Friday, March 24, 2006

Tom Online to Buy EachNet as well?

Based on an article "Tom and Ebay Following Yahoo-Alibaba?" at http://bbb.typepad.com/billsdue/, rumor has it that Ebay may sell its China auction site EachNet to Tom online.

Things are getting more interesting.

SINA

The rumor that Tom online was looking to step into Sina seems to have some basis. Hong Kong newspaper ??? had an article saying Tom is in talks to buy Shand's 20% stake in SINA, citing unidentified person.

I guess SINA stock has run up in past couple weeks mainly due to this takeover speculation. It is hard to say how likely the takeover will happen, but in the past years, we have heard plenty of this kind rumor, it first started with Yahoo to buy SINA, then Shanda, and now it is Tom Online.

If Tom Online is serious, then I guess Shanda could make some money on their 20% stake. Chen Tianqiao may have realized that speculating on taking over SINA was a huge strategic mistake, he may find that it has wasted him one year's time and locked up his capital. I think it is good for him to unload this stake at a premium to any buyer who wants it. If he can make 25% on his 200+ mil USD bet, not bad. On the other hand, if he does not sell out, he may have to sell out on open market in one or two years to retire his convertible debt(most likely debt holders will exercise put option).


From a fundamental perspective, I think current stock price($27.5) offers a good point to get out, if you are not an expert in takeover/merger plays. I maintain my previous year-end target of 25$.

Wednesday, March 22, 2006

CNTF Reports Q405 Earning

CNTF Reported Q405 Earnings

Techfaith Wireless(CNTF), the Chinese handset design solution provider, reported a better than expected Q405. For full year 2005, net revenue was 90 million USD, diluted EPS is 1$.

However, Q106 guidance is only about half of what was expected, revenue is guided to be 12.5 mil USD, net income to be about 1 mil USD. They also provided Q2 guidance for revenue of 24 mil USD and net income of 8.5 mil USD. For full year 2006, they are extremely upbeat, giving a revenue forecast of 'at least' 120 mil USD,net income of about 44 mil USD.

The company cited losing one customer and discontinuing of two GSM platforms to be the reason for the Q106 revenue shortfall. Since we are at the end of Q1 already, I guess actual Q1 and Q2 numbers will come closely with guidance. So if Q2 is really based on 'existing orders'(as they claimed), then the Q1 shortfall is not that material.

Beyond Q2, I don't think many have faith and visibility to belive too much in their at least 120 mil USD revenue guidance. The management said smart phones and pocket pcs will start contributing revenue in Q2 and total contribution from this unit for full year 2006 is expected to be 30 mil USD. So essentially they believe revenue from other units will be roughly flat to that of 2005, the growth driver is the smart phone and pocket pc business.

Techfaith set up the smart phone operation last December, so far they have about 450 people working under this unit. Based on products published on their website(http://www.techfaithwireless.com/english/services_1_5.htm), it is quite impressive to be able to build these gadgets in such a short time. I tend to agree that smart phones will be more popular in both enterprise and retail space, the success of Blackberry is a proof of the enterprise needs on wireless communication device. On the retail front, I believe phones will become 'smarter', in the sense that they are not only going to be calling devices, but also a information organizer and mobile entertainment platform. I think the 30 mil USD revenue target from smart phone and pocket pc is achievable.

On the margin front, we may see some further gross margin compression due to a product mix that includes more low margin products, such as smart phones. CEO believes gross margin for handset design and software application should be quite stable.

The conference call did not mention anything about the rumor I mentioned yesterday.

Given the volatility in both business performance and stock price, it is hard to call for a sure bet. I am holding a small piece which I bought before the earnings, I plan to hold on to it. If this stock drops to single digits, I am thinking to pick up more.

Tuesday, March 21, 2006

Tom Online to acquire EachNet?

Bloomberg news reported a rumor that Tom online (NASDAQ:TOMO) is in talks to take over EachNet, Ebay's fully owned China operation. I also read some rumor some days ago that Tom may take over Sina.

Anyway, nowdays we don't lack rumors. Let them be.

I did not update on these Chinese wireless plays(TOMO,KONG,HRAY,LTON) for quite a while, I may do so when I get some spare time. I can disclose that I am not a big fan of them at this moment, especially Tom Online. HRAY and KONG may have some investment value if they can drop a little bit further.

Monday, March 20, 2006

CNTF rumor

A rumor was spreading among Chinese media web sites, it said that TechFaith(CNTF) is providing design service to some unlicensed vendors which sells black market phones. Some marketing people from Techfaith denied the rumor.Given the Company is going to report Q405 earnings just after the market closes today, it is hard to make a decision on this rumor.

If the rumor is true, I believe the market will sell off to some extent, many people trade on news. But I am more concerned with the general business operation and its outlook for this year, which I think should not be bad. 2005 had been a very hard year for most Chinese cell phone manufacturers, many expect 2006 and beyond will present opportunities as these local vendors learned from their mistakes and shape up their product quality and marketing efforts. As the biggest technology and design solution provider, I think Techfaith will see more opportunities in domestic market. On the international side, in the long run they can gain contracts from overseas vendors because of their low cost advantage. Thus, if the rumor is confirmed and market sells off, it may be another very good opportunity to pick up more shares.

On the other hand, most rumors are not true. If that is the case, then what really matters is how strong the business itself.

I am long CNTF.

Friday, March 17, 2006

CNTF: at play again?

I have made some money in the past after buying CNTF around 10$. I took my profits as the stock steadily came off in the past couple months.

As the stock kept falling in the last a few weeks, it has come into my sight again. I revisited what I believed before and checked all available public information of this Chinese handset design firm, I found my old thesis to aggressively buy this stock at low teens still holds. Given this, I am buying now around 12$ a share. I speculate that after next Monday's earning report, if nothing seriously wrong with future business guidance, the stock may be in play again.

A few other recent developments have strengthened my confidence in such a short term speculation.

First, recently I noticed the market condition for Chinese ADRs are quite good. There were a few star performers, including NTES,CTRP,VIMC. in particular, VIMC is truly remarkable. I liked the company, but did not think the move could be so violent, given my thought that this stock was pretty fairly valued in low teens.

Second, peers of CNTF have been doing very well in other markets:
2000 HK more than doubled in past three months.
LHL SP more than doubled in past three months as well .
This looks to me that the general perception on these handset design firms is turning more positive, as a result, valuation standards (in terms of P/E for instance) is moving up to match those of other Chinese technology companies.

All I said so far is nothing more than short term speculations based on events and market observations. In the long run, I think this business model works given my belief a marriage of technology and Chinese low cost labor seldom fails.

Monday, March 13, 2006

SOHU's CEO speaks again

Sohu's CEO, Charles Zhang, rang NASDAQ open bell last week, and later on went on CNBC to speak out again.

As he always did, Charles insists that:

* Wall Street and foreign investors do not understand China Internet market. Well, it is natural to assume everybody else is fool while he is the only wise one in the world, but it does not help much by speaking it out in public.

* Mr. Zhang kept saying that Google will be a failure, and his Sogou search engine will outrun Baidu within a year. I see the contrary. I think Goolge will prevail in China given its super quality of search. Last night one of my relatives in Beijing called me, he was running a small business of indoor decoration. He told me he has bought a keyword ad at Google, but not others like Baidu, SOhu, or SINA. If you look at search quality, it is eay to find that Google is the best among these guys, Baidu is matching very closely after Google, Sogou and Sina search are the second tier. Thus I don't think Sogou will do better than Baidu in one year, rather,I think Mr. Zhang may need to watch out for being wiped out in this search race.

Although I do not agree with these public bold statements from this SOHU CEO, I am not bearish on the stock itself. I like the stock not because of rosey picture of Sogou, but the strong growth of online ads. I have been bullish on it and holding it, until recently I sold out for a profit. I still think a one year target of 27$ is still achiveable. I look to buy back the stock if there is a weakness.

SFCC Update

For SFCC stock holders, the couple weeks around their last earning release was not a easy journey. SFCC did not release numbers on their scheduled release date, saying there was some impairment charges in Q4, and earnings were postponed for a week. The stock dropped into 18's on the news.

However, what a relief it is to read their earnings the following week, it showed the business is in very good shape in general. Somebody is asking me about my opinion after this earning release, I can tell you frankly that I still strongly believes this is a good long term holding with a target of 30$+.

I like the stock for a few reasons:
* The private clinical testing service is a good sector to be in to capitalize the ever lasting healthcare needs.
* The stock was beaten down not by deteriorating business operations, but largely screwed by journalists and politicians. Although this puts on negative effects on the business in short term, the business itself is still in good shape.
* Given above and its year 2006 revenue/earning numbers, I think the stock is still cheap.

Full disclosure: I long SFCC.

Wednesday, March 01, 2006

SNDA Q405 Update

SNDA did surprise the public again with a loss in Q405.

The stock writedown of Actoz is inevitable. In Nov 2004, they spent 91.7 million USD for 29% stake in South Korean game developer Actoz, maker of Mir II. They paid 100% premium over market price for that stake. Since then, this South Korean firm's stock has been going down. As of year end of 2005, the overall market value of this firm was only 107 million USD, which implies Shanda has lost about 60 million USD on this investment on mark-to-market basis. This writedown came together with the worst operating quarter, make it looks like a 'big bath' (it is already very bad, won't hurt too much to make it worse).

Back to the free-to-play model, I still believe this is a viable business model, as long as you can ramp up players and stick to your game. Shanda also emphasized that the revenue from games after taking this model does not have a significant decrease than before.In the end, I think it is the quality and popularity of games that really matter, not the paying for free model. There is no free lunch, gamers should be able to figure out it won't make much difference since they need to pay for their gaming experience one way or the other, it does not matter it is monthly cards, point cards, hour cards, or virtual items.

The EZ series don't look so good either. Based on what I read some news reports, some newspapers reported that Shanda actually has abandoned their EZ Station project completely. Instead of selling that DVD like box (in fact that is a modified pc in the shape of DVD players with a remote control), it was said they have teamed up with some hardware manufacturers, who has similar products, to provide contents for their platform. I am not sure how it goes with EZ Mini. As for EZ pod, it seems to be the only hope for the EZ strategy so far. But it is too early to draw any conclusion on its future earning power.

On the cost side, the picture is very ugly. They do not seem to have a sense to control expenses, if you compare SNDA's operating expense with that of NTES,SINA, or SOHU, then you will know how this firm is spending shareholders' money. The balance sheet is getting worse, cash is shrinking, it is funny that the CFO can not even answer the question how much the operating cash flow was in Q405, he said it was 'healthy'.

To conclude, I would sell all SNDA shares I have them. For many people, me included, they will be far better off without ever knowing this company. Unfortunately I did not foresee this disaster when I bought shares on the down turn. I will not touch it again unless there is a turn around is in sight.




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