IRG Technology, Media and Telecommunications Weekly Market Review (Week of 14 – 20 Nov 2011)

Nov. 23, 2011 3:34 AM ET
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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.



         NTT Docomo will acquire a 20 percent in Transaction Media Networks for approximately 320 million yen (US$4.2 million), making it the third largest shareholder in the company after Mitsubishi and Toyota Financial Services, the Nikkei reports. Transaction Media operates a platform for using mobile phones to settle transactions online. With the investment, the operator will promote online trade settlement services compatible with NFC standards.

         Softbank said it will commercialize its 4G network as early as February, with plans to extend the network to cover over 92% of the country’s population by the end of 2012. The 4G network, which operates on the 2.5GHz spectrum that Softbank acquired from Willcom in March 2010, can support downloads of up to 110 Mbps and uplink of up to 15Mbps. The network is initially available via portable modems and dongle, and Softbank will begin offering a range of new handsets and smartphones in early 2012. These handsets, supplied by vendors such as Sharp, Dell, Panasonic, and Huawei, will support TD-LTE/FDD/GSM/UMTS/CDMA technologies,


         Elpida Memory's sales office and the technical marketing group will be merged into one unit, to be named the sales and marketing office. Yasushi Takahashi, a managing director and an officer of the DRAM business unit, has been appointed as chief sales officer. The current CSO, Oliver Chang, will work with Takahashi as his deputy. Takahashi will be in charge of Elpida's global sales, marketing and customer support strategy. As serving as deputy, Chang will remain as the officer in charge of global sales and marketing. Takahashi is an expert in DRAM technology and has contributed to Elpida's technology design and development. Using his skills he will lead business operations in the sales and marketing office and work to expand sales. The sales and marketing office will have the mission of expanding global sales and marketing.




         SK Telecom Co. acquired a 7.47 percent stake in Hynix Semiconductor Inc. for 1.08 trillion won (US$949.32 million). SK Telecom agreed with eight creditors of Hynix led by Korea Exchange Bank to pay 3.43 trillion won (US$3.06 billion) for a 21.05 percent stake in the chipmaker, including half of their 15 percent stake and 101.85 million new shares. The mobile carrier was the sole company to submit a bid for Hynix and was selected as a preferred bidder. The acquisition of the world's No. 2 memory chipmaker will diversify business portfolios and help it gain ground in overseas markets, SK Telecom said. The two parties expect to close the deal by the end of the first quarter in 2012.

         South Korea ranked first among the Asia-Pacific countries last year in terms of wireless high-speed Internet penetration, according to GSM Association (GSMA). South Korea was the leading country for wireless broadband subscriptions last year among 17 countries in the Asia-Pacific region, with 91 per 100 people. Japan came in second with a penetration ratio of 88 percent, up from 23 percent in 2005. It was followed by Australia with 84 percent and Hong Kong with 74 percent. Singapore trailed in fifth with 69 subscribers of wireless broadband per 100 people. The GSMA said rapid growth in mobile broadband connections across the Asia-Pacific region has been witnessed over the past five years.

Media, Gaming and Entertainment

         According to Korean’s International Traders, with smartphones rapidly going mainstream and Facebook catching on among the public, a striking new trend at South Korea's largest game show this year was the emphasis on social networking. Many game titles announced during the four-day G-Star game trade show were scheduled to be offered through social networking platforms, mainly Facebook. Others were designed to encourage players to have more social interactions through games. For major online game developers, social networking sites like Facebook presented opportunities to reach beyond hardcore gamers and seek new markets. During the G-Star show, which kicked off, Nexon Korea Corp. said it plans to debut Atlantica S on Facebook before next summer. Created by Nexon's subsidiary Ndoors Corp., the upcoming title will represent Nexon Korea's break into the sphere of social networking games, a departure from years of success with online games that appealed mostly to hardcore gamers.


         The head of Samsung's TV divisions aid that Samsung Electronics is in last-stage talks with Google to roll out its Google TVs. Google TV -- which currently comes built-in on certain Sony Corp television models and on Logitech International set-top boxes -- allows consumers to access online videos and websites on their TVs, as well as specialized apps such as video games.


         Samsung Electronics Co. is considering absorbing Samsung LED Co. The company has not made a final decision on merging with its LED-making unit, Samsung Electronics said. Samsung Electronics owns a 50 percent stake in the unlisted LED maker with the rest controlled by Samsung Electro-Mechanics Co., an electronics parts making affiliate.



         Youku Inc had a larger third-quarter net loss than analysts expected. The results come as Youku boosts its spending to fuel growth in the face of growing competition from online-video rivals such as Tudou and The tougher competition is pushing up licensing costs for video content and making it harder to retain users, leading executives to predict consolidation in China's online video industry. Youku Chief Executive Victor Koo, on a teleconference about the results, said the company will continue to invest in content and technology. Youku had a net loss for the three months ended Sept. 30 of 47.5 million yuan (US$7.4 million). But the result was below the average forecast of eight analysts for a net loss of US$3.69 million in a Thomson Reuters poll. The average earnings-per-ADS forecast of seven analysts in the poll was negative 3 cents.

Media, Gaming and Entertainment

         Dreamworks Animation SKG Inc. is in talks to set up a joint venture animation studio in Shanghai as early as January next year, to produce animation and design theme parks, Caijing Magazine reported quoting government sources.  The joint venture company, to be established in the first quarter of next year, will be formed by Dreamworks Animation and a consortium of Chinese companies that may include Shanghai Media Group and China Media Capital, Caijing reported. Dreamworks Animation and the Chinese consortium will invest a total of $2 billion over the next five years into the joint venture firm, called "Dreamworks East" to produce animation that caters to the Chinese market. Dreamworks East will also be involved in film distribution and designing theme parks. The firm plans to release its first blockbuster animation film in 2015.

         Shanda Interactive said it agreed to be taken private by a group led by its Chief Executive Tianqiao Chen and his family in a deal that values the Chinese Internet firm at US$2.3 billion. Premium Lead Co Ltd is a British Virgin Islands-based company jointly owned by Shanda Interactive CEO Chen, his wife Qian Qian Chrissy Luo and brother and chief operating officer Danian Chen. Premium Lead and its Cayman Islands-based unit New Era Investment Holding Ltd own nearly 70 percent of Shanda's outstanding shares. The buyers will fund the deal, which is expected to close before the end of the first quarter of 2012, with proceeds from US$180 million loan facility, as well as cash.


         The country's mobile subscriber base grew 1.3% in October to 951.6 million. China Mobile has the largest share of 638.9 million, and added nearly 5.4 million subscribers during the month. As of the end of September, China Mobile had 43.2 million 3G customers having added 22.5 million of these in the last year. China Unicom meanwhile had 162.1 million total mobile customers, and 33.1 million 3G customers. China Telecom ended October with 120.3 million mobile subscribers, including 31.2 million 3G users. The operators' customer data underscores the fact that the pace of 3G adoption has well and truly overtaken 2G net additions. China Unicom signed up 2.9 million 3G subscribers in October, but only 421,000 2G users.

         Net 3G additions have meanwhile accounted for more than half – or 18.9 million – of China Telecom's 29.8 million mobile additions so far this year.

         China GrenTech Corp. Ltd.'s (GRRF) board said that its chief executive, Yingjie Gao, has offered to purchase the remaining stake in the company that he does not already own, a bid that values the company at approximately US$73.4 million.  The offer marks a 21% premium to current closing price of US$2.56.  American depositary shares shot up 9.4% to US$2.80 in premarket trade. Gao and his affiliates currently own approximately 32.39 percent of GrenTech's ordinary shares. According to the proposal letter, the acquisition is intended to be financed primarily through debt financing. The proposal letter states that Gao is in discussions with Guotai Junan Finance about financing the proposed transaction and has received a 'highly confident' letter from Guotai Junan.

         Macau counted 1.29 million mobile subscribers at the end of September, up from 1.28 million in August, according to regulator DSRT. Macau further had 165,944 fixed-line users, down from 166,243 in August. Of the total, 112,274 are residential lines and the remainder are corporate lines. Furthermore, the number of internet users rose to 136,341 from 135,836 a month earlier, which includes 135,304 broadband customers and 883 dial-up users.


         Huawei Technologies Co. said it is targeting about US$3 billion in revenues from the Middle East this year, or 10 percent of the group's overall revenue goal, as it continues to tap into the region's demand for infrastructure hardware. In 2010, income from Huawei's business in the Middle East reached about US$2.75 billion, said the company.  Huawei is best known as a maker of telecommunications hardware but is also expanding its business selling devices such as mobile phones, tablets and wireless modems. The Chinese firm currently has a vendor partnership agreement in place with the U.A.E.'s Etisalat as well as other pacts with Emirates Integrated Telecommunications Co., or Du, as well as Egypt's Vodafone and Egyptian Co. For Mobile Services, or Mobinil. Huawei is implementing fiber-to-home which will replace traditional cooper wires and allow for internet protocol television, or IPTV, in locations such as Saudi Arabia and Qatar.

         Huawei will acquire Symantec's 49 percent stake in their joint venture Huawei Symantec for US$530 million. This will give Huawei 100 percent of the company. Based in Hong Kong and set up in 2008, Huawei Symantec provides security, storage and system management products for businesses. Symantec said it had achieved the goals of the venture, with an enhanced position in the Chinese market and a good return on its investment. Huawei said it will continue to invest in the company, as part of its efforts to expand on the enterprise market. The takeover is expected to close in the first quarter of 2012, subject to regulatory approval.

         ZTE Corp. expects revenue from its network equipment operations to continue growing at a double-digit rate next year, driven by the construction of high-speed 4G networks. 4G technology enables faster data downloads and uploads on mobile devices compared with third-generation networks. ZTE also said it is still aiming to supply network equipment to the top four U.S. carriers, despite the political hurdles involved. ZTE is already offering either feature phones or wireless data cards to the top four U.S. carriers: Deutsche Telekom's T-Mobile USA, AT&T Inc., Sprint Nextel Corp., and Verizon Wireless, a joint venture between Verizon Communications Inc. and Vodafone Group PLC, but it still can't supply network equipment to the major American operators because of political reasons, company said earlier this year.

Information Technology

·          The development of China's ICT industry was expected to leapfrog during the 2011-15 period as the government would give high priority on strategic emerging and ICT industries in that period, said Zhang Guangping, deputy director of the Topology Research Institute. The communication, triple play, Internet of Things (IOT) and cloud computing industries would have huge development opportunities in the following five years, Zhang said at a seminar on the 2012 ICT industry climate forecast. According to the institute, China's telecommunication industry investment is projected to reach 2 trillion yuan (US$315.3 billion) in 2011-15, a jump of 40.6 percent over the previous five years, including 1.6 trillion yuan for construction of mobile and fixed-line broadband networks, soaring 181.2 percent over the 2006-10 period. Zhang noted that triple play would significantly boost the growth of network equipment, terminal product manufacturing, operators and content industries, and predicted it would develop into a 3 trillion yuan (US$472 billion) market in the following five years. Network equipment and terminal product manufacturing would benefit most from the development of triple play, he added.


      China's software industry grew rapidly in 2011, with averaged monthly growth rate reaching 30 percent according to research results published by CCID Consulting, a Beijing-based information technology consultancy. By the end of August, revenues exceeded 1 trillion yuan (US$157.4 billion). The research report predicted that the industry's investment and financing activities would also see good times ahead as the State Council, or China's cabinet, announced several policies to support the country's software industry in January this year. The industry disclosed 74 cases of equity financing in 2010 and 2011, including angel investments, and VC/PE and strategic investments. The software industry was in good shape in the region around the Bohai Sea, the Yangtze Delta and the Pearl River Delta.


      The U.S. International Trade Commission (ITC) has said mobile-manufacturer HTC did not infringe Apple patents. The move reverses an earlier decision by an American judge and relates to a part of HTC called S3, which specializes in audio compression technology.  S3 was among a number of companies still in dispute with Apple, and Google itself has sold a number of patents to HTC so that the mobile-manufacturer can sue Apple over a range of ongoing issues. Samsung, which supplies chips for a range of Apple products, is also the subject of a number of Apple disputes.

      SinoHub saw its sales and profits drop in the third quarter with net sales declined 7.3 percent to US$52 million from US$55.8 million a year earlier. Gross profit was US$6.3 million compared to US$10.2 million in the same quarter in 2010. Gross margin was 12.1 percent compared to 18.3 percent. SinoHub had a net income of US$2.6 million, down from US$6 million in Q3 2010. The company said the results were in line with expectations as SinoHub continued to be impacted by the decline in Integrated Contract Manufacturing (ICM) revenues following the cut back in orders from a major customer in Q2. However, the company broadened its base of smaller ICM customers that place higher margin orders. Sales in the ICM business segment were US$16.9 million, down 11.4 percent year-on-year.

      Sales volume of LED TV sets in China will exceed 18 million units in 2011, according to a report on color TV sales trend jointly released by China Electronics Chamber of Commerce and GOME Electrical Appliance Holdings, China's largest appliances retailer. According to the report, in the first ten months of this year, backlight LED color TV took a 49 percent weight in the total color TV sales in the Chinese domestic market, and in one year's time, LED TV will basically replace LCD TV.

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