Asian Tech Stock Weekly Review (May 3 – 9, 2010)

by: IRG Ltd


Mobile/ Wireless

Mobile content services firm Nano Media reported full-year results for the period ending March 2010. The company’s sales declined by 4.3% to 2.54 billion yen (US$27.7 million) while net loss reduced to 98 million yen (US$1.06 million) from 1.08 billion yen (US$11.78 million) the previous year.

Softbank Mobile Corp (OTCPK:SFTBF) said that it will start selling Apple Inc’s (NASDAQ:AAPL) iPad tablet computer in Japan on May 28 under a partnership with Apple. A basic model with Wi-Fi wireless Internet access is priced at 48,960 yen (US$535) and a model which can use both Wi-Fi and 3G mobile network service costs 58,320 yen (US$637). A monthly network usage fee of 3,225 yen (US$35) is necessary for the 3G model under a two-year contract.

Media, Entertainment and Gaming

Nintendo (OTCPK:NTDOY) recorded its first annual profit fall in the last 6 years, hit by declining global sales and price cuts on the Wii video game console. The company’s net incomes for twelve months ending March 2010 dropped by 18% to 228.6 billion yen (US$2.5 billion) while revenues dropped by 22% to 1.4 trillion yen (US$15.3 billion). The company also issued a grim forecast for the current financial year and expects sales and earnings to drop by 2.5% and 12.5% respectively. Nintendo, however, expressed confidence in the popularity and quality of its game consoles and is betting on a new hand-held game console due for release this year, which allows users to play 3-D games without using special eye-glasses. Rivals Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) are also launching similar devices, but with special eyeglasses. Companies like Nintendo also face a big challenge from devices like the iPhone and the iPad, which might eat away into their market share by providing cheaper, easy-to-use games.

Japan’s publishing industry is rallying to protect the US$20 billion paper-back book business in the country, even as Apple, Sony Corp and Amazon (NASDAQ:AMZN) plan the launch of their e-reader devices in the country. A network of 31 large publishers in the country, called the Electric book publishers of Japan, could potentially jeopardize the success of the gadgets in the country, as they begin lobbying to protect their book publishing business where they control pricing. E-book service providers are expected to lower the cost of purchasing and reading new and old books by drastically slashing prices like they have done in the U.S market. The association has threatened not to supply content to the companies if the publishers are not allowed to maintain their paper-back book publishing businesses. Sony and Panasonic (PC) had previously attempted to launch e-book readers in 2003, only to fail due to the lack of electronic content. The association will agree to supply content only if the publishers are allowed to participate in a lion’s share of the revenues from the business. The paper-back industry has shrunk to a quarter of its size in the 1990’s, as people increase their engagement time with devices like mobile phones and laptops. Japan’s market for e-book content totaled 53 billion yen (US$578 million) in 2009 and is expected to increase to 87 billion yen (US$948 million) by 2014. Currently comic book content dominates the market for e-content in the country.

Capcom, a prominent developer and publisher of video games, reported sales of 66.8 billion yen (US$728.5 million) and net profit of 2.17 billion yen (US$23.67 million) for fiscal year ending March 2010. The figures reflect a decline of 27.3% and 73.1% respectively over the previous year. The company expects revenues to grow by 42% and earnings to grow by 269% for the current year.


IT security and data protection firm Sophos announced that it has reached a definitive agreement to sell a majority interest in the company to Apax Partners, a global private equity group, in a transaction valuing the company at US$830 million. When the transaction is completed, the founders of Sophos will retain a significant minority shareholding. TA Associates, a minority shareholder in Sophos since 2002, will sell its full interest to Apax in this transaction. Sophos operates in the IT security market, protecting companies of all sizes against computer and data threats. In its fiscal year ended March 31, 2010 (unaudited), Sophos had billings in excess of US$330 million compared with US$273 million in fiscal year 2009, revenue in excess of US260 million compared US$213 million in fiscal year 2009 and generated unlevered free cash flow of approximately US$55 million compared with US$40 million in fiscal year 2009.


Mobile/ Wireless

The Korean Communications Commission announced that KT Corp. (KTC) and LG Telecom, two large mobile carriers, have agreed to charge subscribers by the second for voice communications. The companies are following a similar move by market leader SK Telecom (NYSE:SKM) in March. The new pricing mechanism will reduce the cost for consumers and companies will hope that it will lead to users increasing their talk-time.


LG Telecom Co. announced that its first-quarter net profit jumped to more than five times its year-earlier level, largely on one-time gains from a revaluation of its merged entities. For the three months ended March 31, 2010, LG Telecom's net profit rose to 543.2 billion won (US$476 million) from 101.2 billion won (US$88.7 million) a year earlier. LG Telecom said it booked revaluation gains amounting to 496.5 billion won (US$435.1 million) from its newly acquired units, fixed-line operator LG Dacom Corp. and Internet-service provider LG Powercom, which it absorbed Jan. 1. Factoring in the merger with LG Dacom and LG Powercom, net profit in the first quarter of 2009 was 173.4 billion won (US$151.9 million), with operating profit at 225.2 billion won (US$197.2 million) and sales at 1.79 trillion won (US$1.6 billion). LG Telecom had 14.3 million subscribers at the end of March, up from 12.1 million a year earlier, while average revenue per user from its wireless business fell 3% from a year earlier to 32,363 won in the first quarter.

KT Telecom, Korea’s largest fixed-line operator, is reported to be on the verge of finalizing a joint venture with Samsung Electronics (OTC:SSNLF) and Intel Corp. (NASDAQ:INTC). The partnership will promote WiBro, a 4G technology otherwise known as WiMax. The joint effort involves investing in a legal entity together for the expansion of Wireless Broadband (WiBro) technology in international markets. Under the alliance, Intel will produce a chip-set with a built-in WiBro module, which will allow devices other than PCs and mobile phones to access internet directly, Samsung Electronics will supply WiBro equipment and KT will market and distribute the technology.


Samsung Electronics, the world’s largest electronics manufacturer, announced record quarterly results for three months ending March 2010. The companyannounced net profit of 3.99 trillion won (US$3.6 billion) and revenues of 34.64 trillion won (US$31.25 billion). The results represent growth of 600% and 21% respectively over the same period last year. Growth was mainly driven by booming demand for semiconductor chips as well as a general upturn in demand for electronic goods. The chip division contributed nearly 50% of net profit, while the handset division also improved profits from last year, even on the back of lower volumes. The company expects profitability to improve further during the second quarter.


Hynix Semiconductor Corp. announced plans to issue a bond offering in a foreign market yet to be decided. The offering will be structured as a convertible and will aim to raise 558 billion won (US$500 million) for the company, which will be used operations and new investments.


Mobile/ Wireless

Nokia (NYSE:NOK), the world’s largest handset manufacturer, announced the launch of a new, message-based information service targeted towards Chinese farmers who do not have access to the internet. The service, called the Ovi Life Tools will offer information about the weather, health-care, market prices for produce, and English lessons for as low as 5 to 8 yuan per month. The service will be available on two low-end handset models starting immediately. The service is positioned as an alternative to the internet for the farmer and will offer other services like entertainment etc in the future.

China Mobile (NYSE:CHL) announced the launch of a new online platform, with the objective of attracting over 200 million users in the near future. The new service allows users to download digital publications through cell phones and e-reader devices. The new platform is basically an applications store created along the lines of Apple’s iTunes, which will host a series of online publications. The company’s book store will also support the iPad.

China Unicom (NYSE:CHU) announced a 17% price cut in iPhone handset prices. The cheapest 3G iPhone will now cost 4,999 yuan (US$732) now. Chinese mobile companies are under pressure to maintain growth as a maturing market and heavy investment on 3G networks have hit profitability and growth rates in the country.

Media, Entertainment and Gaming

Out-of-home advertising network operator AirMedia Group Inc. (NASDAQ:AMCN) announced first quarter results for the current year. The company reported a net loss of US$6.5 million on revenues of US$48.8 million. The figures compare with a net loss of US$1.3 million and revenues of US$32.8 million respectively in the first quarter of the previous year and net loss of US$19.4 million and revenues of US$45.2 million in the previous quarter. The company expects to break-even in the third quarter of 2010 and expects total revenues in the second quarter to be between US$55 million and US$57 million. For the full-year, the company expects revenues to be between US$230 million and US$250 million. AirMedia operates an extensive network of digital television screens and digital television frames in airports and gas stations in China.

Leading media and gaming company Shanda Interactive Entertainment Ltd. (NASDAQ:SNDA) announced a new partnership with the municipal government of Huzhou, Zhejiang province. As part of this agreement, Shanda has agreed to invest 3 billion yuan (US$440 million) over the next five years to develop tourist spots in the province like a theme park and other related products. Shanda recently set-up a tourism-focused subsidiary, which will offer cloud computing driven travel services to tourists, such as online social gaming services etc.


Tencent Holdings (OTCPK:TCTZF) is expected to report financial results for the first quarter of the current year next week. Analysts expect revenues of 4.2 billion yuan (US$615 million) and net income of 1.78 billion yuan (US$260 million) for the quarter. These figures represent an increase of 67% and 72% year-on-year respectively. Growth in its gaming operations will constitute a significant part of the overall growth for the company. Tencent recently picked up a 10% stake in Russian company Digital Sky for about US$300 million. In related company news, Tencent also announced that it has obtained video rights to broadcast the 2010 FIFA football world cup in mainland China from the China Central Television’s nationwide internet television station,CNTV.

A new report by JP Morgan Asia-Pacific Equity research expects NASDAQ-listed Baidu’s (NASDAQ:BIDU) share price to reach US$850 from the current levels of US$710, by the end of the year. The expected share price will value the Chinese internet giant at US$30 billion, an increase of 25% from its current valuation and larger than Yahoo’s current market value. Baidu is the world’s second largest search engine and is the dominant market leader in China, one of the fastest growing internet markets in the world. Baidu’s position in China also became stronger after Google’s (NASDAQ:GOOG) censorship disputes with the Chinese government, which led to speculation and uncertainty about Google’s future in the country and made advertisers shift to Baidu. The only Chinese internet firm with a valuation higher than US$30 billion currently is online gaming company Tencent Holdings, which has a market value of about US$37 billion. eCommerce giant (OTC:ALBCF) has a market capitalization of about US$10 billion. These figures compare with a US$170 billion valuation for Google, the world’s leading internet company. Baidu reported stellar first quarter results last fortnight, with year-on-year growth of 165% and 60% in net income and revenues respectively. China currently has about 400 million internet users, according to a press release by the State Council Information office.

Information Technology

Market research firm Ovum expects existing outsourcing contracts for information technology services in the country worth US$1.8 billion to expire in the next 6 months. The opportunities are mainly in the telecommunications and financial services industries. The two biggest deals that are about to expire are the ones between Swedish telecommunications equipment and services provider, Ericsson (NASDAQ:ERIC) and China Mobile, and its rival China Unicom. These two contracts are up for renewal in July. In the financial services domain, China Pacific Life Insurance and bank of China are also expected to renew deals worth US$ 18-20 million. In addition, there could be opportunities in the government, not-for-profit, aerospace, energy and utilities sectors, presenting interested companies a plethora of potential business opportunities in the country in the second half of the year.

AsiaInfo (NASDAQ:ASIA), a software and information technology services provider to China’s three mobile companies, announced first quarter results for the current year. The company reported net income of US$10.3 million and revenues of US$63.5 million. The figures represent year-on-year growth of 77.5% and 24.5 % respectively. China Mobile, China Unicom and China Telecom (NYSE:CHA) accounted for 66%, 16% and 9% of the company’s revenues respectively for the period. The company expects spending on IT services, especially on business intelligence services that help assess customer preferences and trends, to remain stable for the rest of the year, even as mobile companies are expected to cut down on capital spending. AsiaInfo will also complete its acquisition of rival Linkage Technologies International Holdings, which was first announced in December 2009. The cash and stock deal worth US$ 733 million will propel the combined entity as the leading IT firm for the telecommunications industry in China.


Leading telecom equipment manufacturer Huawei Technologies is expected to meet Indian government officials to assuage their concerns about security problems with Huawei’s equipment. The Indian government had earlier objected to a large deal between Huawei and Bharti Airtel to sell 3G telecom equipment to the mobile operator, on grounds of national security. Chinese equipment manufacturers have lost out on more than a dozen large deals in the last few months in India over the same issue. Top officials of the company are expected to meet the Prime Minister and communicate a host of measures the company has taken to address specific concerns raised by the Government, including the appointment of Indians in all top positions of the company in the country.

Heng Xin China Holdings, a digital television equipment manufacturer and supplier in the mainland China region, announced plans to apply for transfer from the Growth Enterprise Market (GEM) of the Hong Kong stock exchange, where it is currently listed, to the main board. The company’s announcement is driven by the company’s robust financial performance on the back of the fast growing digital television broadcasting business in China. The company is expected to submit the application in the second half of the current year, after declaring its full year results. The company, previously known as Tiger Tech, reported net income of HK$91 million (US$11.7 million) on revenues of HK$340 million (US$43.7 million) for the six months ending December 2009. The figures represent growth of 200% and 400% respectively over the corresponding period of the previous year. The company’s three business divisions, ground wireless digital television, encrypted integrated circuits and wireless digital-audio integrated circuits contribute 61%, 22% and 17% respectively to total revenues.

Alternative Energy

Solar cell maker China Sunergy posted net income of US$7.1 million and revenues of US$104.3 million for the first quarter of the current year ending March 31, 2010. The results compare favorably against a net loss of US$16 million in the first quarter of 2009 and net loss of US$3.6 million in the last quarter of 2009. Revenues grew by 182% year-on-year and 7% sequentially for the company. The company had previously announced the acquisition of CEEG Solar Science and Technology and CEEG New Energy, two related module manufacturers in China. The company shipped about 75MW of modules in the first quarter and expects to ship 80-90MW in the second. For the full year, the company expects to make shipments of 280-350MW of solar modules.

Disclosure: Author holds no positions in the stocks mentioned