IRG Technology, Media and Telecommunications Weekly Market Review (Week of 15 Apr – 1 May 2011)
May 04, 2011 5:08 AM ET
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Seeking Alpha Analyst Since 2009
Matthew Burlage is the founder and Chief Executive Officer of IRG and has primary responsibility for the firm’s strategy and financial advisory business across the Asia Pacific region, including Japan. Matt is also responsible for the firm's proprietary investments.
Matt has spent the last two decades involved in corporate finance for Asia’s leading corporations, government enterprises and financial institutions. Before co-founding IRG, Matt was a Managing Director and Head of Industry Groups at Lehman Brothers in Hong Kong, where he created the first and largest dedicated technology, media and telecommunications (TMT) group at an investment bank in Asia. He built Asia’s leading TMT franchise and led the market, dominating lead management, advisory and strategic development for Asia Pacific’s leading TMT companies, including Hongkong Telecom, Korea Telecom, PT Indosat, PT Telkom, Pacific Internet, Korea Thrunet, Softbank, Yahoo! Japan, PCCW, LG Group, and chinadotcom, among others. He has been an advisor on merger and acquisition strategy to Asia’s leading companies in Japan, Singapore, Hong Kong, Indonesia, China, Thailand, Taiwan, and Korea, as well as to leading global telecommunications operators in Europe and the U.S. Matt was ranked Number One in ex-Japan Corporate Asia, and Number Two in Corporate Asia, by Institutional Investor, and is a member of Institutional Investor’s Top 20 Global E-Finance Elite 2000 for Asia and Europe.
Matt spearheads IRG’s investment of its own capital. Matt has built an impressive investment track record over the last several years. Relying on deep sector analysis, decades of Asian experience, an analysis of global trends and their applicability to Asia as well as a personal network across the Asia Pacific, Matt has managed the investment and montization of IRG's recent investments and has personally participated in the corporate governance, strategy evolution and operational management of several of these efforts.
Matt has an MBA from Harvard Business School, a BA from Yale University, and attended the Japanese Language Institute of Sophia University in Tokyo.
Japan
Telecommunications
• NTT DoCoMo, Japanese leading mobile operator reported fourth quarter profit fell 38% to 46.5 billion yen (US$570.5 million), and revenue dropped 2.6% to 1.04 trillion yen (US$12.8 billion) year-on-year due to quake expenses of 7.1 billion yen (US$87.1 million) and a decline in revenue. CEO Ryuji Yamada said the company plans to spend a total of 30 billion yen (US$368.06 million) on recovery, including 10 billion yen (US$122.69 million) for full restoration and 20 billion yen (US$245.38 million) to implement new disaster preparedness measures. Around 6,700 base stations were knocked out of commission from the earthquake and tsunami, but the company has revealed it hopes to have all base stations outside of a 30 km radius of the Fukushima nuclear plant restored by May 31. The company is forecasting a 2.3% increase in net profit and a 0.1% rise in operating revenues for this year.
• NTT Data Corp. agreed to buy Italy’s Value Team SpA for 250 million euros (US$364 million) according to the Nikkei to expand in Europe and the growing Latin American market. Value Team, which generated revenue of 308 million euros (US$449 million) last year, will provide a “bridgehead” with Brazil to tap Latin American customers, Tokyo-based NTT Data said in a statement. President Toru Yamashita said he plans to spend as much as 300 billion yen (US$3.7 billion) on acquisitions to quadruple sales outside Japan over three years. The Value Team agreement follows the acquisition of Boston-based Keane International Inc. in December and is NTT Data’s seventh overseas deal in the past year, according to data compiled by Bloomberg. Milan-based Value Team, which offers consulting and system engineering services to Italy’s telecommunications, manufacturing and financial companies, has more than 300 customers in the telecommunications and employs approximately 3,000 people.
• KDDI reported profit of 255.1 billion yen (US$3.11 billion) for the year ending in March, a 20% increase from last year even after losses from the disaster totaling an estimated 17.6 billion yen (US$210 million). KDDI said its number of suspended base stations had fallen from 1,933 in the aftermath the quake to 124 as of April 22, and that just 2,237 of the 390,000 fixed line services that had been disrupted remain out of commission. EBITDA grew 1%, and EBITDA margins increased to 27.3% from 26.9%. KDDI's consolidated mobile business recorded net additions of nearly 1.8 million subscribers, while its fixed line business added 463,000. The company is forecasting a 2% decline in net profit to 250 billion yen (US$3 billion) and a 0.7% increase in revenue for the current financial year.
Internet
• Takafumi Horie, the 38-year-old Internet entrepreneur is set for jail after the Supreme Court turned down his appeal against a fraud conviction. The Tokyo high court ruled in July 2008 that year that Horie was guilty of securities fraud, including padding the earnings of Livedoor, the Internet startup he founded, and giving false information to prospective investors to drive up share prices. Horie rose to fame in 2004 with his failed bid to buy a professional baseball team in the western city of Osaka and a later takeover battle with a major TV network. After Horie and other Livedoor executives were charged in 2006, the company lost US$5 billion in market value and sparked a share sell-off that crashed the Tokyo Stock Exchange's computer system.
• Internet Initiative Japan, IT and network services provider, has launched a large data center park in the city of Matsue. Data center capacity at the Matsue Data Center Park is delivered by using IIJ’s proprietary data center containers. The park’s total area is about 86,000 sq ft. Its total power capacity is 2,000kVA, delivered through two power lines, each from a different substation. The electricity provider is Chugoku Electric. The park has capacity to support up to 24 containers, called IZmo, assembled and filled with servers off-site. Each container holds nine 46U racks and provides 60kVA of critical power. Vendors involved in fitting the containers out with servers for customers include NEC, HP, Fujitsu and others. IIJ said in a statement it stood to benefit from companies that are moving IT equipment outside of earthquake- and tsunami-ravaged east Japan, where the government and utilities have urged customers to reduce power consumption. Matsue is located near the island’s western shore. A 300-server IZmo unit’s monthly cost to a customer is 9 mm yen, or around US$110,000.
Hardware
• The world’s largest maker of plasma televisions Panasonic Corp. said it plans to eliminate almost 17,000 jobs over two years as part of an overhaul to restore profitability to levels before the global financial crisis. The workforce will drop at least 4.6 percent to 350,000 by March 2013 from 366,937 at the end of last month, costing about 160 billion yen (US$2 billion) in restructuring fees over two years. The company said it will halt making new investments for both plasma and liquid-crystal display operations to revive profitability at the TV unit that competes with Sony Cand Samsung Electronics. The company will seek alliances to purchase more LCD panels. Panasonic may reduce the number of plants by 10 percent or 20 percent from about 350 it has globally and expand outsourcing chip production and may merge with Panasonic Electric. The reorganization will add 6 billion yen (US$71.6 million) to operating profit this fiscal year and 60 billion yen (US$716 million) the following year, the company said. Panasonic will also seek overseas alliances to expand in industrial-use solar systems. The purchase of Sanyo, which makes roof-top solar panels for households, was part of its plan to expand in energy-related businesses amid growing competition in the TV market. Panasonic aims to generate at least 760 billion yen (US$9 billion) in sales from energy devices in the year to March 2013.
Media/Entertainment
• Sony turned off the PlayStation Network and Qriocity service on April 19 following a cyber attack that has seen personal user details and possibly credit card details looted. Informa Telecoms & Media estimates the outage cost Sony over US$10 million in the first six days the PlayStation and Qriocity networks were offline. With Sony estimating it could take another week to restart all services the total financial penalty could easily be double that amount.
Korea
Telecommunications
• Korea Telecom’s CEO Lee Suk-chae said the company is in talks to sell its Russian unit New Telephone Company (NTC). In November, KT appointed Credit Suisse to sell a 80 percent stake in NTC it bought in 1997 and valued the unit at approximately US$500 million,
• According to the Korea Times, KT Chairman Lee Suk-chae and Softbank Chairman & CEO Masayoshi Son recently met to discuss cooperation in management. KT and Softbank agreed to help support Japanese firms suffering from the aftermath of the March 11 earthquake. As the Japanese government has limited electricity consumption following damage to a nuclear power plant, Japanese firms are facing obstacles, especially in data operations. The two agreed that KT will provide Softbank Telecom with infrastructure and solutions over data centers and cloud services, and Softbank Telecom will support Japanese services based on this. Softbank is also considering moving its data center to KT’s cloud computing center, and paying operating fees as well as rent to KT. If Softbank moves its data center to KT, it would be the first global company to store most of its data in Korea.
China
Telecommunications
• Driven by a boost in internet and data services, China Telecom reported an 8% increase in profit for the quarter ended 31 March to 4.6 billion yuan (US$707 million) and EBITDA before capacity lease fees of 23.76 billion yuan (US$3.65 billion), up 4.2% from Q1 last year. China Telecom’s increased its 3G subscribers in Q1 to 16.37 million from 12.29 million during the same period last year. Total mobile customers hit 100.25 million at the end of the quarter, compared to 90.52 million last year. Fixed line broadband subscribers numbered 66.85 million in Q1, 3.37 million more than last year. But the carrier lost 1.69 million fixed lines. Operating expenses increased 11.3% year-on-year given higher mobile device subsidies.
• China Unicom’s net profit for Q1 2011 dropped 86% to 166 million yuan (US$25 million) from 1.21 billion yuan a year earlier, despite a 21% revenue increase to 49.03 billion yuan (US$7.53 billion), given subsidies on 3G handsets rose dramatically to 1.9 billion yuan (US$286 million), from 10 million yuan (US$1.53 million) a year ago. China Unicom is China’s second largest carrier and the sole provider of Apple’s iPhone. ARPU grew to 45.5 yuan (US$6.85) from 41.5 yuan (US$6.25) last year, but ARPU for 3G users had fallen to 117.2 yuan (US$17.65) from 139 yuan (US$20.9). The company added 1.86 billion 3G users in March, up from 1.21 million in February and ended the quarter with the country’s second-highest number of 3G users at 18.54 million. China Mobile had 26.99 million while China Telecom had 14.76 million end February.
• China's cultural ministry announced that it would hand down punishments for 14 websites that have provided illegal music downloads, including Baidu's "BaiduMP3" service. The ministry previously gave punishments for 54 music websites in mid-March. The ministry also announced that it would punish 20 online gaming companies which have used "vulgar" promotional methods for their games.
Internet
• Baidu's net income for the first quarter increased 122.8 percent to 1.1 billion yuan (US$163.5 million) from 480.5 million yuan (US$70.4 million) in the year-ago quarter. Revenue for the quarter jumped 88.3 percent to 2.4 billion yuan (US372 million) from 1.3 billion yuan (US$189.6 million) in the year-ago period. Online marketing revenues increased 88.2 percent to 2.4 billion yuan (US$371.8 million). The number of active online marketing customers for the quarter increased 24 percent to 274,000. Revenue per online marketing customer for the quarter increased 50.8 percent to 8,900 yuan (US$1,359) from 5,900 yuan (US$864) last year.
Hardware
• China’s largest phone-network equipment maker Huawei Technologies Co. forecasts its sales to triple and reached US$100 billion in the next five to 10 years as it expands into cloud computing and small-business networks. Huawei said its sales this year will increase to 199 billion yuan (US$31 billion) from 185.2 billion yuan (US$28.9 billion) last year. Huawei is targeting annual sales at its enterprise group, which sets up computer and communication networks for businesses and government agencies, to expand to as much as US$20 billion within five years, from US$2 billion last year. Handset sales may increase to US$20 billion in the same period from US$5 billion last year. Huawei generated 65 percent of its revenue from outside of China last year, up from 60 percent in 2009. Overseas sales jumped 34 percent to 120.4 billion yuan (US$18.8 billion) last year.
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