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Tuesday, 1 December 2009, 20:42 HKT/SGT

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

HONG KONG, Dec 1, 2009 - (ACN Newswire) - The following is the China excerpt from IRG's TMT Weekly Market Review Nov 23 - Nov 29. 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).

- The Asia-Pacific IPTV subscriber base is seen to grow by 51 percent to reach 9.4 million users and account for 37.6 percent of the global subscribers. Adeel Najam, Frost & Sullivan industry analyst stated that the region has seen rapid uptake of IPTV services, clocking year-on-year subscriber growth rates of over 60 percent annually for the last three years. He sees Asia-Pac to be the second largest IPTV market in the world by the end of this year; a very close second after Western Europe, which is the oldest IPTV market, housing 38.3 percent of the world's subscription. The IPTV subscriber base in the Asia-Pacific region will grow at a CAGR of 24.6 percent annually between 2009 and 2014, soaring to an estimated 23.5 million subscribers by end-2014.


- Alibaba.com has recorded more than 10.5 million users from outside of China, an increase of 50 percent compared with this time last year. Over 45 million small and medium-sized companies have registered on Alibaba's overseas platform. Alibaba's online payment tool Alipay had more than 200 million users.

- Online travel services provider eLong booked net income of 7.5 million yuan (US$1.09 million) in the third quarter of 2009. Hotel commissions have increased 5 percent year-on-year, driven by a 13 percent year-on-year increase in room nights booked in the quarter but offset by a 7 percent year-on-year decrease in commission per room night, due to a higher proportion of budget hotel bookings. Revenue from air ticketing commissions increased 27 percent on an annual basis. eLong would have net revenue for the fourth quarter of 2009 increase by 5-15 percent year-on-year.


- Hurray! Holding Co., Ltd. and the shareholders of Ku6 Holding Limited agreed to the sale of Ku6 to Hurray!. The agreement includes an all stock transaction under which all of the outstanding capital shares of Ku6 will be sold to Hurray! and all of the outstanding employee stock options of Ku6 will be cancelled, in exchange for an aggregate of 723,684,204 Hurray! ordinary shares, of which 44,438,100 will be represented by American Depositary Shares of Hurray!, each representing 100 ordinary shares of Hurray!. Ku6 will retain its brand name and become a wholly-owned subsidiary of Hurray!. The Board of Directors of Hurray! has unanimously recommended this transaction. The transaction is expected to close in the first quarter of 2010.

- Orsus Xelent saw its revenues in the third quarter drop by 34.6 percent to US$19.13 million from US$29.24 million in the year-ago quarter. The company's net income fell by 53.16 percent to US$1.37 million or US$0.05 per share, from US$2.93 million or US$0.10 per share in Q3 2008. Most sales in the third quarter were in the lower end of the Chinese telecommunications market where price wars and intense competition served to boost industry sales, but this left little room for introducing higher margin, high-end products. The company sees full year net income and revenues to be slightly slower than in 2008.

- Lenovo Group is acquiring the entire interest of Lenovo Mobile Communication Technology Ltd. from a group of investors led by Hony Capital, the private equity arm of Legend Holdings. Lenovo Mobile now ranks No.3 in China's mobile handset market and is the No.1 domestic brand. The transaction is conditional upon Lenovo independent shareholder approval. Convergence between the personal computing and mobile handset industry has been a key technology trend over the past several years worldwide. The two technologies produced different user experiences that are evolving and combining to create new generations of devices, applications and Internet services. China is entering a high growth phase. Driven by the government and telecom service carriers, the demand for mobile Internet devices has created a huge market.


- The user base of China's 3G services will reach 7 million, and the proportion of China-made 3G equipment exceeded 75 percent of the 3G market by the end of the first half of this year. Li Li, deputy director of the Department of Science and Technology of MIIT, said at the Next Generation Broadband Wireless Mobile Communications Development Forum that the number of China's mobile phone users was more than 700 million at present, and 3G mobile communications is a long-term focus of attention for the industry. China Mobile had total TD-SCDMA service subscribers of 2.31 million; China Unicom's WCDMA users topped 1.02 million, including 215,000 users of wireless network interface cards; and the user base of China Telecom's mobile services reached 49.92 million.


- TPV Technology Ltd. said that Chi Mei Optoelectronics Corp. has no plans to dispose its stake in TPV. Chi Mei, which bought a 7.66 percent stake in TPV in 2007, will continue to supply panels to Hong Kong-listed TPV. TPV was considering shifting orders from Chi Mei to AU Optronics Corp. and Samsung Electronics Co, and that Chi Mei might sell its stake in TPV following its sale to Innolux Display Corp. Third-quarter net profit was US$39.50 million. The figure reflects 26 percent growth compared with the US$31.35 million recorded in the same period of last year, due to a decrease in financial costs.

Media, Entertainment and Gaming

- China has 69.31 million online gamers, higher 24.8 percent from 2008. Large-scale casual game and MMORPG users account for 67.9 percent and 61 percent of the total respectively, higher 19.8 percent and 11 percent from the previous year, while 38.9 percent of total users are female. Students comprise 37.2 percent of online gamers, with 46.1 percent of the online gamers between the ages of 10-19. 222 million of China's 338 million Internet users used online video sites, higher 23.8 percent year-on-year.

- The9 had net loss of 73.6 million yuan (US$10.8 million), a 7 percent reduction from a net loss of 79.2 million yuan (US$11.6 million) in the prior quarter and compared with net income of 80.5 million yuan (US$11.8 million) in the third quarter of 2008. Total net revenues were 25.5 million yuan (US$3.7 million) in the quarter, down 91 percent sequentially and 94 percent year-on-year, which the company attributed to the expiration of its license agreement to operate World of Warcraft (WoW) in China in June. Net revenues attributable to operations of non-WoW games increased 55 percent quarter-on-quarter.

- Giant Interactive Group Inc. announced net income of US$29 million and net revenue of US$42.5 million for the third quarter of this year. The company's active paying accounts for online games, including ZT Online and its various editions, Giant Online, and My Sweetie, decreased 7.9 percent quarter on quarter, but increased 18.3 percent year on year to 1.1 million in the third quarter. The average revenue per user fell 13.5 percent quarter on quarter and 8.1 percent year on year to 259.40 yuan (US$37.97). Yuzhu Shi attributed the quarter-on-quarter fall in revenue and user number to the forced canceling of its game products' Treasure Box feature in July, in response to China's newly issued official rule on the use of virtual currency. Giant Interactive had a 14.75 quarter-on-quarter decline in net profit or an increase of 47.43 percent year-on-year. The company also had a year-on-year increase of 9.42 percent in total revenue. Giant Interactive is reorganizing its game R&D structure, and will implement revenue-sharing programs to third-party game R&D teams.

- NetDragon saw revenue climb 10.4 percent year-on-year but sank 7.4 percent quarter-on-quarter to 150.9 million yuan (US$22.1 million) in the third quarter of 2009. Third quarter profit was higher 62.7 percent year-on-year and 7.9 percent quarter-on-quarter. The company recorded 519,000 peak concurrent users (PCU) in the third quarter, declined from 632,000 in the previous quarter and 544,000 one year ago. Average concurrent users came out to 273,000 in the quarter, declined from 310,000 in the second quarter of 2009 and 311,000 in the third quarter of 2008. NetDragon will launch 2.5D Chinese fantasy MMORPG Tian Yuan, 2.5D Q-style turn-based MMORPG Disney Fantasy Online, and the English version of Eudemons Online expansion "Demon Rising" before the end of the year. Games in the pipeline include CJ7 Online and Dungeon Keeper Online to be launched in 2010 and a new version of in-house 3D MMORPG Ultima Online in 2011.

- Shanda will spend US$100 million to increase its stake in music production, artist development and wireless value-added services provider Hurray! Holding to 75.5 percent through a new share issue. Shanda will merge the company with online video site Ku6.com into a new company under the Hurray! brand with Ku6.com CEO Li Shanyou as president. Li has signed an agreement with Shanda to make the company profitable within two years or leave.

- The number of massive online game players in China will amount to 69.31 million in 2009, up 24.8 percent from the year before. The number of massively recreational game players is seen to reach 47.06 million this year, higher 19.8 percent from 2008, and the number of massively multiplayer online role-playing game players is estimated to grow 11 percent. Of those online game players, 38.9 percent are women, 46.1 percent are aged 10 to 19, and 37.2 percent are students, the report noted. More than 70 percent of the parents do not have a clear-cut standpoint of online games.

- Kingsoft had net profit of 69.1 million yuan (US$10.1 million) in the three months ended September 30, 2009, representing a decrease of 28 percent quarter-on-quarter or 33 percent year-on-year. Revenue increased by 3 percent sequentially and 13 percent year-on-year, of which the entertainment segment was higher 3 percent quarter-on-quarter and 9 percent year-on-year. The company had daily average peak concurrent users (PCU) over the quarter of 1.06 million, an increase of 11 percent against the prior quarter and 7 percent compared with the year-ago period, which the company attributed to the commercial launch of its in-house developed 3D martial arts MMORPGJX Online 3 and the launch of 2D MMORPG JX Online World in Vietnam.

- Linkage Technologies International Holdings Ltd plans to raise as much as US$175 million from an initial public offering of American depositary shares on the New York Stock Exchange. The company sees to benefit from the recent restructuring of China's telecom industry, which increased competition and likely will require companies to spend more on information technology and new technology, it said in a filling with the U.S. Securities and Exchange Commission. Proceeds from the share offering will be used for research and development and new offices and possibly for acquisitions of businesses and technologies. In April 2002, Intel Capital Corp and Softbank China Venture Capital injected US$14 million into the company. The company's profit in the first half of this year nearly tripled from a year earlier to US$15.1 million while revenue doubled to US$66.6 million.

- The core business of Kingsoft continued to expand. Revenue boosted by 13 percent year-over-year. Two major operational indicators, daily average peak concurrent online games users and monthly average paying online games users, increased by 7 percent and 25 percent year-over-year respectively because of the commercial launch of JX III in China, the Company's first 3D MMORPG (multi-player online role playing game), and the commercial launch of JX World in Vietnam. Gross profit boosted by 12 percent year-over-year. Profit attributable to owners of the Company for the period had a year-over-year declined 33 percent because of higher cost of revenue as well as selling and distribution costs incurred by the launch of JX III, coupled with increased research and development costs. Revenue from entertainment software business and applications software business represented 66 percent and 33 percent respectively of total revenue. Revenue from entertainment software business increased by 9 percent year-over-year.


- Huawei Technology will partner with the government of German state North Rhine Westphalia to invest 20 million euros (US$29.9 million) to establish an innovation center in the state capital Dusseldorf. Construction of the center is scheduled to start next year. The company recorded US$4 billion in terminal sales in 2008 and targets sales of US$5 billion in 2009. The company's terminal division hires at least 6,000 staff.

- ST-Ericsson has shipped 5 million TD chipsets in China, confirming its leadership in the TD-SCDMA standard. The operator has also reached a milestone by offering its service to more than 100 models of TD devices, including handsets, data cards and embedded devices. The company works with both global and local players to offer basic communication to high-speed mobile internet and advanced multimedia, across all technology standards.

Alternative Energy

- LDK Solar and multi-crystalline photovoltaic (PV) module manufacturer Trina Solar both had improved financial results for the third quarter of 2009, reflecting the PV industry's fast recovery. In the third quarter, LDK Solar achieved prime operating profits of US$56.8 million, in contrast with its US$205.5 million net loss in the second quarter. Its gross profit margin reached 20.1 percent, compared with 22.7 percent in the previous year's quarter and negative 90 percent in the second quarter of this year. Trina Solar shipped approximately 123 MW of solar modules in the third quarter, an increase of 91.9 percent from the previous quarter and 84.7 percent year on year. Total revenues reached US$249.7 million, up 66.5 percent from the second quarter but down 14.4 percent year on year. Gross margin was 28.5 percent. Net income amounted to US$40.1.


- The Chinese outsourcing market is dominated by foreign competition. The Chinese government has set up 20 cities for outsourcing business and the made large investments in infrastructure, education, training and tax incentives in an attempt to grow business. However, Ovum senior analyst Patrick O'Brien, has produced a report showing that the Chinese outsourcing market is being dominated by foreign in the sphere who are setting up their own Chinese subsidiaries.


- Taiwan Mobile Corp. was the most profitable telecom service provider last month in Taiwan. Chunghwa had revenue of NT$15.5 billion (US$487 million), a gain of 1.2 percent year on year and attaining 33.8 percent of its goal for this quarter. Meanwhile, the company's pretax earnings were NT$4.6 billion (US$144 million), constituting 38.3 percent of its goal for this quarter. Its after-tax earnings were NT$3.5 billion (US$110 million). Throughout the first 10 months this year, the company had cumulative revenue of NT$152 billion (US$4.7 billion), contracting 2.1 percent from the same period of last year. In the meantime, the company's operating income was NT$46.7 billion (US$1.4 billion) and after-tax net income was NT$36.7 billion (US$1.1 billion).

- Acer Inc. aims a double-digit PC market share in China in two years, in a move that could weigh on margins. Acer, already in Russia and India, has struggled in China, whose PC market is dominated by Lenovo and where Acer has been flitting between fifth and sixth place in market share. The market leader in low-cost netbooks is steeling itself to grab double-digit market share, up from its current 6 percent to 7 percent, by designing China-specific notebooks, shoring up its netbook lineup and strengthening its local sales force.

- Taiwan Semiconductor Manufacturing Co. (TSMC) has spent as much as NT$91.9 billion (US$2.8 billion) on new production equipment, surpassing its revised expenditure goal of US$2.7 billion for this entire year. Industry executives even estimated No.1 silicon foundry supplier to increase such expenditure to NT$100 billion (US$3.1 billion) by the end of this year. The company foresees earnings growth over the next one to two quarters, as is true with the company's annual capital outlays. The foundry set the spending at only US$1.5 billion early this year. Since the second quarter, it has raised the budget three times to US$2.7 billion in conjunction with recovering market, which is fueling demands for 65nm and 40nm process foundry services.

- The Legislative Yuan's economics committee reached a resolution that Taiwan's National Development Fund (NDF) should not use its additional investment allocation of NT$33 billion (US$1 billion) for next year for restructuring of the DRAM industry. Under the existing constitutional system, he respects the resolution, but added that the CEPD's role is to act in line with the Ministry of Economic Affairs' policies. An investment to NDF money in Taiwan Innovation Memory Co. (TIMC) will hinge on the prerequisites that TIMC and Elpida Memory first sign a technology licensing contract and that they form a cross-shareholding alliance.

- Taiwan's computing services market might be at NT$5.56 billion (US$172 million) for 2009, higher 12.8 percent from last year. Infrastructure-as-a-Service (IaaS), which provides co-location and security operation center services, will occupy the bulk of the cloud computing market for 2009. Nearly 35 percent of small and medium-sized enterprises (SMEs) in Taiwan are using cloud computing services. Most SMEs use cloud computing because of its flexibility in terms of deployment and low investment risks.

- Foreign investors have taken a keen interest in Taiwan's online game companies, as the sector was the one about which most inquiries were received on an overseas tour aimed at seeking foreign investment for local industries. The Taiwanese firms, including International Games System and Soft World International Entertainment, had the most inquiries by foreign enterprises over the past two days of a three-day seminar being held in Hong Kong and Singapore by Taiwan's OTC market authorities and JP Morgan Bank, followed by biotechnology and computer-related firms. OTC market authorities have since 2006 been promoting such investment seminars overseas, and the effects, particularly on the local entertainment business, have gradually emerged and have increasingly paid off.

Hong Kong

- Macau ended October with 171,343 fixed-line users, down from 171,752 fixed-line users in September. Of the total, some 118,929 were residential fixed-line users and 52,414 are commercial fixed-line subscribers. The number of mobile users rose to 1.02 million, up from 1 million a month earlier, with 3G subscribers comprising 544,014. Furthermore, the number of internet users stood at 127,632, higher from 127,504 in September, with 125,570 broadband users and 1,902 dial-up subscribers.

- In Hong Kong, mobile services will make gains against fixed services in the coming years, reaching 55 percent of total revenue by 2014. This rise in the market share of mobile services is due to the accelerating adoption of mobile broadband services. The report sees mobile subscription numbers in Hong Kong to increase from 9.2 million at year-end 2008 to 10.8 million at year-end 2014. Operators will focus on migrating existing 2G users to 3G+ while promoting data usage to counterbalance the decline in voice ARPS. Operators' continued push for 3G adoption will drive 3G subscriptions as a proportion of total subscriptions from 32 percent at year-end 2008 to 86 percent at year-end 2014.

- Total wireless subscribers in Hong Kong will rise to 13.7 million in 2013 with Hutchison taking 25.4 percent of the market share. IEMR's Mobile Operator Forecast on Hong Kong provides over 50 operational and financial metrics for Hong Kong's wireless market and is one of the best forecasts in the industry. The publisher provides five-year forecasts at the operator level going out to 2013. The publisher also provides quarterly historical and forecast data starting in Q103 and ending in Q211. Operators covered for Hong Kong include: CSL Limited/New World Mobility Limited, Hutchison Telecommunications HK, SmarTone Telecommunications Holdings Ltd, and PCCW Limited.

- Tencent Holdings has granted 250,000 share options, with an exercise price of HK$146.60 (US$18.90) per share. The options are exercisable within a 7-year period after the date of grant of options. None of the grantees is a director, chief executive or substantial shareholder of the company, nor an associate of any of them.

Topic: Research / Industry Report
Source: IRG

Sectors: Media & Marketing, IT Individual, Wireless, Apps
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