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IRG Technology, Media and Telecommunications Weekly Market Review (Week of 14 – 20 June 2010)

         Sony Corp. said Chairman Howard Stringer earned a 410 million yen (US$4.5 million) salary last year as Japanese regulators begin to force companies to reveal the compensation of their top executives. Stringer received a base salary of 310 million yen (US$3.4 million), a 100 million yen (US$1.1 million) bonus and stock options for 500,000 shares for the year ended March 31. Vice Chairman Ryoji Chubachi and outgoing Chief Financial Officer Nobuyuki Oneda earned more than 100 million yen (US$1.1 million). Publicly traded companies in Japan will need to provide the names of executives earning at least 100 million yen (US$1.1 million) and a breakdown of their compensation packages, including stock options, bonuses and retirement payouts. Stringer’s salary is more than triple the amount Hoya Corp. paid its chief executive officer.
Mobile/ Wireless
         Fujitsu Ltd. will own Toshiba Corp.'s struggling cellphone handset business, aiming to take a leadership position in the domestic market while coping with challenges from foreign rivals such as Apple's iPhone. Fujitsu and Toshiba have reached a basic agreement to merge their mobile phone operations, a move that will create Japan's second largest handset maker. Fujitsu, the larger of the two, will take a majority stake in the new joint venture to be launched Oct. 1.   Japanese handset makers are under pressure to streamline and consolidate, as they come under attack in the crowded home market from newcomers such as the iPhone, RIM's Blackberry and Taiwanese handset maker HTC. Fujitsu could have a better shot at a chunk of Japan's still-nascent market for smartphones, one of the few growth areas in the country's rather sluggish handset market.
Information Technology        
         NTT Data Corp. will acquire U. S. information system firm Intelligroup Inc. as part of its global expansion. If NTT Data succeeds in obtaining all Intelligroup shares through a tender offer, the acquisition will cost about 18 billion yen (US$196.6 million). The bid could start this week, with the offer price at US$4.65 a share. The U.S. firm has agreed to the takeover. Intelligroup posted 11.3 billion yen (US$125 million) in sales and about 1 billion yen (US$11 million) in net profit for the year ended last December. The firm employs 2,100 and has software development operations in India. It builds core information systems for businesses, with major electronics manufacturers and drugmakers among its clients. The firm is seeking acquisition opportunities to further its acceleration
Media, Entertainment and Gaming
         Zynga Game Network Inc. garnered a 13.5 billion yen (US$147 million) investment from Softbank Corp. Softbank and Zynga shall distribute and promote games through Softbank’s mobile-phone service in Japan and other countries. The contract shall construct on the US$180 million Zynga raised from venture capitalists in December and may help the company expand in Asia. Zynga shall have revenue of at least US$450 million this year. Profits were mostly generated from sales of virtual goods on Facebook’s service, as the firm planned to diversify beyond the social-networking site.
         Jupiter Telecommunications (J:Com) ended May with a total of 3.33 million customers, up 3.7 percent year-on-year. Combined revenue generating units (RGUs) for cable television, internet access and telephony services reached approximately 6.08 million, up 5.7 percent since end-May 2009, and the bundle ratio (average number of services received per subscribing household) boosted to 1.83 from 1.79 a year earlier. J:Com's television subscriber base stood at 2.607 million in May, up from 2.569 million a year earlier. Of the total 2.477 million are digital television subscribers. The number of internet subscribers went up to 1.630 million from 1.528 million, and the number of telephony customers rose to 1.839 million from 1.650 million a year earlier.
Internet Inc. and Yahoo Japan Corp. will open cloud computing services for Japanese businesses based on Japan’s large-capacity high-speed network. The firm will later establish Japanese-language service. Amazon’s goal is to offer Japanese-language support services together with Toshiba and other Japanese information technology firms to aid local businesses in the launching of cloud computing services. Yahoo Japan, on the other hand, will have a full-scale entry into the cloud computing business by next March. The Japanese unit of Yahoo Inc. will lease various website functions like billing, membership management and distribution of ads and various content. Through this, users could make personalize websites and offer various services.
         Rakuten, Inc. has reached a definitive agreement to acquire 100 percent interest in PriceMinister SA, for US$246.16 million. Arma Partners, LLP and Sangyo Sosei Advisory, Inc. are acting as advisors to PriceMinister on the transaction, while Gide Loyrette Nouel is acting as its legal counsel. The transaction is expected to close in July 2010. This acquisition will allow Rakuten to create a global platform as PriceMinister has established its marketplace business in Spain and the UK, in addition to France. Rakuten will also further develop its global network of e-commerce businesses by leveraging its presence in Asia, the US and Europe. The transaction will enable it to leverage Rakuten's expertise in empowering merchants and deploying sales campaigns, to strengthen its competitive advantage in the French market.
         Five telecommunications industry groups in Japan have agreed guidelines that spell out procedures that mobile carriers should take when limiting internet access for users who receive or send huge volumes of data. ISPs first addressed the issue in 2008, and the latest rules also apply to internet connections via mobile devices, the Nikkei business daily reports. The new guidelines state that carriers should notify users in advance when limiting internet access, as well as provide information on data transmissions caps and how long connection speeds will be reduced. Mobile operators already limit access under their own rules. Emobile will expand the scope of users subject to access restrictions to those that send or receive 3 million packets (each packet is 128 bytes) over a 24-hour period. KDDI, NTT DoCoMo and Softbank Mobile plan to revise their rules for limiting access so that they are in line with the new rules.
         Japan's three major mobile operators are expected to triple their combined base stations footprint this year, the Nikkei reports. The firm plans to lift their combined arsenal of 100,000 base stations to roughly 300,000 this fiscal year. It will upgrade roughly 1,000 base stations in major metropolitan areas to make them compatible with LTE service, which will be launched by the end of this year. KDDI's new base station has a footprint that is less than one-third of conventional models. The number of small indoor stations is to boost about 40 percent to 34,300.
         Reliance Globalcom will extend its existing points-of-presence in Japan to include global data centre operator Equinix's Toyko-2 International Business Exchange data centre. The expansion will enable Reliance Globalcom to improve the capacity of IPv6-enabled global connectivity services to the 230 countries covered by it. It will also enable all of Equinix's Tokyo customers to directly access Reliance Globalcom's VPLS network. Equinix customers out of Japan will now be able to connect directly to Reliance Globalcom's network with no requirement for third party connections.
         KT Corp. is seeking to buy a major stake in a local credit card firm to capitalize on an accelerating mobile phone-credit card convergence trend. KT, also the top fixed-line provider, is expected to sign a preliminary contract with Woori Bank take over the bank's stake in BC Card Co., which issues credit cards in business association with 11 local banks. The bank owns a 27.65 percent stake in BC Card and the sources predict KT will purchase half of the total holdings.
         Samsung Electronics is eyeing a 20 percent share of the accelerating smartphone market as it expands its product portfolio in India. The firm will launch 7-8 new smartphones this year to compete with the likes of Nokia, RIM and Apple. While Galaxy S is based on Google's mobile operating system (OS) 'Android', Wave marks the launch of Samsung's operating system BADA. A huge number of smartphones from multinational companies like Nokia, Apple, Research-In-Motion (RIM), LG and Sony Ericsson are flooding the Indian market. Smartphone sales in the Asia-Pacific (NASDAQ:APAC) region are expected to surpass the 100 million units mark by 2011. Smart phones accounted for 11 percent of mobile phone shipments in APAC, this percentage is expected to boost steadily and, in 2012, 20 percent of mobile phone shipments in the region are expected to be smart phones.
         Hynix Semiconductor Inc. has accomplished its second memory chip plant in China in partnership with a Chinese firm. The plant, named “Hitech Semiconductor Package and Test”, has a capacity of manufacturing 100 million units of 1-gigabyte dynamic random access memory (NASDAQ:DRAM) chips per month. Hynix holds a 45 percent stake in the plant built in Wuxi, Jiangsu Province, with China's Wuxi Taiji Industry Co. owning the remainder. The completion of the chip plant cost US$350 million. The firm will have to save on production and shipping costs with the new plant, which will conduct packaging and testing of chips that are produced from Hynix's other plant in the same Chinese city. Hynix also awaits the Chinese government's approval to acquire a 90 percent stake in Hynix-Numonyx Semiconductor Ltd., a joint chip venture with Dutch chipmaker Numonyx Holdings BV.
         Hynix Semiconductor has agreed with creditors to repay its 4 trillion won (US$3.26 billion) worth of debts in the event of a hostile takeover attempt. The contract that gives creditors a right to demand debt redemption was signed in April. The agreement is aimed at deterring a hostile takeover attempt as a debt repayment would make a takeover costly for the bidder. Creditors of Hynix, which include its largest shareholder Mirae Asset Investment, cut a 5 percent stake in block sales in March to hold a 21 percent stake in the chipmaker. They plan to unload an additional 5 percent stake before December.
      LG Display Co. will have a US$5 million e-book merging with Iriver Ltd. LG Display will control 51 percent of the joint business, L&I Electric Technology (Dongguan) Ltd., as Iriver will take control of the lingering 49 percent. L&I Electric Technology will begin producing Iriver's existing Dongguan e-book plant in September and will boost production to 1 million e-books a year by 2011. The Dongguan plant creates at least 30,000 units a month of e-books. LG Display will reinforce its customer base by securing Iriver as a stable customer for its electronic paper displays, or EPDs. LG Display will provide e-book displays like electronic paper displays, or EPD, while Iriver will be assigned to be in charge of product design and platform development. The global e-book market will be twice in size annually to reach US$1.2 billion.
      Samsung Electronics Co. will introduce the tablet computer in the third quarter. This might aid to sustain earnings acceleration later this year despite lower earnings from mobile phones due to the weak euro. The new tablet will run on Google's Android operating system. The electronics giant had record earnings in the first quarter, with operating income of 1.10 trillion won (US$898.3 million). Earnings from the handset business is expected to be badly affected due to the European debt crisis.
         China's personal e-mail user size and active account size each stood at 218 million and 531 million in 2009, with the coverage of up to 80.6 percent. The market is mainly shared by of, of Tencent, Gmail of Google, and of China Mobile. ranked number one among them in terms of monthly visits per capita in 2009, with the number of monthly active accounts hitting 124 million on average, representing a sharp edge from others. With the maturation of the nation's 3G market, service package adjustment of mobile telecom operators and expansion of the domestic mobile phone market, mobile phone e-mail will boost fast. mobile phone e-mail, QQ and are regarded as the top three in the sector.
         Tencent Holdings signed a memorandum of understanding with the Cisco Systems Inc for a long-term strategic relationship. Pursuant to the MOU, the two partners will be principally engaged in technology upgrading of telecommunication and data analysis, as well as market expansion. Tencent's development goals fit very well with their long-term objective in China. Tencent plans to promote green economy development through the cooperation with Cisco.
         Funtalk China Holdings Limited reached net revenues of US$287.8 million for Q4 2010. The firm generated revenues from two business segments, retail and distribution of mobile phones and related services and accessories. Gross profit for the quarter boosted 198.9 percent. Income from operations in the quarter boosted by 689.7 percent to US$22.8 million. Operating income margin boosted to 7.9 percent in Q4 2010. Net income was US$1.2 million for Q4 2010. The firm sees its revenue for Q1 of fiscal 2011 to be in the range of US$220-240 million and its net income attributable to the firm to be in the range of US$7-9 million. Gross margin and operating income margin are projected to be in the range of 12.5-13.5 percent and 5.5-6.5 percent, respectively. The firm sees its revenue to be in the range of US$1-1.2 billion and its net income attributable to the firm to be in the range of US$40-45 million. Gross margin and operating income margin for the full fiscal year are projected to be in the range of 15.0 percent-16.0 percent and 8.0 percent-9.0 percent, respectively.
         ZTE Corp. has been awarded a 1 billion yuan (US$146 million) passive optical network equipment contract by China Telecom Corp. The equipment will support China Telecom's city optical network project, which was launched in 2009. The Chinese telecom equipment and network provider will partner with Telekom Malaysia Bhd. as one of the major suppliers for Malaysia's nation-wide high-speed broadband network. Malaysia announced the HSBB project in September 2008, which is aimed at developing next generation high-speed broadband infrastructure and services for the country.
Media, Entertainment and Gaming
·          Perfect World Co., Ltd. is slashing 80 percent of its employees in the distribution division as part of a business revamp amid the online game market slowdown. The firm informed its decision to lay off over 80 percent or 2,000 of its employees in the distribution and marketing division throughout the country. Chi Yufeng was calling for expenditure cut. Marketing staff in Beijing, where Perfect World is based, is going through a regrouping, ascribing the layoff in part to a poor performance of the 2D turn-based online game Fantasy Zhu Xian and a flawed management in distribution.
·          The9 Ltd. will seek extensive and in-depth partnership with overseas game-related companies on the China Game Outsourcing Conference (CGOC). The Chinese online game operator and developer hails partners concerning such sectors as painting, Flash production, localization, translation, and computer graphics (NASDAQ:CG), etc. to make up mutual advantages and disadvantages. The9 Ltd. is engaged in R&D in personal computer game, web game, social game, mobile game, and internet protocol Television, or IPTV.
      Hon Hai Precision Industry Co. will expand in China despite boosting scrutiny of labor conditions in China. Hon Hai will have twice the regular minimum wage for some of its workers in Shenzhen as it will also have smaller pay boosts. The firm has to claim a defense due to the suicide conditions of its employees. It was also asked to invite reporters to view its massive Shenzhen operation in China's southern Guangdong province.
Investments/ Ventures
      China Sci-Tech Holdings Limited will raise US$370 million from certain cornerstone investors. China Sci-Tech Holdings will issue approximately 14,430 million shares, representing a 34.17 percent stake in the firm, at a price of US$0.03 per share. Investors include CCB International Asset Management Limited, Chow Tai Fook Nominee Limited and Bondic International Holdings Limited. BOC International Holdings Limited, Morgan Stanley and Deutsche Bank AG are acting as placement agents for the transaction.

Disclosure: Author holds no positions in the stocks mentioned