Interesting that Barron's has an article covering Chinese web sites and yet ZSUN, a Barron's paying advertiser, gets NO Coverage!("Current Corporate Reports", not cheap, but where the dogs go when no one will write them up without being paid). Here is the article and yet nary a word on the glorious WADE Cook of the Far East:
"How Do You Say Yahoo! in Chinese? By Leslie P. Norton
Big multinationals, not to mention Internet companies, are slavering away since the House of Representatives approved Permanent Normal Trade Relations with China last week. (That's a precursor to China's entry into the World Trade Organization, expected later this year.) No wonder -- a decade hence, China will have the world's second-largest population of Internet users.
Yahoo already has Yahoo China. Others likely to aim for a piece of China's Internet market are companies associated with incubators like Softbank and CMGI. Lycos, which plans to merge with Spain's Terra Networks, has three Chinese sites. The foreigners face China-centered rivals like Sina.com, the leading Chinese portal, as well as Chinadotcom, Netease.com and Sohu.com. The first two are publicly traded and under pressure because of Nasdaq's
decline. Their shares initially leaped on the trade accord.
Emerging Markets
"There will be vigorous competition as Internet companies here start versions
of everything they're involved with in China," says Len Baker, a partner with
Sutter Hill, a Silicon Valley venture capitalist that has invested in China.
"Yahoo, America Online, Microsoft, Lycos -- these are all brands that could
provide major competition in the [Chinese] user's mind," says Daniel Mao,
chief operating officer of Sina.com.
Yet U.S. firms shouldn't expect swift returns. The payments and distribution
infrastructure -- credit cards, call centers and widely available overnight
delivery -- that the U.S. takes for granted doesn't exist in China. That makes
an Amazon.com tougher to translate.
Sure, a flood of Western investment will ease the buildout of infrastructure for
telecom and Internet connectivity, and boost demand for home PCs. But
China will still strictly control foreign ownership of telecom and Internet firms.
Three years after China enters WTO, foreigners will be allowed to own just
49% of mobile communications companies and 30% of Internet firms and
paging outfits. Three years is a long time not to control your destiny -- and it's
an eternity in Internet time. Even then, China will still want to regulate content
and require licensing for all sorts of activities.
Life will undoubtedly get tougher for existing Internet companies, many of
which could exhaust their capital in a market hostile to technology investment.
Meanwhile, they'll need to justify why it makes sense for a foreign firm to join
them. This month in Asia, investors closely scrutinized Chinadotcom's
first-quarter results for signs that advertising commission rates were hurt by
competition with rival DoubleClick.
The problems of doing business in China explain why, even before Congress's
action, Asiacontent.com was planning a shift away from "market-share
markets" like China and India to revenue-producing markets like Korea and
Japan.
The prospect of increased competition doesn't trouble Sina.com's Mao. His
firm plans to spend more than $80 million of its $140 million in cash in China.
"China is 60% of our traffic and revenue contribution," says Mao. "We've
been paranoid about competition since Day One, and we have a competitive
advantage in our sticky community-based services," such as dating services,
clubs for new mothers and for fans of cars, sports and investing.
Chinadotcom, which operates major portals like china.com and
hongkong.com, has an online advertising agency, and does e-business
consulting, is doing even more. Last week, its chairman, Peter Yip, unveiled
plans to invest $250 million directly in China -- nearly half the $561 million of
cash it has now. "We didn't spend earlier because there was a lot of risk. We
didn't know if PNTR would pass," Yip explains. Just 15% of Chinadotcom's
revenues come from China. Yip sees that growing to 20% next year, and to
50% in seven years.
But if multinationals can go directly to China, will there still be a place for
Chinadotcom? Sure, Yip says. Its big Asian presence makes it easier for
multinationals to cover the waterfront, while its founding shareholder, the
Chinese government, eases approvals for its Mainland operations.
Chinadotcom will probably turn a profit in the next year or so. But some
worry that increased trade muddies the outlook. "The real question," says
Andrew Foster of Matthews Asian Technology Fund, "is whether these
companies will deliver on their promises."
As trade increases, China will allow foreigners limited access to its capital
markets, and more Chinese companies will tap foreign capital. Expect some
opposition along the lines of what happened with PetroChina this year. Apart
from the problems of transparency, disclosure and corporate governance that
foreign investors normally complain of, investors led by the AFL-CIO also
denounced PetroChina's human-rights record. That forced Goldman Sachs to
cut the size of a mammoth PetroChina stock offering.
Says Bill Patterson, director of the AFL-CIO's office of investments: "The
backlash to PetroChina was a mess. And [normalized trade] is not going to
make it any easier as long as the investment is of the same quality as
Petrochina, where you have no transparency, incestuous relationships
involving the government, the regime selling off the crown jewels of the
Chinese economy to institutional investors and offering Chinese workers
economic shock, which in itself creates instability and investment risk." New
offerings "will have a very tough time."
South Korean stocks fell more last week, as investors fretted that a plan to
bail out the country's investment trusts will fail. Bellwether chipmaker
Samsung Electronics also lost ground on fear that rising U.S. interest rates
would cut capital spending. Then came South Korea's decision to ban
telecom carriers from subsidizing handsets to attract new customers, a change
that some believe could cut demand in half.
No question, Samsung, South Korea's leading handset producer, will suffer.
Some analysts figure that expectations for 2000 earnings, now around 4.8
trillion Korean won or KRW29,210 a share, could be trimmed by some 5%.
If Samsung were to disappoint investors, the reaction could be quite
unpleasant, considering its shares' lofty valuation. The stock is up 5.3% this
year and 241% over 12 months.
Yet Samsung's chips are selling well, its handsets are popular overseas, and
its liquid-crystal display production is booming, as makers of phones,
handheld games and personal digital assistants demand more LCDs. DRAM
prices are soaring, so that first-quarter return on equity clocked in at a
staggering 45%. So bulls maintain that Samsung forecasts may actually be
upgraded.
With South Korea accounting for 40% of the worldwide CDMA market, the
ban on handset subsidies also shook up Qualcomm. CSFB thinks the resulting
sales slowdown could limit Qualcomm's upside in the second half.
Taiwan Semiconductor Manufacturing's American depositary shares also slid
last week as chief Morris Chang and other TSM honchos made the rounds of
big U.S. New Economy bulls like Janus Capital and Bowman Capital. The
roadshow ends in New York this week.
TSM plans to offer 28.5 million ADSs representing 142.5 million common
shares. TSM is the world's largest chip foundry, and recently bought out two
rivals and is boosting capacity. Some 5.5 million ADSs representing existing
shares to be sold by Chang and other TSM executives. Rajesh Varma, the
senior DRAM and foundry analyst for Montgomery Asset Management's
emerging-markets funds, thinks that TSM looks good. Supply for DRAMs
and hot new flash memory chips are a long way from meeting demand-a
problem for those needing the chips, not for those who make them.
Varma's single worry is that customers like Dell Computer are stockpiling
DRAMs, which will create excess inventory if demand and the U.S. economy
slow. Yet that's "a low-probability scenario," unless there's a slowdown of
10% or more in overall sales of personal computers.
With TSM normally erring on the conservative side in guiding expectations,
"they are going to blow right past their numbers," says Varma. The
Montgomery analyst thinks TSM will earn New Taiwan $55 billion this year,
or NT$5.5 a share, and NT$80 billion next year, or NT$8 a share. For now,
Varma's estimates are above the consensus. He thinks that TSM common
could jump 70% over the next several months.
The American depositary shares could rise somewhat less. It's no secret why
TSM is selling to foreigners. For one thing, owing to Taiwan's capital controls,
only qualified investors can own the underlying shares. Thus, the ADSs trade
at a 40% premium to the underlying stock, and have traded above 100% this
year.
That premium is a nice perk for TSM managers like Chang, who get to sell
their existing shares in the ADS form. That's a perk not available to big
investors like, say, Capital Research, which owns a big slug of the underlying
shares, nor to any foreigners recently approved as qualified investors by
Taiwan.
E-mail: leslie.norton@barrons.com"
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