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IRG Technology, Media and Telecommunications Weekly Market Review (Week of 12 – 18 Sept 2011)

Japan

Hardware

         Research Analysts expect Nintendo Co. to sell fewer 3-D handheld players than it’s targeting as price cuts and new accessories fail to make up for a lack of hit titles. Based on the average estimate of four analysts surveyed by Bloomberg News, 3DS sales is forecasted to be 16 percent lower of the company’s annual target of 16 million units even after Nintendo slashed prices by as much as 40 percent. The game maker may only sell 2.5 million 3DS players halfway into the fiscal year, which ends March 31, according to Macquarie Group Ltd. The creator of the Super Mario Bros. franchise should introduce more major titles at 3DS conference or consider developing games for social networks to restore investor confidence in a stock that has tumbled at least 80 percent since its 2007 high, analysts at Macquarie and Cosmo Securities. Nintendo President Satoru Iwata, bracing for the game maker’s lowest profit in 26 years, is seeking to win back users who are content to play games on iPhone and Facebook’s online service.

Telecommunications

         Usen Corp. doubled its group net profit to around 2.3 billion yen (US$29.9 million) for the year ended in August by consolidating data centers and distribution locations to lower fixed costs. The telecom firm's total sales for the year declined 49 percent to about 75 billion yen (US$976 million). The sharp decline was largely attributed to its sale of a temporary staffing subsidiary to a U.S. investment fund. The company reached an agreement with banks to lower the interest rates on its loans, easing its payment burden. Its interest-bearing loan balance declined 17 percent to 52.5 billion yen (US$683 million).

         KDDI has invested approximately JPY 100 million (US$1.3 million) to take a 15 percent stake in the French software provider Total Immersion, reports the Nikkei. In making the investment, KDDI is laying the groundwork for providing augmented-reality services to smartphone subscribers using its au wireless service. Total Immersion has image-recognition technologies for identifying the features of landscapes and objects captured with camera phones and then delivering content that superimposes what was captured on screen with related text and video. KDDI will utilize these augmented-reality technologies for content delivery services starting in December.

         NTT Docomo will enable smartphone users to access the websites of 300 content providers via its 'i-mode' mobile internet service by as early as November, reports the Nikkei. The move is designed to encourage subscribers to switch to smartphones. The 300 content providers provide some 10 percent of the content available to subscribers of Docomo's mobile phone services. Approximately 60 million subscribers have registered for the fee-based service, with the market for i-mode estimated at roughly JPY 500 billion (US$6.5 million). When Docomo's subscribers switch to smartphones, they must cancel all their contracts with i-mode-based content providers, including firms that offer news and ringtones. Later this year, Docomo will begin to keep records on its server of subscribers who access i-mode content for monthly fees.

Semiconductors

         DoCoMo, Fujitsu, NEC and Panasonic Mobile Communications are in talks with Samsung to form an alliance to develop, design and sell key chips for next-generation smartphones. The joint venture firm, which will be headquartered in Japan, will be capitalized at 30 billion yen (US$388 million) with NTT DoCoMo taking a majority stake. The chip venture will take aim at the market for semiconductors that control wireless communications and signals, which is dominated by Qualcomm. Qualcomm supplies 30 percent of such mobile chips for third-generation handsets. In the global smartphone market, at least 80 percent of such chips come from Qualcomm, Nikkei reported.

         Elpida Memory Inc. said it may shift some domestic production to Taiwan given a strong yen and an industry slump. The maker of memory used in personal computers is studying the feasibility of transferring some production at its Hiroshima plant to a more cost-efficient factory operated by subsidiary Rexchip Electronics Corp. in Taiwan. Elpida is among chipmakers facing weakening demand for dynamic random access memory chips, or DRAM, as sales of personal computers slow. In response to an extremely harsh business environment caused by the appreciation of the yen and a drop in chip prices, Elpida will also try to accelerate reducing the circuitry of its chips to 30 nanometers from 40 nanometers to cut production costs, as expanding procurement in U.S. dollars to minimize currency-related risks.

Internet

         Rakuten Inc. has taken a minority stake in Russian e-commerce giant Ozon.ru, pushing into a ninth overseas market. Rakuten acquired some shares issued by the Russian company as part of a private placement totaling US$100 million. Its stake could increase down the road, depending on market conditions. Ozon.ru generated sales of 137 million dollars last year. It offers 1.5 million items, including books and consumer electronics, on its marketplace and boasts 5.2 million registered users.

 

Korea

Telecommunications

         SK Telecom Co. said that SK Planet will be the name for its new business entity that will be separated from the mobile operator next month. SK Telecom's board approved last month the plan to spin off its platform business, which encompasses its mobile applications business, mobile software and mobile commerce. SK Planet will be launched as a wholly owned unit of SK Telecom on Oct. 1, tasked with various mobile services. The spinoff is expected to facilitate fast decision making and allow the company to quickly respond to the wireless market, SK Telecom said.

Mobile/Wireless

         LG will close the mobile phone research and development department at its China R&D Center in Beijing and cut half of the staff in the department, reports China Tech News. The company said it hopes to minimize the number of layoffs by further internal staffing. A representative from LG confirmed to the local media that its mobile phone R&D department will soon have major adjustments. Currently, the company's mobile R&D department is in Beijing and its plant is located in Shandong. LG will combine its manufacturing and development. Once the plan is implemented, its mobile phone R&D department will be relocated to Yantai, Shandong. By then, members of the mobile phone R&D team will be transferred to Yantai or the headquarters in South Korea. They can also stay at the Beijing R&D centre and transfer to the LCD TV R&D department.

  China

Internet

         Alibaba Group Holding Ltd. is aiming to handle one trillion yuan (US$157 billion) of transactions in 2012 on its Taobao consumer sales platforms, the company's Chairman Jack Ma said. Mr. Ma said that the websites, consumer-to-consumer trade platform Taobao Marketplace, and business-to-consumer platform Taobao Mall, which were recently split into separate business units, will help spur consumer demand in the world's most populous nation. Taobao as a whole handled nearly 400 billion yuan of online transactions last year. Mr. Ma hopes to step up competition in a wider range of Internet sectors, including with Chinese search giant Baidu Inc., through Alibaba Group's new online-shopping search engine called eTao, underscoring the company's aggressive expansion of its business in the past year. Alibaba Group, in which Yahoo owns an approximately 40 percent stake, is the parent company of Hong Kong-listed Alibaba.com Inc. Ma said Alipay, an affiliate providing online-payment services that was recently transferred out of Alibaba Group to a separate company controlled by Mr. Ma, already has made a contribution to Internet users by challenging banking services.

         Google Inc. added a new service to collect group-buying deals in the Asian nation. Shihui can be translated as a timely benefit. Google has been losing market share in China’s search market to Baidu Inc. since January 2010, when the Mountain View, California-based company said it was no longer willing to comply with China’s requirements for websites to self-censor content. Two months later, Google redirected Chinese users to an unfiltered site in Hong Kong. Google’s share of China’s search market declined to 19 percent in the second quarter of this year, from a peak of 36 percent in the fourth quarter of 2009, according to Analysys International.

         China's online retail sales reached 370.7 billion yuan (US$58 billion) in the first half of this year, surging 74 percent year on year, according to Analysys International. In the second quarter, online sales amounted to 192.4 billion yuan (US$30.1 billion). Chen Shousong, an analyst at Analysys, said that the growth from the second half of last year to the first half of this year slowed to 20.7 percent, indicating that high speed growth of China's online retail market was stabilizing, especially for the C2C market. He predicted that the future growth of the industry would depend on the B2C market. Chen attributed the slowdown of C2C market growth to the slower expansion of the platform Taobao.com. Analysys holds that competition in China's B2C market is much more intensive than on the C2C market, as companies in the B2C market have established access barriers to the industry, including IT capability and distribution systems.

Telecommunications

         Huawei Technologies will build or acquire a factory in Brazil to manufacture handsets and panel computers as it sales situation is predicted to change dramatically, according to Li Ke, chief executive of Brazil branch of Huawei. Turnover of telecommunications infrastructure equipment, which accounted for 75 percent of the total of Huawei's revenues in Brazil, is expected to reach US$1.8 billion this year. However, in view of the fast development of the handsets and device units and the complex operation in Brazil, especially taxation issues, Huawei was considering having its own production facilities, noted by Li. Sales revenues of handsets and devices in Brazil are expected to surge 80 percent in 2011. Huawei had not excluded possibility of acquiring local manufacturing businesses, added Li. Huawei has tended to rely on such third party manufacturers as Flextronics International and Foxconn International Holdings to produce its equipment for Europe and South America.

         Datang Telecom Technology & Industry Group is interested in acquiring the 20 percent stake in Guyana Telephone and Telegraph Company (GT&T) owned by the government, Stabroek News reports. Datang is already in talks with the government and is offering US$30 million for the stake. The price comprises an initial payment of US$10 to 25 million with the remainder to be paid over a period of up to ten years.

Media, Entertainment and Gaming

·          Shanda Interactive Entertainment announced its unaudited consolidated financial results for the second quarter ended June 30, 2011. Consolidated net revenues increased 5 percent quarter-over-quarter and increased 26 percent year-over-year to 1,709.8 million yuan (US$264.2 million). Shanda Games’ revenues increased 5 percent quarter-over-quarter and increased 19 percent year-over-year to 1,320.5 million yuan (US$204.0 million). Shanda Online’s revenues increased 2 percent quarter-over-quarter and increased 24 percent year-over-year to 308 million yuan (US$47.6 million). Other revenues decreased 1 percent quarter-over-quarter and increased 53 percent year-over-year to 403.8 million yuan (US$62.4 million).



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.