on contract manufacturing television sets for Europe. Following this decision is a restructuring that is expected to cost TCL about US$57.2 million, resulting in a cash outflow of at least US$30.5 million. Losing US$13.4 million last year, TCL expects to return to profit in 2008.

Arrow Electronics (NYSE:ARW), a leading global distributor of electronic components and computer products, announced its aim to enhance its presence in the mainland China, as Chinese and multinational companies expanded their collaboration with local makers. Products like PCs, wireless phones and other electronic devices are being tailored for mainland users. Arrow has more than 750 employees in Greater China, serving about 4,000 customers in the mainland, Hong Kong and Taiwan. The region accounts for about 70 percent of Arrow's Asia-Pacific business. In-Stat said low labor costs and the fast-growing domestic market will push China's consumer electronics manufacturing industry to more than double revenues by 2010. In-Stat forecasts the sector will grow into a market worth US$167 billion by 2010, up from US$71.5 billion this year. Arrow said it is focusing on introducing more non-semiconductor products to electronics manufacturers in China, as these companies start producing a broader range of sophisticated products for the mainland.

Television maker Sichuan Changhong Electric Appliances posted a 94.5 percent growth in profits for the three months to September 30, to 96 million yuan (US$12.1 million) compared with 49.3 million yuan (US$6.2 million) a year earlier. The company said its revenue registered a 46 percent growth to 4.4 billion yuan (US$558.8 million). Changhong saw its nine-month profit post a 16.5 percent drop to 221.3 million yuan (US$28.1 million), which the company ascribed to rising costs related to the development and promotion of new products in the first half of the year. In April, Changhong agreed with its former U.S. distributor Apex Digital that it would assume responsibility for US$170 million in debt it owed to Changhong. As partial payment for unpaid debt, Changhong had obtained in return a 30 percent stake in Hong Kong-listed China Data Broadcasting Holdings worth US$8.8 million from Apex.

Information Technology

The Haier Group announced its formal membership into EPCglobal, a subscriber-driven group composed of organizations and industry leaders working on creating global standards for the EPCglobal Network. The association spearheads the development of standards for the Electronic Product Code [EPC] used in Radio Frequency Identification [RFID]. As of October, EPCglobal had more than 1,000 members across the world. Industry analysts see Haier’s joining the EPCglobal China as something that will draw in more Chinese enterprises to the group. EPCglobal operates the EPCglobal Architecture Framework, a collection of inter-related standards for hardware, software, and data interfaces. In a separate development, the country’s first National RFID Industrial Zone has formally opened in the Zhangjiang area of Shanghai. The zone will be the largest RFID industry center in China with an annual production capacity of 500 billion tags. The center stands for more than one-third of the market share within China's domestic market.