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IRG Technology, Media And Telecommunications Weekly Market Review (Week Of 20 – 26 Aug 2012)



Tencent Holdings Ltd. will introduce a television to allow users to access its online games and videos on devices other than computers and mobile handsets. The TV, which allows access to Web services using cloud computing technology and was developed with TCL Multimedia, is the first time Tencent collaborated with an appliance maker, Tencent CEO Pony Ma said in Shenzhen. The company will continue to work with device manufacturers, he said. Tencent has bolstered collaboration with technology companies including Activision Blizzard and Zynga, adding games and services to counter competition from Chinese rivals such as Baidu and Alibaba. Growth in online-game sales and video advertising revenue helped Tencent increase second-quarter profit 32 percent, Tencent said.

Qihoo 360 Technology Co. Ltd. reported that its second-quarter net income declined to US$7.0 million, from US$11.1 million in the second quarter of 2011. Net income excluding share-based compensation was $20.6 million, compared with US$13.2 million in the year ago quarter. Net margin excluding share-based compensation was 28.4%, compared with 37.6% in the same period last year. The year-over-year decline in non-GAAP net margin was primarily due to increased headcount and infrastructure costs and foreign exchange losses. Total revenues for the quarter were US$72.8 million, representing an increase of 107.3% from US$35.1 million in the second quarter of 2011. The year-over-year increase in revenues was mainly due to strong performance in both online advertising and Internet value-added services, driven by continued robust user and traffic growth.

App developers and corporations such as Bayerische Motoren Werke AG (BMW) and Shanghai General Motors Co. are turning to Google's AdMob unit to reach Chinese smartphone users on the go. Google's strength in mobile ads stands in contrast to its search-engine business in China. Revenue in China's mobile-app ad market will probably at least double to about 1.8 billion yuan (US$283 million) this year, exceeding the 1.2 billion yuan from mobile-search queries, according to iResearch.

Gary Wang, the co-founder of one of China's top video websites, Tudou Holdings, said he has retired as its chief executive, the same day his firm's merger with former rival Youku was formally completed. Youku and Tudou surprised the market in March when they said Youku would buy Tudou in an all-stock deal worth more than US$1 billion.


Apple's smartphone market share in China almost halved in the second quarter as Chinese seller such as Lenovo Group Ltd. and ZTE Corp. gained ground, according to IDC. Apple's market share declined to 10 percent in the second quarter from 19 percent, but IDC analyst T. Z. Wong told Dow Jones Newswires that the fall is mostly a result of consumers waiting for the launch of its newest iPhone this fall. Apple is facing intensified competition from high-end smartphone vendors like Samsung Electronics which took the No. 1 position with a 19 percent share, Mr. Wong added. For the first time, three Chinese smartphone vendors were among the top five sellers, with Lenovo leaping from outside this group into second as it grew market share to 11 percent from between 5 percent and 8 percent in the previous quarter. ZTE was third with 10 percent and Huawei Technologies was fifth with 9 percent.


The first undersea telecommunications cables linking Taiwanese and mainland Chinese territory have been completed. The two fibre optic cables link the city of Xiamen in southern China with the Taiwanese-controlled Kinmen island group, which lies just off the coast of China and around 200 kilometres (125 miles) from the main island of Taiwan. The official, who asked not to be named, said Chunghwa Telcom had invested around TW$100 million (US$3 million) in the joint venture involving three other Chinese telecom operators.

Sierra Leone has signed a US$15 million loan agreement with China to complete its connectivity to the Africa Coast to Europe ACE cable scheduled to be switched on by October. Launched by France Telecom as part of a consortium with telecom operators in participating countries, the 17,000-kilometer ACE cable will run from France to South Africa, connecting 23 countries either directly or indirectly and will provide a significant boost in broadband access. Sierra Leone funded its connection to its first fibre optic with a line of credit to the tune of US$31 million which it received from the World Bank to boost its ICT communications sectors. A total of $71.5 million was approved by the World Bank for broadband development across Africa last year for three major projects aimed at boosting ICT infrastructure and access to services in Liberia, Sierra Leone and the Democratic Republic of São Tomé and Príncipe.

China Telecom Corp. posted second-quarter profit that beat analysts' estimates as the introduction of iPhone lured new users to its wireless unit. Net income declined 10 percent to 4.55 billion yuan (US$716 million). China Telecom began offering subsidized iPhone sales on March 9. China Telecom expects the Apple device will enhance its long-term growth with short-term pressure on profit margins as it accounts for subsidies on the device up front, instead of spreading them over the life of a service contract.

China Mobile is boosting spending on handset subsidies by 30 percent to lure more smartphone customers to its struggling 3G network, in response to increased competition from rivals China Unicom and China Telecom. China Mobile chairman Xi Guohua said the operator would raise handset subsidy spending to 26 billion yuan (US$3.14 billion) in 2012 from the originally forecast 20 billion yuan, and maintain its capex at 131.9 billion yuan (US$20.7 billion). Xi said the increment will be used mainly for subsiding TD-SCDMA smartphones, in hopes this would attract more new customers to its 3G networks as well as encourage existing 2G customers migrate to the high-value 3G services. China has seen rapid growth in smartphone adoption since 2011, and expects there would be an exponential growth this year, as consumers replace their handsets more frequently, Xi said at the company's earning conference.

China Mobile Ltd. will acquire a 1.36 billion yuan (US$214 million) stake in Anhui USTC iFlytek Co., a maker of voice-recognition software similar to Apple's Siri system. The phone carrier will subscribe to 70.3 million Anhui USTC shares, or a 15 percent stake, at 19.40 yuan (US$3.05) apiece, Beijing- based China Mobile said in a filing to the Hong Kong stock exchange. China Mobile will collaborate with Anhui USTC on Mandarin voice technology after the transaction is completed, according to the filing. China Mobile is boosting spending on networks and increasing handset subsidies to attract smartphone users to lift profit growth as competition intensifies.

China Telecom will acquire the CDMA network it uses from its parent company for 84.6 billion yuan (US$27.2 billion). The operator said the acquisition will boost profits as it saves on leasing fees and give it full control over network investment planning and integration with services. China Telecom will pay an initial 25.5 billion yuan (US$8.2 billion) in cash for the takeover, with the remainder due within five years. It expects to close the deal by the end of this year. At the end of March, the assets were valued at 111.2 billion yuan (US$35.7 billion) with debt of 30.0 billion yuan (US$4.7 billion). China Telecom made the announcement alongside first-half results, which showed revenues up 14.8 percent from a year ago to 138.0 billion yuan (US$21.7 billion). Service revenues surged 11.2 percent to 126.6 billion yuan (US$19.9 billion), led by a 36.7 percent increase in mobile. Ebitda edged up 0.3 percent to 48.8 billion yuan (US$7.6 billion), giving a margin of 38.5 percent. Net profit was down 8.3 percent to 8.8 billion yuan (US$1.4 billion). The operator noted that the launch of the iPhone led to a short-term increase in marketing costs.

Sierra Leone and China have signed a US$15 million loan agreement for the installation of a fiber optic cable that will boost internet capabilities, national radio reported. Chinese Ambassador Kuang Weilin said the agreement is keeping to the bilateral and development cooperation between the two states and will be implemented by Chinese telecommunications giant Huawei. The 17,000-kilometer-long submarine cable runs from Cape Town along the west coast of Africa, through Portugal and to France, connecting 21 countries, 18 of which are in Africa. The cable was laid in Sierra Leone with the assistance of a US$31 million load from the World Bank, and is expected to reduce the west African nation's dependence on expensive satellite bandwidth for internet connections.

ZTE reported a sharp fall in net profit for the first half, down 68 percent year-on-year to 244.9 million yuan (US$38.5 million). The company was affected by price pressure, delayed orders in China and the costs of expanding its handset sales, as well as forex losses, lower investment income and higher financing costs. Revenues were up 15.2 percent to 42.64 billion yuan (US$6.7 billion). Carrier network equipment remained the largest part of the business at 21.28 billion yuan (US$3.3 billion) in sales, up 3.9 percent from a year ago thanks to continued targeting of emerging markets. Terminal products surged by 27.1 percent to 14.25 billion yuan (US$2.24 billion), driven by 3G handset sales in China, and telecom software and systems sales increased 33.8 percent to 7.11 billion yuan (US$1.12 billion). For the second half, ZTE said it will continue to target populous nations and mainstream carriers as well as look for expansion in the public sector.

China Unicom (Hong Kong) Ltd.'s first-half net profit increased 31.9 percent, surpassing market expectations, due to strong growth in the number of subscribers of third-generation mobile services and data usage. The country's second-largest mobile operator by subscribers said its net profit for the six months ended June 30 surged to 3.43 billion yuan (US$541.86 million), outperforming its main rivals, which had announced first-half results over the past two weeks. China Mobile reported that net profit surged by a marginal 1.5 percent to 62.20 billion yuan (US$9.8 billion) over the same period, as China Telecom, the third largest mobile player, reported an 8.3 percent drop in net profit to 8.81 billion yuan (US$1.4 billion). China Unicom's net profit was well above the average 2.62 billion yuan (US$412 billion) forecast by 33 analysts polled by Thomson Reuters.

Alternative Energy

GCL-Poly Energy Holdings Ltd. reported its first loss since the second half of 2009 as Europe's financial crisis curbed the solar-energy business. The loss was HK$330 million (US$43 million) in the six months ended June 30. Revenue declined to HK$11.8 billion (US$1.5 billion). The loss underscores the challenges facing the solar industry as companies deal with an oversupply that's depressed prices and trimmed profit margins. The 17-member BI Global Large Solar index has fallen 64 percent in the past year. MEMC Electronic Materials Inc. reported its fourth consecutive quarterly loss on Aug. 8 due to lower prices. Trina Solar Ltd. reported a second-quarter net loss of US$92.1 million as industry overcapacity and demand constraints contributed to falling prices.



Taiwan's Hon Hai Precision Chairman Terry Gou said an agreement to buy a 9.9 percent stake in Sharp was unchanged in principle, and that he hoped to conclude the deal with the struggling Japanese TV maker this week. The two firms reached a deal in March valuing the shares of the cash-starved maker of Aquos TV at 550 yen each, but reopened talks this month after Sharp's stock slumped to around a third of that price as losses mounted. Without the full 67 billion yen (US$852 million) that the Taiwanese firm agreed to pay in March, Sharp would have to rely more on its banks or sell other assets to bolster its finances. Sharp, with debt of 1.25 trillion yen (US$15.9 billion), holds 360 billion yen (US$4.6 billion) of short-term loans and needs to refinance a 200 billion yen (US$2.5 billion) convertible bond in September next year. The company is seeking help from its main banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group. Those lenders will provide 250 billion (US$3.2 billion) in loans to Sharp by the end of March, with four insurance companies, including Nippon Life Insurance, providing an additional 100 billion (US$1.3 billion), enough for the TV maker to cover its immediate debt obligations, the Nikkan Kogyo newspaper reported on Monday without citing sources.


Taiwan telecom equipment maker, is hoping to raise NT$500 million (US$16.7 million) through a share placement. The company is planning to issue up to 6.25 million, five-year convertible preferred shares at an annual interest rate of 3 percent through a private placement, The Digitimes writes. The issuing price and volume for convertible preferred shares will be set later.

Hong Kong


Hutchison Whampoa and the European Union have agreed the basic principles of a competition concession that would allow Hutchison's Austrian telecoms unit to take over Orange Austria, Hutchison said. The European Union is carrying out an in-depth investigation of the agreed 1.3 billion euro (US$1.6 billion) merger, although the combination of Austria's two smallest players would create an operator with at most a quarter of the market. Hutchison 3G, or "3" has proposed opening up its mobile network to third parties, letting new players enter the market if it succeeds in its deal to buy Orange Austria, which would cut the number of operators in Austria to three from four. As part of the deal Orange has agreed to sell its budget mobile brand Yesss to incumbent Telekom Austria.

PCCW Solutions, the IT and business process outsourcing services arm under PCCW, has teamed with Guangdong Eastern Fibernet to offer cloud computing services in Guangdong, China. The two companies will jointly develop cloud computing data centers in the province and provide a wide range of cloud computing services, including desktop cloud, server cloud and cloud storage, PCCW Solutions said in a statement. PCCW Solutions added that customers will be able to access applications, data, files and storage over the internet as tailor-made applications for government, financial institutions, and large corporations will also be available.



NTT Com has expanded the data transmission capacity of its Global IP Network link between Asia and Oceania to 500 Gbps. NTT Com's global IP backbones, which provide IP network services to Japan, Asia, Europe, Oceania and other markets worldwide, are connected to fixed and mobile telecom companies, ISPs, data center operators and content providers. The company's largest cable network, which offers 620 Gbps between Japan and the US, uses a dual-stack (IPv4 and IPv6) configuration as one of NTT Com's core IPv6 networks. The growing use of smartphones, tablet devices and broadband access has led to sharp increases in music/video downloading, blogging, social networking and cloud computing worldwide, NTT Com said.

Mobile/ Wireless

After taking full control of its mobile phone joint venture with Sweden's Telefon AB L.M. Ericsson earlier this year, Sony Corp. will cut about 15 percent of the business's workforce, or about 1,000 jobs, to reduce costs and accelerate its push into the growing smartphone market. The importance of smartphones can't be underestimated for Sony. Not only is demand growing at a breakneck pace, the versatile devices are starting to eat into markets for products such as music players, digital cameras and portable game machines.