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Strategies & Market Trends : Greater China Stocks -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (2563)	9/29/2005 1:10:21 PM
From: RealMuLan	Respond to of 8334

Investor's Business Daily-- Chinese Internet Services Firm Presses On After Death Of Ex-CEO Wednesday September 28, 7:00 pm ET Alan R. Elliott When Ted Sun died on Sept. 18, reportedly after battling a long-term illness, he left behind a very different company than the one he was hired to revive. A former investment banker, Sun signed on as the acting chief executive of Netease.com (NasdaqNM:NTES - News) in September 2001. At the time, Netease -- a home-turf pioneer in China's Internet industry -- was heading for its third straight year of red ink. Those losses -- combined with a class action lawsuit and Securities and Exchange Commission investigation into possible misreported revenue in 2000 -- pushed Netease deep into penny-stock territory. Sun, a Hong Kong native who earned an MBA from the Wharton School of the University of Pennsylvania, brought in a new management team. He also clarified the firm's target audience: 20-somethings who comprised the bulk of China's fast growing Internet user population. Sun's leadership paid off. In August, Netease posted its 13th straight quarter of profit growth when it announced that second-quarter earnings more than doubled from the prior year to 83 cents a share. Revenue rose 90% to $47.4 million. On Monday the company's stock shot up to an all-time high of 96. It has since retreated and currently trades near 88. Netease offers a variety of online services, including network portal and Web hosting, e-mail, search engines and news services. Even before Sun's arrival, the company played a leading role in China's high-tech revolution. Founded in 1997, Netease grew alongside competitors such as Shanda Interactive Entertainment (NasdaqNM:SNDA - News), Baidu.com (NasdaqNM:BIDU - News), Sina (NasdaqNM:SINA - News), Sohu (NasdaqNM:SOHU - News) and Alibaba.com. China's Internet rose with the country's rapidly growing middle class. Web users in the country increased by nearly a third between 2003 and 2005. That increase pushed most Internet firms beyond the fragile, startup phase, says Beijing-based analyst William Bao Bean. The segment still has no clear leader, however. "At this point, we don't know who is going to grow up to be president and who is going to grow up to be a janitor," Bao Bean said. What is clear is that at any given moment, upward of 1 million Chinese might be logged into one of Netease's online games. The games are called massively multiplayer online role playing games -- MMORPGs -- and come with names like "Fantasy Westward Journey" and "Fly for Fun." Thousands of players can simultaneously log onto and interact with other players in an MMORPG virtual world that exists on a Netease game server. They pay using prepaid point cards, similar to calling cards. MMORPGs accounted for 82% of Netease's second-quarter sales. Game revenue for the quarter was up 147% year over year. That vastly outpaced the company's 31% growth in advertising sales. Revenue from Netease's third segment, which delivers a menu of online offerings for wireless phones and devices, fell slightly. From an investment and innovation standpoint, China's Internet industry is roughly equivalent to that seen in the U.S. around 1996 and 1997, notes analyst Safa Rashtchy of Piper Jaffray. There are some differences, however. An obvious one is the method of government regulation. China's government has taken a watch-and-see approach to regulation. When problems crop up -- whether they're related to business practices, network monitoring standards or something else -- the government cracks down. This tack leaves Netease and others to navigate in a gray area, unsure when or where the crackdown lines will be crossed. And although China has half the Internet surfers, it has nearly double the U.S. number of cell phone users, many of whom tap into e-mail, messaging and online services via their phones. "China has 358 million mobile users," said Zhang Dongming, research director at BDA China Ltd., a Beijing-based technology researcher. "So portals like Sina and Sohu, about half their revenue is still from the wireless services." One challenge for all companies in the sector is China's lax approach to pirating and bootlegging of intellectual property. Getting paid can be a big challenge for video game providers. Netease's pay-to-play approach solves the problem. Another challenge is keeping a step ahead of the competition when it comes to attracting new game users and keeping current ones. Netease is pushing its game development pipeline, moving into casual, individually played games as well as developing new MMORPGs. Analysts and company executives urge investors to take a long-term view of China's high-tech businesses. Rashtchy nevertheless points out that execs like Sun have helped the up-and-coming market sidestep some elements present in the earlier U.S. dot-com craze. "The growth path (in China) is likely to be much smoother than the 1997-2002 growth path of the U.S. (Internet) market," which was heavily inflated by unsustainable and money-losing businesses, Rashtchy wrote in a recent report. In Netease's case, analysts expect strong near-term earnings growth. Those polled by First Call see full-year earnings more than doubling to $3.23 a share in 2005, then moving up 31% to $4.24 in 2006. This chart seems pointing one day SNDA will be a $90 stock<g> us.news2.yimg.com biz.yahoo.com