A week in tech, May 22-26

China
Internet
• NetEase.com Inc. announced that its first-quarter profit went up by 91 percent to $36.6 million from $19.2 million a year ago. The company ascribed its good performance to the double-digit growth registered by its game, Fantasy Westward Journey. The company reported that its total revenue went up by 8.7 percent to $66 million. Its online game revenues for the quarter posted a 12.4-percent rise quarter on quarter to reach $56.2 million. The company said that its games, Fantasy Westward Journey and Westward Journey Online II, reported peak concurrent user numbers of approximately 1.2 million and 580,000 respectively, for the first quarter. It disclosed that it is making progress on its next-generation games, Datang and Tianxia. The company expects to begin early testing on Datang soon, while early testing for Tianxia should start in the second half of 2006. NetEase.com is China's second-biggest online game operator.
• The 2006 C2C Online Online Shopping Research Report revealed that the number of consumer-to-consumer (C2C) shoppers in Beijing, Shanghai and Guangzhou reached 2 million by the end of March this year. The figure pushes the ratio of online shoppers to Internet users to 16.2 percent. Of the three cities, Shanghai featured a higher ratio than the other two cities, reaching as high as 18.5 percent while the ratios for Beijing and Guangzhou were 17.5 percent and 11.5 percent, respectively. The study noted that female buyers exhibited a higher willingness to purchase items online. In terms of user numbers, Taobao.com is at the top of the C2C market with a 67.3 percent share while eBay, EachNet, paipai.com and yipai.com registered 29.1 percent, 2.2 percent and 1.4 percent shares, respectively. Chinese IT research firm China Internet Network Information Center (CNNIC) issued the report.
• China Telecom Group, China’s largest fixed-line operator and PCCW Global announced the launching of the first private ethernet broadband connection between Hong Kong and China. The service is called International Ethernet Private Line (IEPL) and is an end-to-end managed bandwidth solution. The two companies said the offering provides customers with dedicated point-to-point cross border connectivity over a reliable platform at a high speed and with scalable upgrades. In its soft launch in 2005, the service was aimed at the banking and finance sector, as well as the IT industry. It presently serves the high bandwidth requirements of businesses in the trade and manufacturing sector. The two companies disclosed also that they have secured contracts for IEPL from U.S.-based enterprises for this service.
• Shanda Interactive Entertainment reported a 95-percent decline in its first-quarter profit to Rmb11.8 million ($1.4 million) from Rmb220 million ($27.4 million). The company ascribed the results to the drop in subscriptions sales. The company said sales registered a 31-percent drop to $42.5 million. Earlier, the company offered free games and also deployed software to download music and movies in an effort to counter its declining game subscription sales.
• China Mobile (Hong Kong) revealed that it was discussing with Google the launching of an internet search engine for mobile services in China. Industry observers see this move of China Mobile as a way to counter the drop in its traditional voice services revenue. The country’s largest mobile carrier by subscription disclosed its average revue per user (arpu) as going down to Rmb86 ($10.7) from Rmb92 in the fourth quarter of 2005. No details about the two companies’ partnership were revealed.
• Online travel agent Ctrip.com announced a 22-percent year-on-year rise in its net income to Rmb48 million ($6 milion) in the first quarter ending March this year. The company said its net revenues posted a 60-percent rise to Rmb156 million ($19.4 million) over the same period the previous year. Its hotel reservation went up by 36 percent year on year to hit Rmb96 million ($12 million), with the result ascribed to increased volume and commission per room per night.
• Toodou.com announced the completion of a $8.5 million, Series B financing round, co-led by Granite Global Ventures, (GGV) and JAFCO Asia (JAFCO), with IDG Technology Venture, the Series A round investor, also joining in the round. Toodou.com is a multimedia podcasting web site that allows average internet users to share original audio and video clips. The company has a reputation as the leading video sharing company in China. Granite Global Ventures is an expansion-stage venture. Its China investments include Alibaba, Hurray Solutions, and AAC Acoustics. JAFCO Asia currently manages several long-term funds with aggregate capital under management of approximately $850 million. It invests in promising young technology enterprises with high growth potential in the Asia Pacific region. Its China investments include 3721 (acquired by Yahoo China), China Wireless and China Grentech. IDG Technology Venture is one of the earliest American venture companies to enter the China market. It is managing more than $500M funds with investment focus on the Internet, information services, software, telecommunications, networking technology and life sciences. IDGVC has invested more than 100 companies, including Sohu, Ctrip, Baidu and JRJ.


Mobile/Wireless
• Linktone, a China-based provider of wireless interactive entertainment services, disclosed for the first-quarter profit a 28-percent decline in its net profit to $2.3 million, compared to $3.2 million in the year-ago period. Excluding charges for restructuring and stock-based compensation, the company said its adjusted earnings totaled $3.5 million. Linktone said its quarterly revenue posted a 52-percent increase to $21.9 million from $14.4 million during the same period last year, with the company ascribing the figures to higher sales of short messaging, audio-related and 2.5G services, which consist of multimedia messaging services, wireless application protocol services and Java games.


Media, Entertainment and Gaming
• The State Administration of Radio, Film and Television (SARFT), the main television regulatory board in China, announced its setting up of a timetable for deployment of DTV systems, a move that is seen as enabling the deployment of digital television (DTV) in China before 2008. The deployment of DTV is seen as the signal for the phasing out of analog television by 2015, according to a research report by Research and Markets. SARFT disclosed that to realise this aim, it is also considering asking domestic investors to join in the operation of pay TV channels. In a related development, the country’s tax department has promised some tax-reducing or remitting policies on DTV investments. Analysts see this investment environment, combined with the large consumer market, is making DTV an attractive investment area in the next few years even with difficulties, such as lack of standardisation, difficulties in network integration, lack of terminals, the immaturity of the market and deficiency of content.
• Focus Media Holding Ltd., a leading out-of-home multi-platform lifestyle media company in China, reported a massive 257-percent increase in its first quarter non-GAAP net income of $11.8 million compared to US$3 million in the same period last year. The company said its total revenues for the quarter went up to $33.1 million from $9.6 million in the year-ago quarter. Focus Media said its advertising service revenue from the company’s commercial location network posted a 127.7-percent growth year on year to $21.5 million. It forecasts total revenues for the second quarter to hit in the range of $48-50 million.
Software
• Analysys International, a leading internet based provider of business information about technology, media and telecom (TMT) industries in China, disclosed that China's software outsourcing services market size reached Rmb2.5 billion yuan ($311.7 million) in the first quarter of 2006, representing a 43.9-percent rise over the first quarter of 2005.
Hardware
• Radio Frequency (RF) coaxial cable maker, Hengxin Technology Ltd. announced the launching of its IPO on the Singapore Stock Exchange (SGX) Main Board. The IPO was approximately 13 times subscribed based on figures released a day before trading. Hengxin currently provides coaxial cables and services for the major State-owned telecom giants in China including China Unicom, China Mobile and China Telcom, as well as equipment manufacturers Huawei Technologies and ZTE Corp. The company said it currently accounts for more than one-third market share in China and looks to a huge boom in growth as the mobile penetration is low at 30.3 percent. Its closest competitor, Andrew Corp. from the US, accounts for a much smaller market share in China although the latter is almost ten times the size of Hengxin. A company official indicated that its customer relations management as a deciding factor for the company’s edge over the MNC in the Chinese market. Analysts are saying that with the release of 3G licenses ahead of the 2008 Olympics, greater opportunities are in store for Hengxin as demand is expected to rise. The company said it is also looking to opportunities in developing countries, which do not yet have such factories and facilities for RF coaxial cables and where mobile penetration is only about 6 percent.
• According to IDC, China’s PC market will grow at 11.7 percent CAGR (compound annual growth rate) in the next five years. The research firm indicated that sales of Chinese PCs reached 19 million in 2005, a figure that represents a 19.6-percent growth over 2004. Chinese PC sales also accounted for 46.2 percent of the whole Asia Pacific (excluding Japan) market. The report stated that laptops will continue to be the sector with the fastest growth and the CAGR of laptops is expected to reach 23.7 percent. IDC forecasts that Chinese PC sales will reach 32.9 million, making it No. 1 in the Asia Pacific market.
• A senior company official of Sony said China is expected to become the second-largest market for the Japanese company’s electronics division, with the figures overtaking sales from the company's home market in Japan. Analysts see this development as stressing the shift in the economic power now happening in Asia. China is currently Sony's third-largest market, behind the US and Japan. Sony considers China as a strategic market, given its size and growth, with the Japanese company trying to build itself as the top brand from the perception of the Chinese. Already, the company has invested heavily in Chinese manufacturing plants and R&D facilities, and the majority of its employees are locals.
• China’s printer market in the first quarter this year registered an 8.3-percent decline quarter on quarter to Rmb3 billion ($374 million), according to Analysys International. The research firm said Hewlett-Packard leads the laser printer market in China with a market share of 29.8 percent. Epson leads the stylus and inkjet printer market, with the company gaining about 21.9 percent of the total market. Canon and Lenovo were at No. 3 and 4, respectively. The report noted a slight drop in the price of mainstream laser printers in the first quarter as more industrial users chose laser printer products when purchasing new printers.


Semiconductor
• Galaxy Semi-Conductor Holdings, a semiconductor producer in mainland China, revealed its plans to raise HK$70 million ($9 million) to HK$100 ($12.8 million) by way of an IPO in the Hong Kong exchange next month. The company said the funds raised from the IPO would be used to extend production lines in order to cope with increasing demand of semiconductors. Galaxy said it plans to spend some 90 percent of the proceeds from the IPO to purchase land in Jiangsu province to build a new factory. The remaining cash will be used as operating capital. Established in 1994, Galaxy currently has an 85-percent share in the mainland semi-conductor market, and serves many manufacturers such as TCL, Hisense and Konka.


Telecommunications
• China Netcom Group Corp (Hong Kong) said that it is currently in talks to sell its subsidiary Asia Netcom. The company’s top official was quoted saying that selling Asia Netcom was one of the options that the company had in order to lower its operating cost. The statement identified as a frontrunner in the acquisition of Asia Netcom, General Enterprise Management Services (GEMS), a group led by the former head of conglomerate Hutchison Whampoa, Simon Murray. GEMS is said to be paying HK$2.7 billion ($348 million) for Asia Netcom. Asia Netcom primarily operates undersea phone cables. China Netcom is one of Mainland’s fixed-line telephone companies.

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