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Friday, 31 July 2009, 05:55 HKT/SGT

Source: IRG
IRG Technology, Media and Telecoms Weekly China Market Review

HONG KONG, July 31, 2009 - (ACN Newswire) - The following is the China excerpt from IRG's TMT Weekly Market Review July 20 - July 26. 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) sectors.


- China's Internet users numbered 338 million at the end of June this year. This translates to 40 million new regular Internet users in China in the first six months of this year. And there is still room for growth, given that Internet penetration stood at 25.5 percent at the end of June, up from 22.6 percent at the end of 2008. Mobile networks and devices play an important role in providing access to the Internet. 155 million people in China access the Internet via mobile. Although the spread of 3G networks and devices in the course of 2009 has helped drive mobile Internet take up, consumer enthusiasm is currently limited. A total of 65 percent of Internet users do not intend to use the mobile phone to access the Internet.

- China small and medium businesses are expected to spend more on Internet access than on their websites and online advertising combined in 2009 including US$3.7 billion on Internet access, US$1.8 billion on online advertising, and US$1.5 billion on website hosting, development and maintenance in 2009. The reverse trend is observed in developed APAC countries like Australia, Japan, and Korea. Currently, there are approximately 3.2 million small and medium businesses in China. Of this, 1.3 million SMBs have at least one PC, and 93 percent are using broadband to access the Internet. This means more than 59% of China SMBs are without PC and Internet access. For China Internet access providers and PC vendors, this spells tremendous opportunities in terms of customer base and future growth.

- Baidu Inc.'s second-quarter earnings rose 45 percent as the Chinese Internet company continued to post strong revenue growth and add advertisers. The company also offered strong third-quarter revenue guidance of US$184 million to US$189 million, topping the US$182 million expected by Wall Street. Baidu, which holds a commanding share of the Internet search market in China, warned earlier this year that its online marketing customers might scale back advertisements amid a weakening economy, but it has since kept the problem in check as the Chinese economy has rebounded.


- China's sales of cell phones in the second quarter of this year topped 33.07 million units, down 7.2 percent quarter on quarter, but the proportion of 3G handsets was below one percent. As sales promotion during the traditional Chinese New Year period of 2009 had satisfied consumers' demand for mobile phones in advance, China's cell phone entered slack season in April, and sales in branded handset market dropped. Statistics show that the sales of GSM handset in China declined sharply in the second quarter from January-March to 30.33 million units, representing a decrease of 7.5 percent on quarter. As China Telecom gradually cut the subsidy on 2G terminals, sales volume of CDMA cell phones, with the certification owned by the carrier alone, decreased again in April-June to 2.497 million units after two consecutive quarters' soar, dropping 12.7 percent from the previous quarter. Sales of 3G handsets topped 242,000 units in China during the second quarter of this year, including 131,000 units of CDMA EVDO standard and 64,000 units supporting TD-SCDMA standard. Telecom operators took actions to boost the 3G terminal industrial chain, and issued more reasonable pricing policies with higher subsidies.

- KongZhong Corp. co-founder, president and chief technology officer (CTO) Nick Yang, has tendered his resignation effective July 31, 2008. KongZhong also announced its appointment of educational service provider ChinaEdu Corporation and IPTV broadband solutions provider UTStarcom founder Charles Xue to the board of directors. Xue will replace Xiaolong Li, who resigned July 20 for personal reasons.


- China Unicom gained 862,000 new GSM cellular service subscribers, for June 2009, summing the total number to 140.38 million. The company reported a decrease of 255,000 in local access subscribers, and was met by 980,000 new broadband subscribers. The total subscriber numbers in these two services amounted to 108.45 million and 34.91 million, respectively, by the end of June.

- It is expected that ZTE Corp. and Huawei Technologies Co. Ltd. will spend at least 500 million yuan (US$73.18 million) replacing base stations provided by Datang Mobile Communications Equipment Co. Ltd. during China Mobile's first phase of TD-SCDMA network construction. ZTE would replace 3,000 Datang Mobile-made TD-SCDMA base stations for China Mobile's Guangzhou subsidiary while Huawei would replace approximately 4,000 base stations originally deployed by Datang Mobile on behalf of Shanghai Mobile. Both privately-owned companies will undertake the task at no cost to China Mobile. Datang Mobile locked in 27.46 percent of the network equipment tender for first phase construction, while ZTE was the biggest winner, accounting for 45.54 percent of the total contract value. ZTE, Huawei and Datang Mobile also attained sizeable portions of China Mobile's second and third round network equipment tender.

- China Telecom ended June with 49.05 million broadband customers after adding 810,000 new subscribers during the month. In the year to date, China Telecom attracted 4.78 million new broadband customers. On the fixed voice market, the company shed 1.39 million customers to end the month with 199.36 million local access lines in service. China Telecom further added 2.37 million mobile customers to reach a total of 39.28 million. In the year to date, the company has gained 11.37 million mobile subscribers.

- China's three carriers, China Mobile, China Unicom and China Telecom, injected more than 100 million yuan (US$14.6 million) in online advertising for two consecutive months of May and June. Their online ads expenses amounted to 198 billion yuan (US$29 billion) in May, when it welcomed the World Telecommunications Day on May 17, and China Unicom started trial operation of WCDMA. China Unicom's online ads input reached 78.8 million yuan (US$11.5 million) on that month. In the same period, the carriers paid large amount of money in TV advertising as well, shouldering into prime time of CCTV, China's leading television station. In June, their expenses on online advertising fell, but still stayed above 100 million yuan (US$14.6 million) to 115 million yuan (US$16.8 million).

- An industrial insider has revealed that China's leading telecom equipment manufacturer ZTE Corp. has taken the lead in China Mobile's third phase TD-SCDMA equipment purchasing bid and thereby acquired a 34 percent market share. Kang Zhiyi, an analyst with TX Investment Consulting, said the market had predicted that a 35 percent share would be won by ZTE, so the 34 percent share was in line with market expectation. Besides, the producer had respectively taken 46.78 percent and 28 percent shares in the bids during the first two rounds, and will now serve as China Mobile's largest TD equipment provider in terms of market share.

- Commonwealth Bank of Australia (CBA) has raised its stake in China Communications Services (CCS) to 11.02 percent from the previous 10.95 percent. Information from HKEx showed that CBA on July 13 bought around 1.52 million shares of CCS for HK$7.04 million (US$908 million) at an average share price of HK$4.62 (US$0.60) per share. Shares of China Communications Services, a subsidiary of China Telecom, edged up 0.64 percent.

Media, Entertainment and Gaming

- China's mobile game market size hits 520 million yuan (US$75.9 million) in the second quarter of this year, up 32.37 percent quarter on quarter. Revenues from China Mobile's charges on information reached 230 million yuan (US$33.6 million), increasing 21.3 percent quarter on quarter. China Mobile's quarterly growth rates of information fees in the first half of this year were over 20 percent, vs. the -0.06 percent average quarterly growth in 2008. It's new game operating platform contributed most of the growth in its information fees, which topped 67.9 million yuan (US$9.9 million) in the second quarter, accounting for 30 percent of the total, while the growth of the old one slackened continuously. Information charges earned from the new game platform will keep on growing, with enrichment of mobile games on the platform as well as increase of payable games.

- The Chinese online gaming industry is expected to develop rapidly with sales income increasing 30-50 percent this year. The sales this year were forecast to be 24-27 billion yuan (US$3.51 - 3.95 billion), which would bring about 67 billion yuan (US$9.8 billion) in income for telecommunications, IT and other related industries. The official made the remarks at a forum during the seventh session of the China Digital Entertainment Expo and Conference (Chinajoy), the country's largest game convention. The online gaming industry showed great potential in independent research and development.

- Electronic Arts and NetDragon Websoft announced a licensing agreement for the development of a new MMORPG based on "Ultima Online" from Electronic Arts. As part of the agreement, NetDragon will develop the new Ultima Online(TM) in collaboration with EA's Mythic Entertainment, and have the exclusive operating license for China, Hong Kong, Macau and India.

- The9 Limited has entered into an agreement with USERJOY Technology Co., Ltd., an online game developer in Taiwan, for an exclusive license to operate Kingdom Heroes 2 Online, a 3D MMORPG, in mainland China. Kingdom Heroes 2 Online is a 3D Fantasy MMORPG which stresses on the core feature of Kingdom Wars that maintains a strong community in the game. Kingdom Wars allows hundreds of thousands gamers to fight in the same map. Gamers can bring soldiers and operate the huge siege engine such as catapult to conquer the city; even more, they can experience the exciting vessel battle on the sea. Kingdom Heroes 2 Online breaks through the original 2.5D side-scrolling restriction and evolves to the 3D characters and scenes. With seamless map, massive content upgrade and new battle mode, it is considered as a popular MMORPG product for our 2010 pipeline.

- CDC Corp. business unit CDC Games estimates that second quarter 2009 revenue will increase by roughly 50 percent over the first quarter. CDC Games recorded US$6.3 million in revenue from continuing operations in the first quarter, down 27 percent year-on-year. The company attributed the increase to a rebound in metrics for licensed MMORPG Yulgang after it launched version "Nan Lin Feng Yun" in late March 2009.


- Hewlett-Packard Co. inked a memorandum of understanding with the municipal government of Suzhou, a major city in Jiangsu Province, to build a software outsourcing service center in the city. The outsourcing service center will provide HP's foreign and domestic clients in Suzhou with services such as consulting, design, development, testing, implementation and management. The two sides will first cooperate to build a data center and information management and service platform in the International Technology Park in Suzhou Industrial Park. They also plan to build a public logistics platform and a public information technology service platform for small and medium-sized enterprises in Suzhou.


- Industry insiders estimate MediaTek Inc. to deliver a record 100 million sets of chips for mobile phones throughout the third quarter due to the revitalizing demands for counterfeit mobile phones and exports of the phones in mainland China. They previously expected the No.1 supplier of mobile phone chipsets in the mainland to see shipments lose steam in light of slipping demands and exports of the phones in the Chinese mainland toward the end of the second quarter. Throughout last quarter it delivered a record 80 million sets. Beginning early this month, the mainland's demands and exports of the phones have instead picked up, clearing a huge number of the inventory backlogs of MediaTek MT6225 chips at phone makers. With the traditional September peak season for mobile phone sales in the mainland approaching, the mainland's handset makers are stepping up replenishments of inventories of MediaTek chipsets.


- HTC Corp. expects handset shipments this year to grow by a double digit percentage from 2008 and aims to maintain its gross margin at 30 percent. The executive said he doesn't expect sales of smartphones to slow despite the global economic downturn. Smartphones are handsets that include wireless email, video and other fancy data functions, and are one of the few fast-growing sectors in the technology industry. HTC makes smartphones based on two major operating systems - Microsoft Corp.'s Windows, and Android, the system being championed by Google Inc. The executive aims to launch five handset models in China this year, and will also launch four new models in the U.S. under its own HTC brand in the second half ending Dec. 31.

- Acer Inc. shipped 8.431 million PCs in the second quarter of this year, surging by 23.7 percent from a year earlier as the highest growth among world's top-5 brands in the quarter, and successfully boosted its global market share to 12.7 percent. IDC's latest report shows that HP shipped 13.09 million PCs to lead the global market for PCs with a 19.8 percent share in the second quarter, trailed by Dell, which posted PC shipment of 9.108 million units and a 13.7 percent share. In the meantime, Acer came third, while Lenovo and Toshiba ranked No.4 and No.5, respectively, with a global market share of 8.7 percent and 5.3 percent in the quarter. Acer, aiming at the rapidly growing segment for netbook PCs with its AspireOne, has narrowed the gap between its global market share and Dell's to only one percentage point in the quarter from 6.1 percentage points a year earlier. J.T. Wang, chairman of Acer, noted that the shining shipment performance has reinforced his firm's confidence of unseating Dell soon and challenging HP's top position next year.

- Asustek Computer Inc. and its venture-capital arm have together bought a 4.27 percent stake in D-Link Corp. to become the second-largest shareholder in the latter. Chief financial officer of Asustek said the stock-buying is an investment and his company would not increase its shareholding in D-Link temporarily to strive to win seats in the investment target's board, but maintain the possibility of future cooperation. Both Asus (Asustek's own-brand) and D-Link are among the top-10 Taiwanese brands. Asustek has been trying to find ideal investment targets since the global financial turmoil in late last year, because the investment market has deviated from the reasonable price levels. He admitted that his company thought there was room for cooperation between Asus and D-Link, but refused to comment on whether top managements of the two firms contacted each other.

- AU Optronics posted its third straight quarterly net loss, but the shortfall narrowed from the previous three months on recovering panel sales and prices. Massive stimulus packages in China have boosted demand for personal computers and flat-screen TVs that require liquid crystal displays (LCDs), benefiting AU more than larger South Korean rivals Samsung Electronics and LG Display thanks to Taiwan's closer ties with the mainland. A supplier to top brands such as Dell, HP and Sony, AU booked a net loss of NT$6.6 billion (US$201 million) in April-June.

- Despite the market for commodity memory chips remaining lukewarm, Taiwan's DRAM chipmakers PowerChip Semiconductor Corp. (PSC) and Nanya Technology Co. received healthy contracts in the second quarter to make specialty memory chips for Elite Semiconductor Memory Technology Inc. and Etron Technology Inc. Memory-chip design houses pointed out that the swarming orders seen in a traditionally slacken season proved that the market for built-to-order memory chips has picked up from its worst time. Industry watchers estimate demands for niche memory chips would likely trend upward throughout the second half this year in consideration of strong consumptions of mobile phones and LCD TVs. Brisk inventory buildups at customers have brought Elite and Etron hefty orders for niche memory chips, maintaining revenue growth at the two vendors at over 40 percent rate in the second quarter over a quarter earlier and driving up their revenues for June.

Hong Kong

- Li Tzar Kai Richard, chairman of PCCW Limited, has acquired additional 340,000 shares in the company, at HK$1.99 apiece. The total consideration amounted to HK$676,600 (US$87,296).

- China Post E-Commerce (Holdings), a Hong Kong-based company formerly known as Intcera High Tech Group, has increased plans to establish its online operations on the mainland with support from the state-run postal service provider and strategic investor, China Post. Chairman Joseph Lau Chi-yuen said the firm had been granted exclusive rights to use the direct mailing database of about 130 million Guangdong province residents for its direct marketing and e-commerce services. The Guangdong Postal Bureau, a subsidiary of China Post, owns 4.56 percent of the Growth Enterprise Market-listed e-commerce firm.

Topic: Research / Industry Report
Source: IRG

Sectors: IT Individual, Wireless, Apps
From the Asia Corporate News Network

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