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IRG Technology, Media and Telecommunications Weekly Market Review (Week of 16 – 22 Aug 2010)

Japan
Internet
         So-Net, the Internet unit of Japan's Sony Corp., is offering NT$6 billion (US$188 million) for a Taiwan cable TV firm being sold by private equity firm MBK Partners. Sony was looking to buy the cable content firm, Gala TV, to help push Japan's acTVila Internet-based, on-demand TV portal into the Taiwan market. Gala TV and So-Net's Taiwan office declined to comment, the paper said. MBK has put on sale its Taiwan cable TV operations, the biggest of which is China Network Systems Co (NYSE:CNS), which could fetch some US$2 billion. Taiwan's cable market has among the highest profit margins in the region, according to some analysts’ estimates, which is the main appeal of the asset to many private equity funds.
Hardware         
         NEC Corp. expects to generate half of its overseas sales from China and the Asia Pacific region over the next three years, as it expands in newer markets to compete with rivals such as Fujitsu Ltd. The company expects overseas sales to rise to 1 trillion yen (US$11.7 billion) in the fiscal year 2012. The targets are a part of its mid-term growth plan to raise total sales revenue to 4 trillion yen (US$46.7 billion) by the year ending March 2013 and reduce dependence on the big but virtually stagnant local market. The firm, which also makes computers and cellphone handsets, reported last month that its group net loss widened to 43.14 billion yen (US$504 million) in the April-June quarter. NEC is focusing on growth-potential areas such as cloud computing, or Internet-based access to computing services and software stored at data centers, as it seeks to increase net income nine-fold to 100 billion yen (US$1.2 billion) by the fiscal year ending March 2013.
Investments/ Ventures
         Nidec Corp. will acquire Emerson Electric Co.’s motor and controls unit at around 60 billion yen (US$702 million) and 70 billion yen (US$819 million) to further develop its home appliance and automobile businesses in the U.S. The company aims to triple sales by expanding into home appliances outside Asia. The company also bought Italy’s Sole Motors and will aid factories, research facilities and 6,000 workers in the U.S., U.K., Mexico and China. Nidec will take advantage its ventures and acquisitions to increase annual sales to 2 trillion yen (US$23 billion) by the year ending March 2016. Nidec’s net income was at 52 billion yen (US$608 million) last year on revenue of 587 billion yen (US$6.9 million). According to data, Nidec had 90 percent of its sales in Japan and Asia.
 
Korea
Hardware
      LG Electronics said it plans to launch 10 more smartphones and sell 5 million devices by the end of the year as it scrambles to catch up with the rest of the industry. According to Chang Ma, vice president of marketing for the division, the increasing research and development budget by a third and ramping up its spending on marketing shows that the company's once-flagship mobile devices unit might not return to an operating profit until early next year, said. 
 
China
Internet
         eLong announced that it had net income of 9.35 million yuan (US$1.4 million) in the second quarter of 2010. Total revenues for the quarter surged 45 percent year- on- year to 126.43 million yuan (US$18.6 million). Revenues from hotel reservations boosted 44 percent year-on-year to 85.61 million yuan (US$12.6 million) as it lessened commissions per room night. Revenues from air ticketing commission surged 40 percent annually to reach 30.52 million yuan (US$4.5 million). eLong sees to have net revenues for the third quarter of 2010 to be at approximately 126 million yuan (US$18.5 million) to 136 million yuan (US$20 million), up by 30- 40 percent sequentially.
         NetEase.com Inc. said that its net profit rose 3.9 percent year-on-year to 486 million yuan (US$71.7 million) in the second fiscal quarter driver by online games and advertising. Total revenue for the period was 1.3 billion yuan (US$191 million), an increase of 49.08 percent. Income from online games was 1.2 billion yuan (US$177 million), which was 53.45 percent higher than one year ago. The company also recorded revenue of 146 million yuan from its advertising, which advanced 100.55 percent year-on-year.
Mobile/Wireless
         China Communication Industry Association Chairman Wang Bingke expects mobile phone output in China to surpass 700 million sets in 2010, representing 60 percent of the world's production volume. He said that as China's mobile industry has entered the 3G era, the global communication market has provided enormous business opportunities and space for development. He added that Shenyang might be an emerging mobile phone industry base within the next five years, along with the Yangtze River Delta, Pearl River Delta and Beijing-Tianjin region.
         China TechFaith Wireless Communication Technology reported second-quarter revenues of US$65.5 million, up 31.5 percent from US$49.8 million in the year-earlier quarter. The gross profit went up to US$15.8 million from US$ 9.48 million and net profit went up to US$7.53 million from a net profit of US$4.53 million in June 2009. Cash and cash equivalents amounted to US$162.4 million at the end of Q2. Revenue from the original developed products (NYSE:ODP) segment boosted to US$56.33 million, while brand name phone sales segment revenue was at US$7.63 million and game segment revenue reached US$1.53 million. TechFaith expects revenue to be in the range of US$66-68 million for the third quarter, with a gross margin and operating expenses levels similar to the second quarter of 2010.
         Hurray! Holding Co., Ltd. had renamed itself into Ku6 Media, with ticker symbol on the Nasdaq changing into KUTV. Tianqiao Chen will step down from the position as the chairman of the board while Bruno Wu, independent director and chairman of the audit committee, will serve as the chairman. Shanyou Li will be the CEO. Chen will chair the payment committee as well as the corporate development and financial committee. And Wu's nomination will be put into force from September 1. Shanda Interactive Entertainment Ltd. has become the controlling shareholder of Ku6.com, but in which Li still owns more than 10 percent stake.
         According to Analysis International, the number of users on the third-party mobile phone browser market hit 202.9 million in China in the second quarter of 2010, a 10.66 percent quarter-on-quarter growth. The number of active accounts arrived at 90.56 million in the second quarter of this year, rising 15.58 percent over the figure in the previous quarter. The Chinese third-party mobile phone browser market has witnessed a continuous rapid growth for three straight quarters since the start of the fourth quarter of 2009. The China's mobile Internet environment has improved gradually. The mobile phone browser makers have continued to improve application function and experience. The mobile phone browser makers continued industrial chain multi-party cooperation.
         According to Analysis International, the number of China's mobile phone e-mail accounts climbed 3.66 percent from January-March to 185 million by the second quarter of this year, including 48.11 million active accounts, with account activity at 25.96 percent, generally the same level as in the first quarter. Both the percentages of mobile phone e-mail accounts of China Unicom and China Telecom had slight accelerations, while the market share of China Mobile declined to 74 percent in the second quarter from 77 percent in the first quarter of the year, triggered by robust growth of the number of third-party handset e-mail accounts. The number of accounts of new players in the mobile phone e-mail market, namely Gmail.com, Shangmail.com, and hmail.qq.com.
         China's wireless music service revenue stood at 6.9 billion yuan (US$1.01 billion) in the second quarter of 2010, climbing 6.72 percent from the first three months of this year, while service subscribers reached 558 million, up 6.36 percent from the previous quarter. Wireless music services provided by China Mobile took up 75.4 percent of the market's total, while China Telecom and China Unicom respectively won a 5.7 percent and 15.2 percent share. Wireless music content providers and service providers together took a 3.8 percent market share, with revenues of 263 million yuan (US$38.7 million). The numbers of subscribers of the three telecom operators, China Mobile, China Telecom and China Unicom, were at 462 million, 38.9 million and 56.8 million respectively, accounting for 82.8 percent, 7.0 percent and 10.2 percent of the industry's total.
         Zoom Technologies' second quarter revenues declined to US$42.9 million from US$53.1 million in the year-earlier quarter. The reduced revenue was due to proportionally more consignment manufacturing where the customer provided the components and Zoom was not required to procure components, resulting in less pass-through revenues. The net profit grew 20 percent to US$2.03 million or US$0.17 per share from US$1.7 million or US$0.86 million. The gross margin climbed to 10.7 percent from 5.9 percent a year ago, attributed to the sales of Zoom's proprietary Leimone brand phones which carry higher margins. Zoom manufactured 1.7 million mobile phone printed circuit board assembly units and 1 million whole phones in the quarter. Revenue from the sale of higher margin Leimone brand phones in Q2 was US$4.5 million, or 10.4 percent of total revenue.
Telecommunications
         China Mobile reported first-half revenues of 229.8 billion yuan (US$33.8 billion), up 7.9 percent from a year earlier. EBITDA rose 6.1 percent to 116.6 billion yuan (US$17.2 billion), giving a margin of 50.7 percent. Net profit increased 4.2 percent year-on-year to 57.6 billion yuan (US$8.5 billion). China Mobile's customer base was up 12.4 percent over the 12 months 30 June with a total base of 554.042 million subscribers. The operator spent 61.5 billion yuan (US$9.05 billion) on capital equipment in the quarter, and plans a full-year budget down slightly to 123.0 billion yuan (US$18.1 billion). The company's voice traffic rose 20 percent from a year ago to 1.664 trillion minutes in the first half, and MOU improved to 520 per customer from 490 in H1 2009. Data and value-added services also continued to grow. The company also announced the appointment of 51-year-old Executive Director Li Yue as its chief executive, replacing Wang Jianzhou. Wang who will remain as chairman and executive director. The management reshuffle enables the company to have better corporate governance of separating the roles of chairman and chief executive, China Mobile said. Li's appointment didn't come as a surprise--since Wang turned 60 in December 2008, industry watchers widely expected Li would replace Wang as chief executive because top officials in mainland China usually retire at that age.
         China Mobile aims to capture a 30 percent share on the domestic mobile market (NYSE:MM) by 2013. The company intends to develop 2 million users by 2013, with monthly active users of more than 100 million. The vice general manager said that China has owned the largest mobile Internet user base in the world and has entered a rapid growth period in mobile Internet demand. The number of mobile phone Internet users had hit more than 277 million in the nation, making up 63.8 percent of the total Internet users. In June, the number of China Mobile data traffic users grew 38 percent over the same period of a year earlier, and the data traffic witnessed a year-on-year surge of 139 percent.
         ZTE Corp. had first-half net profit boosted to 12 percent from a year earlier as revenue from mobile-device sales surged but business from Chinese carriers remained stagnant. Net profit for the six months ended June 30 was 877.5 million yuan (US$129 million). The company's net profit was lower than the average 972.4 million yuan (US$143.2 million) forecast of five analysts. Revenue rose 11 percent to 30.73 billion yuan (US$4.5 billion) due to the sales of terminal products and telecom equipment for international carriers' networks. ZTE’s main goal is to consolidate its market share in China's construction of third-generation networks in the first half amid a slowdown in 3G network investment. Revenue from products for carriers' networks was up 1.1 percent at 19 billion yuan (US$3.0 million), revenue from terminals was up 39.7 percent at 7.8 billion yuan (US$1.14 billion), and revenue from other products like telecom software systems and services was up 18 percent at 3.9 billion yuan (US$574 million).
Media, Entertainment and Gaming
·          Giant Interactive’s second quarter profit dropped 25 percent from a year ago due to less income from users. Its profit came to 161.3 million yuan (US$23.80 million) in the second quarter, compared to 215.5 million yuan in the same period last year. The company's income fell 12 percent to 321.7 million yuan (US$47.4 million).
·          Perfect World boosted its profit by 35 percent quarter on quarter as it garnered a net income of 196.64 million yuan (US$28.9 million) in the second quarter of 2010. Total revenues were at 594.17 million yuan (US$87.5 million). Operation revenues stood at 533.29 million yuan (US$78.5 million) as-game promotions and monetization activities in the quarter declined its frequency. Perfect World's aggregate average concurrent users (NYSEMKT:ACU) for games managed in mainland China was 886,000 in the quarter as active paying customers (NYSE:APC) slid at 1.43 million. Second quarter average revenue per active paying customer (ARPU) reached 292 yuan (US$43.0). 55.15 million yuan (US$8.13 million) came form the overseas licensing revenues. The company expects licensing revenues to be at US$100 million this year. The accelerating cost of online game revenues reached 96.87 million yuan (US$14.3 million) in the quarter, while boosting sales and marketing was at 120.96 million yuan (US$17.8 million). The company sees to garner total revenues for the third quarter to be at around 594 million yuan (US$87.4 million) to 624 million yuan (US$91.9 million).
·          ZQ Game reached net income of 20.79 million yuan (US$3.06 million) in the first half of 2010. Revenues boosted 0.79 percent year-on-year to 36.24 million yuan (US$5.3 million) because of the limited launching of new games. ZQ Game generated majority of its revenues from MMORPGs.
·          NetDragon generated net income of 1.5 million yuan (US$220881) for the second quarter of 2010. Total revenues for the period decreased 13.95 percent quarter-on-quarter to 120.12 million yuan (US$17.7 million). The company recorded peak concurrent users for the period of 449,000, down from 451,000 in the first quarter of the year and 492,000 in the fourth quarter of 2009. Average concurrent users (ACU) slipped both sequentially and annually to 217,000. NetDragon plans to start closed beta testing of its first-person shooter Absolute Force on August 23. The game features advanced graphics, player killing and fighting against zombies, according to the posting.
Hardware
      Lenovo generated net income of US$54.86 million for the quarter ending June 30, 2010. The company generated sales of US$5.15 million for the period. Shipments of PC units increased approximately 48.1 percent, while shipments of notebook PC units boosted 58 percent year-on-year.
Semiconductor
      Z-Obee Holdings Ltd. has filed an application with the Taiwan Stock Exchange list Taiwan depository receipts (TDRs) in the fourth quarter of this year. It aims to boost NT$880 million (US$27.53 million) for future business expansion. Z-Obee will issue up to 80 million TDRs, each one of which will represent one common share at NT$11.00 (US$0.34) per unit. According to Polaris Securities, Z-Obee might use the share issuance plan to build up its visibility in the Taiwan market for future product marketing and sales. Z-Obee introduced its own cell phone brand "VIM" in China and Hong Kong, and is also developing netbook computers, set-top boxes and e-readers.

Alternative Energy
      Yingli Green Energy Holding Co. had higher-than-expected second-quarter earnings although there are fears about weakening solar panel prices next year. The company has been helped by strong European sales ahead of planned cuts to green energy subsidies there. That helped keep average selling prices for its products firm, the company said, and lift second-quarter gross margin to a record 33.5 percent. Even with an expected dip in margins likely in the second half of 2010 when the company brings new polysilicon production on line, it raised its full-year gross margin forecast by a percentage point to a range of 28 to 30 percent. Average selling prices could fall by the high single digits in percentage terms. Concerns about 2011 demand, as well as the costs to ramp up the output of polysilicon, weighed on the company's shares, which were down more than 3 percent. Net income for the second quarter was US$32.1 million. Revenue rose 81 percent to US$398.1 million.
      LDK Solar Co Ltd. will spend 2.5 billion yuan (US$368 million) to build a solar cell plant with output capacity totaling 1 gigawatt in Hefei Hi-Tech Industrial Development Zone, Anhui Province. LDK Solar will put the plant into operation in the second quarter of 2011 and will complete construction on the entire project on a 1,000-mu site within three years. CFO Jack Lai said that the project will expand its annual output and improve the industrial structure for a better perspective. In the second quarter of this year, LDK Solar generated US$565.3 million in sales revenue, reflecting a year-on-year jump of 147.6 percent or a quarter-on-quarter increase of 62.7 percent, and its net profit increased to US$45 million


Disclosure: Author holds no positions in the stocks mentioned