Chinese Tech Stock Weekly Update

The following is excerpted from IRG's weekly stock report:

Internet

• Focus Wireless, a subsidiary of Focus Media (FMCN), announced its agreement with Huicong, an e-commerce web site to jointly build the first mobile phone B2B platform in China. Huicong is the one of the largest B2B service providers in the country and provides outsourcing, sales and promotion services for more than 2.8 million companies each year. Huicong sees the partnership with Focus Wireless as a new way of testing an e-commerce web site with wireless Internet.

Mobile/Wireless

• Sources from China's Ministry of Information Industry have told the local media that rules related to the mobile phone real name system are expected to be released this year. The new rules will include the Communications SMS Management Measure jointly made by the Ministry of Public Security, Ministry of Information Industry and State Council Information Office. Observers note that the new rules have already caused some problems even before they were implemented. The concern involves the fear that mobile phones will aid criminals and that the real name system will pose a threat to consumer privacy.

• PacificNet announced its signing of an agreement with China Unicom (CHU) to become one of the designated value-added SMS providers for Uni-Info, an SMS-based information subscription and delivery-on-demand service launched by China Unicom and is now available to its GSM and CDMA phone users. Its content offerings include a wide variety of services such as entertainment and financial information, as well as interactive gaming and dating, enabling its subscribers to enjoy the convenience and access to first-hand information via SMS in over 20 provinces and cities in China. Uni-info has three major theme sections. The Uni-Entertainment section features realistic 3D games with life like audio and video. The Uni-Life experience section provides services such as mobile ticket purchasing. The Uni-Business section shows real-time functions of financial stock market information and news.

• CA Mobile, Dentsu, and Cyber Communications announced an agreement to co-establish a mobile ad agency in China in December 2006. To be capitalized at about US$862,000, the joint venture will be co-owned at 66.6 percent with Dentsu getting 16.7 percent. Industry analysts see the joint venture as a way for the three firms to leverage their Internet expertise and mobile advertising, as well as being able to offer Chinese companies mobile advertising services.

• The WiMedia Alliance announced the official opening of a chapter in China with the aim of facilitating its work with Chinese regulators in allowing ultra-wideband in their country. The China Chapter of the group said it would work on promoting ultra-wideband [UWB] to manufacturers and consumers within China and establish working relationships with key Chinese regulatory officials who oversee technological development within radio and broadband platforms. According to the group, future initiatives of the WiMedia China Chapter will involve working with Chinese and international standards bodies for technology standardization and to ensure consumers receive a high degree of interoperability with their UWB devices.

Software

• Microsoft (MSFT) announced that it is entering into an agreement by way of a memorandum of understanding with Suzhou Software Park for a Software as a Service incubator program to attract more Chinese software companies to develop software based on SaaS, a model of software delivery where the software company provides maintenance, daily technical operation, and support for the software provided to their client. In previous developments, Microsoft launched many other incubation programs in China including projects for its Xbox platform in Chengdu and Shanghai. The current alliance with Suzhou Software Park is part of the "Potential Development Plan" jointly initiated by Microsoft China and National Development and Reform Commission back in 2005.

• Tencent disclosed that it has filed a lawsuit against MMIM Technologies, owner of instant communication service Personalized Information and Communication Assistant [PICA] for infringing of Tencent’s software copyright. Tencent is seeking 5 million yuan (US$633,000) in compensation. Tencent says MMIM Technologies unilaterally connected its PICA to Tencent's QQ through technical means, and entered the QQ system without their prior authorization. Tencent says that MMIM Technologies also made use of Tencent's reputation to promote its PICA, which has resulted in a decline of users for QQ. Responding to the complaint, a representative from MMIM Technologies has told local media that instant communications service providers should keep it in mind that all their communications tools should be mutually connected, which is a big benefit for the users.

Hardware

• Changhong, a color TV manufacturer, and IRICO Group Electronic Company Limited, the first CPT manufacturer in China, announced the signing of an agreement to increase investment in their plasma display panel business from 2 million yuan (US$253,000) to 1.8 billion yuan (US$227.8 million). Earlier this March, the two companies set up a joint venture called Beijing Shiji Shuanghong Display Company with each side holding half of the stake of the company. Under the new agreement, Changhong will hold 80 percent of the company's stake with 1.4 billion yuan (US$177.1 million) and IRICO Group holding the remaining 20 percent with 360 million yuan (US$45.5 million).

• IBM (IBM) announced its selection of Shenzen and Asia as the global procurement headquarters because it already has more than 1,850 procurement and logistics professionals in the region, many of them at its China Procurement Center in Shenzhen, China, which has been in operations for more than a decade. The center is one of IBM's largest procurement organizations outside the U.S. IBM also noted its many collaborative relationships with nearly 3,000 suppliers across Asia. These alliances make up about 30 percent of the US$40 billion IBM spends annually on procurement. This move on the part of IBM marks the first time the headquarters of an IBM corporate-wide organization has been located outside the U.S.

• Asia Netcom, a submarine cable operator, said it expects to sell shares in an IPO in London or Hong Kong within 18 to 24 months amid rising investor interest in telecommunications shares. The company revealed its share sale plan even as it disclosed its network expansion program valued at some US$60 million to US$200 million. Asia Netcom has not turned in a profit in recent years due to excess bandwidth capacity in the region dating back to the telecommunications boom of the 1990s. Asia Netcom's major markets include Hong Kong, the United States and Japan. China accounts for less than 10 percent of group revenue.

Telecommunications

• The National Australia Bank (NAB) said it has increased its stake in China Telecom (CHA) from 4.7 percent to 5.1 percent with an additional investment worth 142 million yuan (US$18 million). Despite what observers note as its unsatisfactory performance, securities firms find the firm attractive. China Telecom received 730,000 new users, a figure that represents is smallest annual increase this year.

• Industry sources said China Telecommunications Corp., the parent of Hong Kong-listed China Telecom, is filing an application to the stock exchange in a bid to spin off its telecommunications engineering and technical service arm. The unit, China Communications Services Corp., is expected to launch the initial public offering next month. The company is seeking about HK$2 billion (US$256.7 million) by selling new H shares. Goldman Sachs (GS) and China International Capital Corp. are the joint sponsors for the deal. The telecommunications group owns 91.5 percent of China Communications, while subsidiaries Guangdong Telecom Industry Group and Zhejiang Telecom Industry Group hold 6.2 percent and 2.3 percent respectively. China Communications will include the telecommunications engineering and services businesses in Shanghai and provinces including Guangdong, Fujian, Hainan, Hubei and Zhejiang.

Information Technology

• The country’s Ministry of Science and Technology announced the release of its 863 Plan or the National High-Tech Research and Development Plan, under which are 20 major RFID programs. The national government said it would allocate about 128 million yuan (US$16.1 million) to support the programs. The 20 RFID programs include super frequency RFID anti-collision technology; RFID middleware research; RFID public service systems and framework design; RFID tag and antenna design technology; RFID system testing technology; RFID information integration and management technology; and RFID industrialization.

• Reuters (RTRSY), the information and financial service provider, announced the opening of a wholly owned company in Beijing's Zhongguancun Software Park to specialize in outsourcing services for products like its 3000Xtra desktop terminal. Reuters is known as a news service but its service contributes to only 5 percent of the company’s revenue. It is working on information transmission and value added services for the majority of its income. Earlier this year, government officials in China announced new rules that limited the amount and type of foreign financial news coming into the country. This situation is seen by observers as maybe harming Reuter’s services in the coming few months even if the company has already invested some US$18 million into this new development center.

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