Yahoo keeps online gaming action alive
By Sage Brennan
Last Updated: 1/22/2006 7:00:00 PM
SHANGHAI (MarketWatch) -- The online gaming action in China goes on and on.
Yahoo Inc. may have failed to match earnings expectations last week, but its interests in China show signs of promise as 40%-owned Chinese e-commerce giant Alibaba has partnered with online "virtual items" trader IGE to offer its online video game accessories for sale on the free Taobao online trading platform.
Several months ago, we prophesied a virtual items play by the Yahoo-Alibaba matchup, and investors should be pleased that its newly consolidated China management team has quickly made this move.
The deal ensures that the popular, Yahoo-backed (YHOO) e-commerce network will soon wield its merchandising talents and massive user base in the online video gaming industry. A Pacific Epoch report estimates that China's online gamer population totaled over 25.3 million players at the end of 2005, a ready market for the new phenomenon of virtual item sales. Investors can expect other e-commerce players, such as eBay Inc. (EBAY), to make moves into this new market in the coming months to compete with Alibaba and startups like Beijing-based Cncard.
Also in the online game sector, Shanda Interactive Entertainment Ltd. (SNDA), which last week decided to move much of its Beijing operations to its Shanghai headquarters, has partnered with music company EMI Group Plc (EMIEMI) to provide music content to its EZ Station game console system. A Shanda spokesman also denied recent speculation that the company is looking to unload its nearly 20% stake in Sina Corp. (SINA).
Vendors still waiting for China windfall
Mobile telecom technology provider Qualcomm Inc. (QCOM) is set to announce earnings on Wednesday. Several careful readers have commented that my January 1st summary of the potential impact of next-generation wireless licenses in China was perhaps a bit too cursory, noting that Qualcomm is in an enviable position as a licensor of technology to most participants in all of the proposed 3G standards in China (and elsewhere). This is true, although the shares of revenue will differ depending on the various network standards and other factors.
Some would argue that Qualcomm's potential profits from China's next-generation wireless networks (and those of other technology vendors, too) were factored-into its share price long ago -- perhaps five years ago, when the soporific debate began with phrases like "the impending licensing of 3G networks." Nevertheless, Qualcomm and other equipment providers are holding their collective breath, praying for 3G licenses to drop in 2006.
Also in the telecom infrastructure sector, domestic equipment vendor Huawei Technologies Co. appears to be on a recent tear, having produced $5.6 billion in 2005 revenue, up 46% from the year before. The company reported that over half of its 2005 sales were in the wireless sector, and that nearly 60% of total sales came from outside China, as the company pushes hard to force its way onto the international stage, competing with Nokia Corp. (NOK), LM Ericsson Telephone Co. (ERICY), Alcatel (ALA) and others. Huawei is rumored to be on the short list to win an equipment contract for a T-Mobile next-generation wireless network, which would be the company's first major win in the U.S. market.
Consolidation rumbles into the Mobile Internet space, Baidu's place
Linktone Ltd. (LTON) last Thursday announced the acquisition of a solid second-tier mobile game developer, Ojava Overseas Ltd. Linktone has been quietly assembling a strong arsenal of products in various categories, primarily aimed at the mobile entertainment market, upping the ante in the ongoing battle with fellow pure-play wireless services firms Kongzhong Corp. (KONG), Hurray Holding Co. (HRAY) and TOM Online Inc. (TOMO).
Seeking to further leverage its dominant position in China's instant messaging market, Tencent Holdings Ltd. (700700) acquired wireless value-added service provider Zou Yi Mai Si Technology, which is rumored to be owned by the wife of CEO Pony Ma. The three year old company focuses on text message or 'SMS' services, which will probably be integrated into future versions of Tencent's 'QQ' messaging client.
Meanwhile, as Google Inc. (GOOG) prepares for battle with the White House in the U.S., Baidu.com, Inc. (BIDU) is still in the lead in China's Internet search contest, in terms of user base, and claims that its user experience is better, despite a "user experience" survey by Keynote Systems last week that reported a narrow lead by Google. Nearly 70% of Baidu's employees were hired during the six months since the company's August 2005 IPO, as the company strives to maintain a slim lead over Google, which is also hiring rapidly and building services in a bid to wrest control of China from Baidu.
The earnings parade continues
Companies with substantial China operations announcing earnings this week include AsiaInfo Holdings Inc. (ASIA), Lucent Technologies Inc. (LU), Dow Jones & Co. Inc. (DJ), Microsoft Corp. (MSFT) and Nokia, among others. STMicroelectronics NV (STM) and Taiwan Semiconductor Manufacturing Co. (TSM), which each have growing operations in China, will also report this week.
The following week -- January 28th through February 5th -- will see the awkward coincidence of a slew of earnings announcements from the likes of Shanda and Alcatel, with an excruciatingly slow business week during the Chinese New Year holiday.
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