IT Column

Investors Seek another Google in China's Baidu

A year after Google Incorporated's momentous stock debut, a key competitor, Baidu.com Incorporated, is about to follow the IPO road, according to China Daily.

No one wants to predict that the initial public offering (IPO) of Beijing-based Baidu.com, China's largest search engine, will follow the same trajectory as Google, whose shares have more than tripled in value since it went public last August. But Baidu's IPO has all the ingredients of one that is likely to do well.

Baidu was the most frequently used search engine in China in 2004, according to a survey by the Shanghai iResearch Company, and it was the second-largest Web site in China in terms of user traffic during the three months ending July 18, according to Alexa.com.

Net income for the three months that ended in March was US$303 million, more than double that of the same period a year ago.

There are likely more good times ahead, since China's Internet market is growing at a fast clip. According to iResearch, the number of Internet search users in China is projected to grow at a compound annual growth rate of 27.5 percent from 2005 to 2007.

Even Google appears to think the company is a good investment. The US-based search engine owns 2.6 percent of Baidu, according to Securities and Exchange Commission filings, and isn't listed among the entities that plan to sell their stakes in the IPO. Google did not return calls seeking comment.

However, Baidu, formed in 2000, is at a much earlier stage in its development than Google was when it went public, according to Paul Bard, an analyst with Renaissance Capital LLC in Greenwich, Connecticut. Google also has the added advantage of being a global search engine, while Baidu is focused purely on China, he said.

UTStarcomm Gets GSM, CDMA Handset License

California-based UTStarcomm is planning a big push into China's mobile phone market as part of its business diversification drive. The firm has secured a licence from the Chinese Government to make and sell GSM and CDMA handsets in China.

According to China Daily, an official with UTStarcomm who asked not be named, said UTStarcomm awaits an official granting of a licence from the National Development and Reform Commission (NDRC).

UTStarcomm has signed a contract with China Unicom to supply 250,000 units of basic handsets and will receive subsidies. This model is already being sold for approximately 500 yuan (US$61) on the domestic market. A second CDMA handset model is expected in August. UTStarcomm may disclose details of its strategy for China's mobile phone market after the NDRC officially announces the awarding of the licence.

UTStarcomm has been successful in recent years by betting on PHS-called Xiaolingtong in China, which is a mobile phone system limited to cities. Because of its ease of access as a business it has seen fast growth in China.
Recently Chinese fixed-line carriers have been cutting back on spending on PHS network expansion, which has hit UTStarcomm hard and forced the firm to cut some of its workforce in China. A major push into the mobile phone market is expected to better position the firm in the future 3G wireless communications market.

Under the Administrative Licensing Law that took effect on July 1, 2004, regulators have been loosening control of the licensing of mobile phone makers, which has allowed a number of new firms into the market.

UTStarcomm's entry comes at a time when the market is incredibly crowded. However, it sees big opportunities as the number of mobile phone subscribers in China hit 363.2 million by the end of June. Taking advantage of its strong technical expertise, marketing capabilities and a robust supply chain, UTStarcomm will push their strategy in China's market step by step.

Third Digital Entertainment Expo Opens to Public

China Joy is the short name of the Third Digital Entertainment Expo and Conference. It opened to the public at Shanghai's New International Expo Centre on July 21. More than 100 exhibitors, mostly computer game developers, filled the halls with the latest games, China Daily reported.

Visitors took it all in stride. They lined up to try new games and old favourites, while costumed actors kept crowds entertained with high-decibel music and announcements.

Although this is a slow year, the trough of a five-year cycle, China Joy attracts all kinds. There are executives and representatives from around the world, but the governments of Hong Kong and Britain were among the handful of visitors. Game developers from Russia mixed with solution providers from the United States.

In the halls there were gamers who spend hundreds or even thousands of yuan on games every month.
Action games were the most popular. Warcraft, for example, has 400,000 players online at any one time while companies like NetEase can have up to 1 million gamers at the same time.

For game developers, the challenge is to stay ahead of the players and constantly provide new experiences for an audience that is ultimately fickle.

Netcom Plans New Branch to Manage Overseas Business

The China Network Communications Group Corporation (China Netcom Group), the second largest domestic fixed-line operator, is to dissolve its subsidiary China Netcom International Communications Company, Limited, a unit that deals with China Netcom's international-related business. Under the restructuring arrangement, Netcom International will be merged into China Netcom Group. A new international branch will be created to manage Netcom's overseas business, a spokeswoman with China Netcom said in a telephone interview with China Daily.

Netcom purchased a 20 per cent stake in Hong Kong's operator PCCW Limited for US$1 billion in January. The alliance was initially designed to jointly develop business opportunities on the Chinese mainland, but later the two companies started looking into how to take advantage of the tie-up to tap into overseas markets.

China Netcom Group established Netcom International in 2003, which has integrated all the international networks assets within the Group, and was designed to exclusively deal with international-related services. 

Netcom International recorded about 2 billion yuan (US$246 million) in annual revenues last year. Netcom has been the boldest of the top four Chinese telecoms carriers in cracking overseas markets.

Besides the tie-up with PCCW, Netcom acquired 100 percent of Asia Netcom and teamed up with Spanish operator Telefonica.

The restructuring of Netcom International is aimed at integrating its resources and streamlining business processes in a bid to shore up Netcom's global competitiveness, Netcom Group said in the statement. The restructuring has sparked speculation that Netcom will lay off some of the Netcom International workforce. 

Despite being the smallest of the top four domestic telecoms carriers, Netcom has billed itself as the operator with the greatest technical strength, largest pool of partners and widest service area in China.

Electronics Giants Merge in China

China is set to order the merger of two major State electronics groups to create a multibillion-dollar conglomerate as part of its bid to improve corporate competitiveness.

The merger of China Electronics Corp (CEC) and China Great Wall Computer Group would make a company worth more than 50 billion yuan (US$6.17 billion), according to China Daily.

The plan has already been submitted to the State Council's Asset Supervision and Administration Commission, which is meant to guide the growth of China's State enterprises, the newspaper said.

"We are currently assessing the assets of both CEC and the Great Wall Group," said China Electronics vice-president Liu Xuehong.

"The shareholding structure of the new company that will be created has yet to be defined," Liu told the newspaper. CEC had assets of 39.6 billion yuan (US$4.9 billion) in 2003, including Amoi Electronics and silicon chip manufacturer Shanghai Huahong Corporation, while Great Wall owns 12.2 billion yuan (about US$1.51 billion) in assets, including Hong Kong listed Great Wall Technology Company.

Beijing is also studying the possibility of including the Panda Electronics Group in a tie-up with another electronics conglomerate, China Putian Corporation.

For some time the CEC has had plans to spin off its best assets, notably its mobile phone business, to assist its push to list overseas, but a merger could mean the overhaul of such plans.

Lenovo Wrestles back Top PC Spot in Asia

According to Agence France-Presse, the Chinese PC maker Lenovo was overtaken by rival Hewlett-Packard in the first quarter of this year based on IDC research. But Lenovo managed to bounce back with a 19 percent share of the total market in the second quarter and a 90.9 percent year-on-year growth. HP trails with 12.3 percent market share, followed by Dell at 9 percent.

 Bryan Ma, associate director of personal-systems research at IDC Asia-Pacific, said Lenovo's strong showing was due partly to its acquisition of IBM's PC business.

"Lenovo also took back its top spot by riding on the seasonal recovery in China and through its newly-acquired IBM Personal Computing Division, which provided Lenovo with an even more significant lead over second-place HP," he explained.

The overall Asia-Pacific PC market exceeded IDC's initial forecasts with 7 percent growth over the previous quarter and a 17 percent year-on-year growth. This is due to the better-than-expected performances of countries such as China, Australia and the Republic of Korea, according to the IDC findings. Singapore, too, beats expectations despite earlier signs of sluggish sales.

"The Singapore PC market fell sequentially in the second quarter as many SMBs (small- and mid-size businesses) had already completed their IT purchases before the start of the new fiscal year in April," said Reuben Tan, Asia-Pacific senior analyst for personal-systems research at IDC.

But the Singapore market still beat expectations, he added, "with tertiary institutions' student-purchase programmes being the saving grace for the notebook market."