Chinese Tech Stock Weekly Summary (5/19-5/25)

by: IRG Ltd

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

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  • China's active accounts of instant messaging grew 1.5 percent quarter on quarter and 5.4 percent year on year to 396 million in the first quarter of 2008, according to Analysys International. Free instant messaging computer programs like Tencent QQ, Microsoft Messenger, and Fetion of China Mobile ranked as the top three, in terms of their users. Analysys also shows the market performance of the three programs in the fourth quarter of 2007. By promoting many thematic activities to enlarge its active accounts, Tencent QQ's active accounts hit 315 million at that time, ranking the first place with a 79.6 percent market share.


  • KongZhong Corp.’s (KONG) net profit slipped 94 percent from a year earlier to US$90,000 in the quarter ended March 31, 2008. The Chinese wireless value-added service provider saw operating revenue rise 6 percent year on year from US$20.13 million to US$21.39 million, including US$6.71 million from 2.5G services, and US$14.44 million from 2G services. Before special items, the company's adjusted earnings reached US$0.03 per ADS in the first quarter, lower than analysts' expectations of US$0.05 adjusted earnings per ADS and US$21.28 million operating revenue.
  • Gome Yongle announced a callback of waste mobile phones on May 15, 2008. In China, 20 million mobile phones are replaced by new ones each year, which have become a new electron pollution source. Compared with foreign companies, Chinese mobile phone makers, distributors, and consumers are lacking in green environmental protection consciousness, pointed out Sun Yiding, general manager of Gome. In Gome Yongle's callback, Shanghai Sequel Technologies Co., Ltd. will recycle waste mobile phones and accessories, building a complete industrial chain.
  • China’s sales of cell phone reached 43.05 million units in the first quarter of this year, valued at 49.0 billion yuan (US$7 billion), rising 4.02 percent and 7.22 percent over the previous quarter respectively. CCID Consulting predicted that China’s sales of cell phone would exceed 180 million this year as against 150 million in 2007. Since the second half of 2003, China’s cell phone market has entered a stage of demand for exchange of new phones. More than 60 percent of the cell phones were sold to consumers for exchange of new ones to exceed 90 million units. The percentage is forecast to exceed 65 percent in 2008.
  • China Mobile (NYSE:CHL) has given up the plan to purchase South Africa-based mobile phone company MTN Group. The negotiation between the two companies in 2007 triggered share price surge of MTN, and China Mobile had to give up the purchase plan because of its cost management strategy for overseas markets. MTN has acknowledged negotiation with India-based telecom company Bharti Airtel for share swap. MTN would prefer China Mobile for its sound financial status if it offers the same price as Bharti Airtel.
  • China Mobile joined hands with TCL this week in putting the Alcatel 8700 Blackberry mobile phones on market, but only for group customers. This is the first Blackberry terminal on China's mobile phone market. TCL will take charge of the production, and China Mobile will be in charge of Blackberry brand marketing and popularization, decide sales mode and plans, and set prices. China Mobile launched Blackberry service in 2006 but got the approval for Blackberry mobile phones as late as in 2007. Thus, China Mobile used to provide Blackberry software and service only. Blackberry yields return on investment of 168 percent for mobile operators worldwide. China Mobile will sell Blackberry products by pegging the terminal and the service.
  • Shanghai SmartPay Jieyin, in partnerships with China Unicom (NYSE:CHU), China Unionpay and Huishang Bank, launched the Mobile-Wallet service for paying utility bills in Anhui Province. New service allows users to pay bills any time, any where; no longer they have to go to banks or toll stations, all they have to do is to send a SMS and bills are paid, saving time and cost. For some time, people have been complaining about the hassles of paying utility bills: notification wasn't delivered, waiting time was too long, business hours were not right. In the mean time, construction of toll stations costs quite a lot and overall takes a long time, but it only serves for a single function after being built, thus not enough stations were built; and banks which offer utility payment services find it necessary to decrease their counters as they are trying to reduce costs.
  • The commercial district of Jiading in Shanghai has completed constructing the first phase of Wireless City recently, becoming the first city in the Chinese mainland offering wireless broadband Internet services in a large scale, announced the Administration of Jiading District in Shanghai on May 15, 2008. Residents in the district will have access to the WI-FI wireless Internet services from now on. Divided into three phases, the ongoing program in Jiading was planned to stretch from the urban areas to other areas and eventually complete an entire-district wireless broadband coverage by 2010 through combination of Wi-Fi and WiMax.


  • China asked the nation's six telecommunication companies to merge their assets and form three groups, part of an industry overhaul to boost competitiveness in the world's largest telephone market. China Mobile Communications Corp. will take control of fixed-line operator China Tietong Telecommunications Corp., according to a statement on the Ministry of Information's Web site. China Telecom Corp. (NYSE:CHA), the nation's biggest fixed-line operator, will gain mobile-phone assets. The government plans to issue three licenses for third- generation high-speed mobile services to the companies after the restructuring, according to today's statement, issued jointly by the Information Ministry, the National Development and Reform Commission and the Ministry of Finance. China, the world's biggest mobile-phone market, is home to 583.5 million wireless subscribers, more than the combined populations of the U.S., the U.K. and Japan, according to government data.
  • China Telecom recovered communications in Wenchuan, Sichuan Province, Southwest China. 64 percent of China Mobile's damaged base stations in Sichuan, Gansu, and Shaanxi had been repaired and put into operation. China Netcom's (CN-OLD) two 2.5G Internet circuits in Sichuan were also fixed and began running again. Damaged public networks of China Tietong had been fixed. And most of 24,460 fixed line telephones and 6,724 broadband accounts that were cut off by the earthquake had been resumed operation. The earthquake-stricken area is in urgent need of satellite telephones. On May 13, 330 satellite telephones gathered by China Satcom and the Ministry of Information Industry around the country arrived at the disaster area.
  • Spreadtrum Communications, Inc. (NASDAQ:SPRD) obtained net profits of US$ 2.8 million in the first quarter of 2008, up 37 percent from US$2 million in the same period of 2007 while down 73 percent from 10.2 million in the previous quarter. Total operating revenues reached US$39.5 million, leaping 51 percent year on year but sliding 19 percent quarter on quarter. Diluted earnings per ADS stood at US$0.06, higher than US$0.05 in 2007 Q1 and lower than US$0.22 in Q4 2007. Diluted non- GAAP earnings per ADS were US$0.11, climbing from US$0.08 a year earlier while dropped from US$0.25 in the previous quarter.
  • Shenzhou Unicom is intent on building wireless networks using 4G technologies to provide cheap VoIP services and broadband access, as well as carry various application including video telephony, mobile TV and location-based services. Shenzhou Unicom began wireless broadband trials in Changde in February, and has a plan to set up wireless broadband coverage in the city’s center by October of this year. Lu expects to achieve citywide wireless broadband coverage in Changde in February of next year. The planned budget for Changde city is 250 million yuan (US$36 million). And this is on the low side.
  • China's telecom operators are changing their operation modes for income guarantee in response to the transformation of the industry, said the Telecommunications Center of Ernst and Young. The income of China's telecom operators is rising with high telecom consumption in urban areas. The number of users in rural regions has increased. As a result, it is necessary for them to ensure a mature operation model to fulfill the increasing demands of clients. The launch of the 3G technology and the pending reshuffle of China's telecom industry will help establish several key operators. China's telecom industry is transforming from previous measure-by-user-number or amount-used to measure-by-return in performance measurement.
  • China Netcom Group (CN-OLD) is reportedly estimated to suffer direct economic loss of around 100 million yuan from the earthquake hitting in Sichuan Province. Quake caused severe damages to the company's transmission and switch equipments, computer rooms and air-conditioners in Sichuan, Gansu, Yunnan and Shaanxi provinces, Ningxia Hui Autonomous Region and Chongqing Municipality, with the total economic loss estimated to reach 82 million yuan (US$11.8 million) in Sichuan alone.
  • China Unicom announced that some 1.06 billion currently non-tradable shares held by its parent company China Unicom Group will be unlocked and become tradable on the secondary market from May 19. China Unicom Group is unlikely to cash these shares, and thus the related influence on China Unicom share price will largely be psychological. An identical volume of formerly locked-up shares held by China Unicom Group has been tradable as from November 16, 2007, and by May 12, none of these shares had been sold on the secondary market.
  • China Mobile will finish the HSDPA upgrading of its TD network in eight Chinese cities in the near future. HSDPA, which is also known as 3.5G, is an upgraded edition of TD network, with the transmission speed reaching 2.8M/S, equaling to 7 times of that of the present TD network. China Mobile is advancing and improving the network quality, and trying to achieve the HSDPA upgrading to accelerate the speed of data transmission soon. China Mobile has launched the second round of TD mobile phone procurement, and Chinese cell phone producers Amoi Electronics and TCL have recently received licenses to access TD network, with the total authorized TD handsets varieties reaching 25.
  • China's spending on broadband aggregation hardware in 2007 roughly quadrupled that of Japan and South Korea. The report, Broadband Aggregation Hardware in Asia Pacific: China, Japan, and South Korea, stated that China represents about 50 percent of the US$2.0 billion spent on broadband aggregation hardware in 2007 by Asia Pacific countries. Asia Pacific represents close to 1/3 of worldwide total telecom capex, and over 1/3 of worldwide broadband aggregation equipment. The primary drivers for the shift from copper- to fiber-based services include IP network transformation projects and traffic increases boosted by video, IPTV, online gaming, and P2P applications.

Media, Entertainment and Gaming

  • Giant Interactive Group Inc. (NYSE:GA) gained net profits of 338.7 million yuan (US$49 million) in the first three months, rising 36.5 percent from 248.1 million yuan US$36 million) in the same period of the previous year. During the period, operating revenues swelled 48.7 percent to 471.6 million yuan (US$68 million) from 317.2 million yuan (US$46 million), including 470.2 million yuan (US$68 million) from online games, a year-on-year growth of 49.1 percent compared with 315.3 million yuan (US$45 million) a year earlier. Excluding special items, the Chinese online game developer's adjusted earnings per ADS reached 1.43 yuan (US$0.2), higher than analysts' expectations of US$ 0.16.
  • Giant Interactive Group Inc. is reportedly participating in the third-round financing scheme of, a leading blog community platform established in 2005. QQ quoted insider as saying that Giant Interactive will not hold majority stake in and the financing scheme has not been finalized by far. It is learned that the financing is for acquisition of more servers due to rapid user expansion. has completed two rounds of financing in 2006 and 2007, and raised US$6 million and US$12 million respectively, from such investors as Redpoint Venture and Sequoia Capital China.


  • MSI Notebook unveiled its ultra-portable notebook computers Wind Notebook in China that is scheduled to be officially launched in June this year. Wind Notebook is an Eee PC lookalike, which is priced at 3,999 yuan (US$576) and 4,299 yuan (US$619). Wind Notebook is equipped with a 10-inch LED backlight wide screen with a resolution of 1024 X 600. It is more power saving. It will be powered by Intel Atom processor, featuring 80GM hard disk, 92 percent keyboard, and a 1.2-kilogram battery. Its Linux version will be sold at 3,999 yuan (US$576) and 4,299 yuan (US$619) for the Windows XP version. It comes in three colors: pink, white, and black.
  • China's demand for digital photo frames is expected to double and redouble to hit 500,000 sets this year. Sales of digital photo frames topped 104,000 sets in China in the first quarter of this year, with Aigo, Samsung and ViewSonic taking a dominant share of more than two-third. China's purchase of digital photo frame made up about 80 percent of the total market, with consumer group concentrated in industrial purchase of financial, insurance, oil and government institutions.


  • An undisclosed American private equity fund will invest US$600 million to acquire over 20 percent of the stake of Semiconductor Manufacturing International Corporation (NYSE:SMI) and the two sides will sign a formal agreement in late June. In late March, SMI issued an announcement in which it said that it was negotiating with a strategic investor which might purchase its shares or convertible tools, or even acquire a considerable part of its stakes. Later in early April, SMI appointed Shirley Lin, former partner and managing director of Goldman Sachs Group who was known for her rich experience in direct investment and enterprise financing and, as its chief strategic consultant, a move which was regarded by many as planning for a strategic investment.