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IRG Technology, Media and Telecoms Weekly China Market Review
HONG KONG, Oct 01, 2009 - (ACN Newswire) - The following is the China excerpt from IRG's TMT Weekly Market Review Sept 21 - Sept 27. IRG is a financial advisory and investment firm focused on the core growth sectors in Asia with particular focus on the telecommunications, media and technology (TMT).
Internet
- Alibaba's online payment subsidiary Alipay recorded a transaction volume of 900 million yuan (US$131.7 million) through airline reservation payments made between September 14 and September 20. Alipay trading volume grew 15 percent week-on-week, trading orders increased 10 percent week-on-week and payments per customer jumped by 88 yuan (US$12.9) on average. Taobao.com released an "air ticketing fast track" service for all users including non-members. More than 800,000 users check air ticket information on the site daily while only around 10,000 tickets are actually paid for through the site each day.
- Baidu and Google are expected to turn their main battlefield to the Chinese mobile search market in line with the spread of 3G services and smartphones in the country. More than 600 million Chinese consumers are using cellphones now, and expected to give birth to a mobile search market with revenues of billions of U.S. dollars. Google has ranked No. 1 among all search engines in terms of revenues on the global mobile Internet market, but keeps abreast with Baidu in the Chinese mobile search market with an about 26 percent share. Google estimates its mobile search revenues to exceed PC search revenues within the several years to come.
- Alibaba Group's consumer-focused e-commerce site Taobao.com began offering a domain name service, which allows shop owners to designate specific letters or numbers to be followed by taobao.com. The service is currently open to shop owners who have purchased a three-month "Winport" package or are left with more than one year of Winport service. Winport costs RMB 980 per year. As director of company research, Taobao.com has assigned Dr. Wensong Zhang. Zhang. will take charge of core software development, optimizing network hardware and software and building a low-cost e-commerce platform.
Mobile/Wireless
- Focus Media entered into an agreement to issue and sell 75 million ordinary company shares for an aggregate price of US$142.425 million to Focus Media Executive Chairman Jason Jiang during the twenty consecutive and preceding trading days. The subscription brings Jiang's holdings in the company to approximately 19 percent and is subject to a six-month lock-up period. Jiang has the right to nominate one new director to take the place of the current executive director under the agreement. Non-independent directors Dr. Tan Zhi and Jimmy Wei Yu had resigned from the board, while the company's acting Chief Financial Officer Alex Deyi Yang has been appointed as a non-independent director.
Telecommunications
- China Mobile and content providers will split mobile reading revenues 60/40. China Telecom and China Unicom are developing similar services. China Mobile will invest 500 million yuan (US$73.2 million) in the next five years to build China's largest mobile book publishing platform. 160 million are mobile Internet users and more than 80 million use mobile reading services. China Mobile attracted two million users for its trial WAP site promoted in June.
- Although the Indian government is considering new bills to restrict overseas telecom equipment, particularly China-made products, Chinese telecom equipment and network solution provider ZTE Corp. will continue enlarging its investments in the country. ZTE has set up its first network operations center (NOC) in India in an attempt to offer better services to local telecom carriers. As the company's largest NOC in foreign countries, the Indian center has about 200 employees during its initial operation. Notably, 80 percent of the employees are local persons. India is ZTE's largest market apart from China. ZTE keeps an annual growth pace of 30 percent in India. It gained operating revenues of US$1 billion in India last year, accounting for 10 percent of the company's global revenues.
- China Mobile Ltd. has seen more than 80 million users who read by mobile phones by now, creating 20 percent to 30 percent of its traffic generated from surfing on the Internet by mobile phones. The company has a user base of 500 million, and 160 million of them surf on the Internet by mobile phones. It has lured 2 million users from its WAP and terminal platforms for mobile phone reading, which was launched in June 2009. Mobile phone reading is an emerging industry and the future of the traditional publishing industry. The top three novel publications by sales volume are all mobile phone novels in Japan, the supreme mobile phone reading market in the world. China Mobile will have to invest 500 million yuan (US$73.2 million) to form a large wireless book distribution platform. And it will develop special-purpose handheld readers apart from existing mobile phone reading.
- The China Development Bank (CDB) and Huawei Technologies Co. signed a new strategic cooperation agreement, extending US$30 billion of credit to Huawei. The CDB agreed to provide US$10 billion of credit line to Huawei to support its overseas exploration. The CDB has helped many Chinese firms to explore overseas business, and has become an important bank in providing overseas financing services. The CDB posted outstanding foreign currency loans of US$80.1 billion. The cooperation between CDB and Huawei has lasted for more than 10 years. CDB provided financing service for Huawei to establish a domestic scientific research and production base.
- China Telecom had net addition of 2.08 million mobile service subscribers in August, adding the total to 43.81 million. The telecom operator's fixed-line service users dropped 1.52 million in August to 196.17 million, as a result of intensified market competition and China Telecom's strengthened control in sales initiatives for low-end subscribers to enhance profitable development. The number of the carrier's broadband subscribers climbed 690,000 in the reporting period, down 15.85 percent on month, with the total user base topping 50.56 million. In the first eight months of this year, China Telecom gained 15.9 million mobile users and 6.29 million broadband users, and lost 12.18 million fixed-phone service subscribers. Industrial analysts had previously predicted the carrier's monthly net growth of mobile users to slow down. It will face growing competition pressure from its rival China Unicom's, which has launched large-scale 3G services. The past comparatively loose market environment will change.
Media, Entertainment and Gaming
- WoW operations alone are expected to boost NetEase's online game revenue by 30 percent year-on-year in 2010 and increase the company's market share by 4 percentage points. Although WoW operations will drive NetEase's revenues up over the next year, the game operator still faces challenges in the long run. NetEase may have slowly increase in new WoW players in the short term because of the limited distribution network for the game's pre-paid point cards, which are necessary for proceeding past a certain level in the game. The company has obtained approval from China from Ministry of Culture (MoC) to operate WoW in China. WoW is still the most popular online game in China with nearly 5 million active users, which accounts for nearly one-third of the game's global user base.
- Shanda Games priced its initial public offering in the U.S. at the top of the range despite increasing investor jitters over a potential IPO bubble. Shanda raised US$1.044 billion in the deal that was priced at US$12.50 per ADS. The strong performance came as a surprise following weakness in the market over the past two days. A 12 percent drop in the share price of China Metallurgical made investors nervous. The company increased the offering by 33 percent as it was overrun by demand, said people familiar with the marketing of the deal. The deal was 10 times subscribed. The offering comes five months after the successful debut of another Chinese gaming firm. Changyou.com made its IPO in April at US$16 per share and has since rocketed by 140 percent.
Software
- CDC Software Corp. will acquire a 51 percent stake in Hejia Software Technology Co. Ltd. in three steps before March 31, 2012. Hejia is a major provider of enterprise resource planning (ERP) software in China. The two sides would jointly develop software products while Hejia Software would sell CDC Software's OEM products in China. In contrast, CDC Software will help the former advance into the global market. This acquisition is part of CDC Software's strategic plan to expand its geographic footprint and increase sales by acquiring rapidly growing companies. Moreover, the company will continue to pursue other strategic investments in China. CDC Software acquired a majority stake in Integrated Solutions, a provider of ERP solutions for small- and medium-sized discrete manufacturers.
- CDC Software Corp. will attach more importance to the market in China and is expected to gain US$50 million of annual revenue in the next three years. The company's annual sales would hit US$300 million in the next three years, including those from China, which should increase to US$50 million, making China its second largest market. The company would achieve the target through growth and acquisition. The company would continue to focus on the business of enterprise management solutions and move the service sector to China to develop the huge market potential. The company would also acquire some companies in China. CDC Software has already acquired two companies since its debut on NASDAQ in April and said that it would make full use of the funds raised on the stock market for expansion.
Alternative Energy
- ReneSola will buy Dynamic Green Energy Ltd for about US$88.5 million, mostly in stock, expanding the parts company into the market for solar panels, the final product sold to produce energy. ReneSola also updated its revenue views for the third quarter and full year and would issue 14.4 million ADRs. ReneSola shareholders will buy all of Dynamic Green shares for 26.8 million ReneSola ordinary shares and US$10 million in a convertible promissory note issued by ReneSola. ADRs representing two ordinary shares each of company stock closed at US$5.86 on the New York Stock Exchange, which would value the stock portion of the deal at US$78.5 million. Dynamic Green manufactures solar products, including wafers and solar photovoltaic panels, through its wholly-owned unit Jiawei Solarchina Co Ltd and other Chinese operating units.
- ReneSola has lowered its revenue outlook for the full year 2009 to between US$470 million and US$500 million from the previously announced US$500 million to US$550 million. Full year shipment expectations are unchanged at 450-500MW. ReneSola had third quarter revenue in the range of US$130 million to US$140 million, in line with previous expectations. Second quarter net revenues were US$82.6 million, and the company expected third quarter revenue to raise 60-70 percent sequentially. Third quarter gross margin is expected to be similar to that of the second quarter at 5.1 percent.
Semiconductor
- SMIC released the financial report for the first half of this year, and had net losses of US$277 million. But the firm's turnover in the second quarter was up 82.5 percent from January-March. The firm's capacity utilization rate increased to 75 percent in the second quarter as their logic shipments increased 102 percent on quarter. The advanced logic revenue for 0.13-micron and below grew by more than 135 percent from the first quarter, increasing to 41 percent as a portion of total revenue from 32 percent in the first quarter. Zhang contributed the significant recovery to customers' strong performances in the communications and consumer segments. Demands from the greater China and North America surged in comparison with the first quarter, and the European market also showed signs of recovery.
Taiwan
- Chunghwa Telecom Co. and China Telecom System Integration Co. plan to set up a joint venture to develop information and communications technologies in China. The two companies have signed a memorandum of understanding for the cooperation. The company will merge with China Telecom on information and communications technologies.
- Chunghwa Telecom Co. will build more 3.5G communication base stations on the island and increase its procurement of related hardware and software starting the end of this year. The number of registered business and residential users of mobile Internet services reached 16.17 million in the first quarter of this year, accounting for 63 percent of the total Internet users in Taiwan, with Chunghwa Telecom serving some 250,000 of the total. Chunghwa Telecom will going to integrate the two Internet accesses into a 3G WCDMA, WiFi system to provide dual-network services as the first in Taiwan. Dual-network services are growing trends worldwide, with Europe's T-Mobile and Vodafone and Hong Kong's PCCW already launching such services.
- Far EasTone is interested in expanding into the cable TV business, although the company is interested in MBK's pay TV business in Taiwan. The telecom operator talked to private equity firm MBK to express its willingness to buy its ownership in China Network Systems (CNS). The move may produce a competition with rival Taiwan Mobile, which struck a US$1 billion deal with The Carlyle Group, creating Taiwan's largest pay-TV operator. Far EasTone Telecommunications had a meeting with MBK Partners, and were in advanced negotiations on the deal, worth up to NT$60 billion (US$1.85 billion).
- The growth of the online gaming industry in Taiwan created a new group of big-money advertisers Taiwan's publishers of insanely popular, massively multiplayer online games (MMOGs) are relying more and more on good old offline mass media to recruit players to their virtual worlds. TV is the medium of choice, and commercial breaks feature video grabs of evil demons in deadly action, or cloyingly sexy animated pop idols inviting all to dance and sing. This year's advertising onslaught began last spring as university students prepared for final exams. Heavy promotion pushed PC/online game adspend to NT$510.9 million (US$15.6 million) for the first half of the year. 90 percent went on TV, with six percent spent on OOH, and a mere four percent shared among newspapers, magazines and radio.
Source: IRG
Sectors: IT Individual
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