Chinese Tech Stock Weekly Summary

by: IRG Ltd

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


• Transaction volume of China's online business-to-business [B2B] jumped 65.9 percent year on year to 2.1 trillion yuan (US$295.4 billion) in 2007, according to a report released by consulting firm iResearch Inc. Revenues of online B2B operators hit 3.9 billion yuan (US$548 million) in 2007, up 49.1 percent year on year., maintained its leading position and generated 2.3 billion yuan (US$323 million) in revenues last year, an increase of 65.4 percent.

• (NASDAQ:BIDU), has been censured by a government-sponsored watchdog for allegedly helping spread explicit photos that appear to feature several Hong Kong stars. The group said certain key word searches and certain pages on the Baidu site have become the platform for displaying and spreading the pictures. The association demanded that the Web site apologize. China bans pornography, although the government's Internet police struggle to block pornographic Web sites based abroad. Other Chinese Web sites such as (NASDAQ:NTES), (NASDAQ:SINA) and (NASDAQ:SOHU) urged their users not to spread the photos.

• Inc.’s fourth-quarter profit surged 79 percent year-on-year to 219.8 million yuan (US$30.6 million). The company’s performance exceeded analysts' expectations as the average estimate for fourth-quarter profits was 184.1 million yuan (US$25.6 million). Online marketing revenues topped 569.6 million yuan (US$79.3 million) in the quarter, an increase of 111.2 percent from a year earlier. For the whole fiscal year 2007, net profit rose 108 percent to 629 million yuan (US$87.6 million) while revenues rose 110 percent to 1.74 billion yuan (US$242 million). Baidu forecasted its first-quarter revenues would reach 533 million yuan to 548 million yuan (US$74.2 to 76.3 million), up 93 percent to 99 percent from a year earlier.

• China's Alibaba Group, 39 percent owned by Yahoo Inc. (YHOO), will seek broader management autonomy if Yahoo is taken over by Microsoft Corp. (NASDAQ:MSFT), according to news report. The report said Alibaba has taken on advisers to help negotiate a more independent role, with the company anticipating intense scrutiny by China's government in the event of a Yahoo-Microsoft merger.

• GyPSii, a Netherlands-based geo-location and mobile social networking provider, announced that it has partnered with Shanghai Rannuo Information Technology Co. Ltd. and China Unicom (NYSE:CHU) to launch its GyPSii social networking service during the 2008 Beijing Olympic Games. The GyPSii service combines social networking, mobile, location and Web 2.0 technologies, and allows China Unicom users to create pictures, video and blogs centered on all things Olympic while using their existing camera phone. GyPSii users can capture scenes during the Olympic Games, upload the content to their personal space on a Web site and share it with friends. The users can also search other GyPSii user-generated content, people and points of interest, and get maps and directions to their locations from their mobile phones.

• China’s National Development and Reform Commission [NDRC] said it will organize a special program to promote industrialization of the new generation broadband and network communications this year. This move is part of the government’s 11 Five-Year Plan for Information Industry Development. The program will give key support to three aspects: key network equipment, key devices and chips, and broadband and network applications.

• Google is expected to announce a joint venture with in line with its move to enter China’s online music market. The venture will let users listen to and download licensed music files free of charge and expects to generate revenue through online advertisements on the music search pages. Top was set up with initial capital of 20 million yuan (US$2.8 million) by Chinese basketball player Yao Ming, Yao's agent Zhang Mingji, and industry professional Ge Chen.

• Baidu is being sued by Universal Music, Sony BMG Music Entertainment (Hong Kong) and Warner Music Hong Kong for violating copyright. Baidu had a 60.1 percent share of China's search market last year's fourth quarter, according to data firm Analysis International. Google came second with a 25.9 per cent share, followed by Yahoo China with 9.6 percent. The International Federation of the Phonographic Industry has said that more than 99 percent of all music files distributed in the mainland are pirated and the country's total legitimate music market, at US$76 million, accounted for less than 1 percent of global recorded music sales. Legal action is also being taken against and Yahoo China.


• Sina Corp.'s fourth-quarter net income jumped 49% on strong advertising growth and improvement in its mobile business. The company reported net income of US$17.5 million from US$11.7 million a year earlier. Revenue jumped 25% to US$70.7 million while gross margin rose to 62.1% from 61.6%. Advertising revenue climbed 40% to US$50.1 million while non-advertising revenue fell 0.5% to US$20.6 million. Sina has a strategic partnership with Google to offer Web searches and advertising, and it has a strategic alliance with China Telecom Corp. (NYSE:CHA) to support a video-sharing platform. Mobile value-added service revenue fell 3% from a year earlier but grew 12% from the previous quarter. Looking ahead, Sina expects first-quarter revenue for 2008 to be between US$66 million to US$68 million. Analysts' mean estimate was US$66 million for first-quarter revenue.

• Sharp Corp. (OTCPK:SHCAY) sets its eye on China as part of its overseas expansion plan after its Japanese competitors' foray in the nation failed. The company intends to enter into the overseas mobile phone market with the help of its reputation in the liquid crystal display [LCD] TV field. It reaped larger AQUOS LCD TV sales in China than that in Europe in December 2007. And customers' awareness about the AQUOS brand has been strengthened in the mean time. According to earlier reports, it is set to launch Sharp 920SH, the fourth generation of Aquos-technology-integrated phone, catering for customers in China in April 2008. It is still unconfirmed if Sharp will team up with China Unicom and supply customized product to the latter.

• China manufactured 548 million units of mobile phones in 2007, up by 14% year-on-year, but with the growth rate down by 44% over 2006. Some analysts believe that this signaled the end of the industry's rapid development phase. Since 2002, the annual growth rate of China's mobile phone output has exceeded 25%, while both the industrial scale and the concentration degree have expanded further. The share of foreign brands on the domestic market has increased from 60% in 2005 to 65% in 2006 and to more than 70% in 2007.

• China Mobile (NYSE:CHL) announced that users for January increased by 7.04 million, a growth of more than 484,000 since December 2007 bringing its total user number to 376 million. JP Morgan commented that China Mobile saw a higher-than-expected user growth and estimates that the company's average monthly user growth will reach 5.97 million in 2008.

• China Mobile recently initiated the second round of TD mobile phone tender, with the participating enterprises increasing from 6 in the first round to 10. During the first-round tender, the company purchased 75,000 units of TD mobile phones and Internet cards. With regards to the estimated testing scale, China Mobile will need approximately 300,000 TD mobile phones, therefore insiders estimate that the volume of the second-round tender will exceed 200,000 units.

• China is expected to issue a research plan to develop the country's fourth-generation [4G] mobile technology after the National People's Congress in March. The report said that the Ministry of Information Industry is to open an office to oversee the plan, which will have a total investment of over 10 billion yuan (US$1.4 billion). The expected plan will also promote the commercialization of 3G technology and develop mature 3G technology although the plan will focus mainly on 4G mobile technology based on China's self-developed TD-SCDMA 3G technology.


• Analysts gave their forecasts on the effects of the Chinese government’s decision to cut roaming fees on fixed-line phone companies. Analysts said the cuts in roaming charges would not have a big impact on mobile operators' revenues, since some had already launched roaming packages for high-spending users that offered flat rates for both domestic roaming charges and local calls. China Unicom also offers a similar package. Analysts at JP Morgan believe that many subscribers with heavy roaming usage would have chosen to enjoy those preferential tariffs already and estimate the new roaming charges may lead to a low single-digit revenue fall. The new domestic roaming charge will also encourage users to spend more while they are traveling. Industry watchers said some mobile users would prefer to save by buying a local prepaid card when traveling.

• ZTE Corp. (OTCPK:ZTCOF) said shipments of its Global System for Mobile Communications [GSM] base stations surged 300-fold last year, making it the fourth-largest supplier in the sector. ZTE shipped about 340,000 GSM wireless base stations, essentially mobile phone transmission sites, last year. The products are compatible with 3G mobile technology. The company's product lines for the US-developed Code Division Multiple Access [CDMA], a standard that competes with GSM, also performed well in the market. As of the end of last year, ZTE was the biggest supplier in the CDMA market with a 43 percent market share of new CDMA infrastructure contracts. Market watchers said ZTE competes directly with European-based vendors such as Nokia Siemens Network, Ericsson and Alcatel-Lucent in overseas markets.

• China Netcom (CN-OLD) said it lost 764,000 phone users in January, the seventh straight monthly decline, as the company faced competition from wireless services. The company had 110.1 million fixed-line customers at the end of January, according to the company. The company lost fewer users last month than December, when it reported fixed-line subscribers fell by 2.53 million. The company gained 763,000 broadband Internet customers last month for a total of 20.5 million.

• Bharti Airtel and China Mobile were among the winners in the new Shareholder Performance Index. The calculation of the SPI enables consistent comparison of shareholder returns by adjusting for the volatility of returns, differences in local interest rates, and mergers and acquisitions. Bharti Airtel took top honors in SPI performance, outperforming the average CMT firm fivefold. China Mobile, which also ranked among the leading performers, reached a market capitalization of US$346billion by year-end 2007, outstripping Microsoft's market cap of US$337 billion. Both customer demand and business innovation have flourished in emerging markets over the past five years, particularly for pure mobile communications. Additionally, China has the third-largest number of top 60 SPI performers, with six, and added US$211 billion in market value over the past year alone. CMT companies headquartered in China grew at 34% annually between 2002 and 2007 and have almost reached the total value of Japanese firms.

• China Mobile plans to expand its reach in foreign markets to tackle competition at home, according to the Financial Times. China Mobile reportedly holds 70% market share in the country with over 369 million customers. The company would focus on emerging markets, overseas Chinese customers and the short-term visiting market including traveling business customers and Chinese tourists. China Mobile is looking to offer low-tariff deals for customers in emerging markets. The company's expansion plans could take up to five years to materialize.

• Chinese Vice Premier Zeng Peiyan urged Hainan Province to accelerate the transformation of economic development patterns, deepen structural reforms, and push for the fast and sound development of its economy. This came about during his inspection of high-tech projects in the island province, which included biology, telecom and automobile programs. He urged local authorities to facilitate the formation of an environmental and energy saving economic development pattern.

• Heavy snow and icy rain since January 10 have hampered telecom services in China’s east, central and southern regions. According to China Telecom, they have resumed services fully in most of the disaster-hit provinces, municipalities and autonomous regions. By Monday, 129,920 of the stations, about 95.07 percent of the total and 82,636 transmission towers had been repaired. More than 11 million subscribers, about 88.16 percent of the affected telecom users, could now make calls again. China Telecom also said it would replace copper cables with optical cables in the reconstruction, and update equipment to accelerate the evolution of its rural telecom network. Approximately 11.91 million telecom users, or 60 percent of the total subscribers, suffered a suspension in phone links because of the worst snow in China in 50 years.

• China Mobile could issue A-shares as early as the first half of this year, according to the Hong Kong Economic Journal. Chinese regulatory authorities have reached a consensus to allow the A-share listings of Chinese companies incorporated outside of China and listed in Hong Kong. The China Securities Regulatory Commission and the Shanghai Stock Exchange will cooperate to speed up the issue with the aim of completing China Mobile's A-share listing. China Mobile will become the first red-chip company to issue A-shares and list in a mainland bourse should the process go smoothly.


• Lenovo Group (OTCPK:LNVGY) confirmed it has entered into a non-binding agreement to purchase certain assets of the technology company Sanmina-SCI Corp. (NASDAQ:SANM). The acquisition could help Lenovo expand its manufacturing capacity in Mexico, as the company begins an aggressive push into the North American personal-computer market. Financial terms of the potential deal weren't disclosed. Sanmina- SCI is a midsize contract manufacturer that has long made computers for IBM even before Lenovo purchased IBM's PC division in 2005. The deal will give Lenovo access to Sanmina's manufacturing facilities in Monterrey, Mexico, where Lenovo is already opening a new manufacturing facility of its own. In the past year, Lenovo has been expanding its production capabilities outside of Asia, including new plants in Poland and Mexico, as the company tries to expand its footprint beyond China, where it is a dominant player in the PC market. It has set up new plants in India as well.

• Lenovo Group said its newly launched self-branded product has so far met the company's expectations and consumers are eagerly awaiting the release of another new model in April. Lenovo released earlier this year the IdeaPad Y510, with a 15.4-inch widescreen panel, and the IdeaPad Y710, with a 17-inch widescreen display. Both products got positive reviews from experts. According to the company, retail sales of the IdeaPad notebook are meeting their ambitious expectations. The Idea-brand line is part of Lenovo's international consumer market expansion and its first global products since acquiring IBM's ThinkPad and ThinkCentre business personal computer product line in 2005.

• Lenovo is expected to post revenues of HK$131.0 billion (US$16.8 billion) in the financial year to March, up 14.93 percent from HK$114.0 billion (US$14.6 billion) a year ago, according to consensus estimates of 18 brokers by Thomson Financial. The mainland firm's net profits are also expected to jump 152 percent to HK$3.2 billion (US$406.6 million) in the 12 months to March from HK$1.3 billion (US$161.6 million) the previous year.

Media, Entertainment and Gaming

• Shanda Interactive Entertainment (NASDAQ:SNDA) introduced a new 3D massively multiplayer online roleplaying game [MMORPG] Lazeska in 2008. Developed by Actoz Soft Co., Ltd., Shanda's controlling subsidiary in South Korea, Lazeska expands the battlefield to the sky, land, and sea, and enables players to participate in the three battlefields freely. Open beta testing on the game is expected to start in the second half of 2008 in China. Shanda also announced that it will share up to 20% of its income with ten new online game operations managers, one for each of its ten games. This is the first time that the company recruits online game operations managers across the world. The ten managers will be in charge of the overall planning and operation of the games, while the company will give them more independent management and accounting rights.

• Shanda gained the exclusive license from South Korean online game developer and publisher NCsoft to operate Atrix in China Mainland. As NCsoft's second game operated by Shanda, Atrix will commence commercial operation in the Chinese mainland in early 2009. Shanda formed a partnership with NCsoft in November 2007 and obtained the exclusive license for Aion. The company has confidence in Atrix and Aion's prospect in China, and will further enhance the cooperation with NCsoft to introduce more new products into the Chinese market, according to the company.

• China bans horror audio and visual products with elements of horror, violence and cruelty which could be extremely harmful for the psychological development of children. Details were lacking in terms of the exact criteria of films that would be banned. Local media in Shenzhen Municipality of south China's Guangdong Province reported many video shops in the city had recently pulled a batch of copies of this category off the shelves. China began its crackdown on so-called "terrifying publications" in April 2006 after controversy over a Japanese comic story "Death Note", which, according to GAPP, depicted various ways of dying.


• Chongqing City in Southwest China targets to lure investors to create three 12-inch semiconductor production lines in the city, according to the local government. Taiwan-based memory solution provider ProMOS Technologies would be the major investor of one line, and the local government is trying to persuade SilTerra Malaysia and Japan-based chipmaker Elpida Memory to fund the other two lines. One of the lines is expected to start constructing in 2008 and need about US$1.5 billion. Chongqing City aims to become the "Silicon Valley" in West China and hopes its chipsector would compete with Shanghai and Beijing after a few years through a US$6 billion to US$7 billion investments.


• Sun Microsystems (JAVA) is targeting growth opportunities in China as seen in its acquisition of database software company MySQL. Last month, Sun announced its US$1 billion purchase of MySQL, whose open-source database software has been deployed in major mainland firms such as search engine operator Baidu and China Mobile. According to the company, the deal is expected to be closed around the second quarter of this year and would boost Sun's position in the US$15 billion global database software market and raise its profile as a technology supplier in China. MySQL is one of the world's largest suppliers of free enterprise database systems after Red Hat Software. More than 100 million copies of MySQL's database software have been downloaded and distributed worldwide. An additional 50,000 downloads take place daily.

• China's software industry saw an increase in revenue of more than 20 percent last year, boosted by particularly swift growth in income from services. The industry generated revenues of 580 billion yuan (US$81 billion) in 2007, up 20.8 percent from the year before. Software and technology services saw the steepest growth, rising 24.8 percent to 97.8 billion yuan (US$13.7 billion). China has vowed to raise the contribution to growth from technology-intensive industries such as software.

Disclaimer: IRG is not responsible for the accuracy of the news compiled within this article, which is based on publicly available information.