A Week in Tech

Our weekly round-up of the key news in the technology sector.

A week in Japanese tech

Telecommunications

- JR East is in talks with handset makers to install commuter cards in cell phones. East Japan Railway Co. has launched talks with NTT DoCoMo, KDDI and J-Phone to equip cell phones with IC chips used in its Suica IC commuter passes and prepaid cards. The new handsets would allow passengers to use their phones to go through the automated ticket gates, thereby replacing the staff-operated ticket sales system with cell phones. If cell phone companies agree to install Suica IC chips in their handsets, JR East intends to open up the IC functions to airline and other public transportation companies. JR East aims to offer the new service by fiscal 2004. About 3.6 million Suica cards have been issued since the system's debut in November 2001.

- Mitsubishi will build a wireless phone network in Thailand and will lease terminals and wireless base stations for 240,000 phone lines to the Communications Authority of Thailand (CAT). The Y37 billion deal, to be formalized soon, includes a six-year lease for base stations and terminals as well as equipment maintenance. Mitsubishi has set up a firm in Bangkok with capital of Bt1.3 billion (Y4 billion) to lease all the facilities. Kyocera Corp. will provide some equipment using wireless access system technology for the "last mile" connecting the subscriberÆs terminal to base stations. Sumitomo Electric Industries will handle the construction. Only 8% of Thais have phones, mostly those living in or around Bangkok.

IT Services

- NTT Data Corp. will acquire Japan Tobacco's software operations. Japan TobaccoÆs wholly owned subsidiary, JT Soft Service Company, will spin off its software division and set up a new company on August 1 this year. NTT Data will acquire an 80.1% equity stake in the new firm and JT will hold the remaining 19.9%. The new firm, to be called NTT Data Wave Corp., will be based in Tokyo and will be capitalized at Y100 million. NTT Data Wave expects to achieve an operating profit of Y100 million on revenues of Y3.6 billion in the first year to March 2003.

Internet

- Nearly half of all retail stock transactions in Japan are made online. Online trading accounted for 49% of all stock transactions by retail investors in the second half of fiscal 2001, according to the Japan Securities Dealers Association. Online trading value grew 12% to Y12.5 trillion during that period. Retail investors' total trading value on the Tokyo, Osaka, and Nagoya stock markets as well as on the Jasdaq over-the-counter market dipped slightly in the second half, causing the share of online trading to rise 6 percentage points from the first half. In March, online trading accounted for 51% of all retail trades. Accounts for online trades exceeded 3 million at the end of March, boosted by lower commissions than those charged by offline firms. Margin trading in the second half grew 36% from the first half, while cash purchases fell.

- More Japanese homes access the Internet through fiber-optic lines. About 26,400 fiber-optic communications lines were connected to homes in Japan as of March 31 - which is 45% higher than the month before, according to the Ministry of Posts and Telecommunication. This is still a small percentage of the total number of homes with Internet connections, but it is growing steadily. Net access via cable TV networks rose 4% from the month before to 1.45 million lines. Access by Net-compatible cell phones stood at 51.92 million users. And the number of homes connected through digital subscriber lines totaled 2.37 million. The Ministry expects the number of homes using fiber-optic lines to jump after April because the growing number of telecoms breaking into the market is resulting in lower service fees and service to more areas.

- Five convenience store chains will jointly build a fiber-optic communications network connecting 14,000 outlets. FamilyMart, Circle K Japan, Sunkus & Associates, Ministop and Three F, with the cooperation of NTT Communications Corp., will link their headquarters to each shop via dedicated fiber-optic cables. Main rivals such as 7-Eleven Japan and Lawson are using ISDN, which is slower than fiber-optic networks. Information terminals at convenience stores now offer services such as event ticket sales and travel packages. High-speed, high-capacity data transmission will allow stores to distribute large volumes of content such as electronic books, games, maps, and images. They will also be able to offer government services such as filing of various applications. The five companies will also set up wireless LAN base stations in their stores to provide high-speed Internet access. The consortium expects to cut communications expenses by 75% by consolidating existing lines into the fiber-optic network. The companies plan to start a test run this fiscal year before launching full service next fiscal year.

Venture Capital

- Venture capital firms cut investment by 50% in second half last year. Seven venture capital firms invested about Y50.4 billion in start-up companies in the six months ended March, about half the level of a year earlier. But the amount invested was about the same as the first half of fiscal 2001. VC firms have taken a more cautious approach since the IT bubble burst, and companies that invested heavily in IT-related start-ups, such as Softbank and Nikko Capital, cut their investments significantly. Nikko's investment fell 69% to Y876 million, and SoftbankÆs by 65% to Y15.9 billion. VC firms are now becoming more involved in managing the ventures in which they have invested. As of March, Softbank sent 63 employees to start-ups to serve as executives, about double the number a year before.

Media, Entertainment and Gaming

- Game producer Square Co. sees healthy sales of its Kingdom Hearts game software, created jointly with Disney Interactive, a unit of Walt Disney Company. Square says it has shipped more than 750,000 copies of the software, more than the 500,000 units expected. The company has raised brand recognition through advertising partnerships with Asahi Soft Drinks and Nissin Food Products. Kingdom Hearts was released on March 28 exclusively for SonyÆs PlayStation 2.

- Kadogawa Shoten Publishing Co. and Toshiba have formed a capital tie-up, aimed at expanding content-distribution services for digital broadcasting. Toshiba bought 270,000 shares, a 1% stake, in Kadokawa for about Y700 million in March, with plans to raise its stake eventually to about 3%. Kadokawa owns 250,000 shares, a stake of less than 0.01%, in Toshiba. The two companies already have a program-production joint venture, but this is the first capital venture together. Toshiba will begin fee-based interactive TV services via satellite digital broadcasting in July. These services include information on movies, personal finance and shopping. Kadokawa plans to offer restaurant and other leisure and city-related information via digital broadcasting on mobile terminals, which Toshiba, Toyota Motor and other companies plan to launch by the end of 2003. The service will distribute information to personal digital assistants and car-navigation systems. The Kadokawa group publishes lifestyle magazines, as well as movies and game software. Toshiba and Kadokawa are targeting Y16 billion in sales in 2005.

- Sony Corp. will buy 1.6 million shares in media software company, RealNetworks. The investment, worth about $11 million at RealNetworks' Tuesday closing price of $7.03, will make Sony one of the company's 10 largest shareholders. Under the agreement, Sony plans to use RealNetworks software on its portable music players and other handheld devices. Sony made the investment through a third party, so RealNetworks was not paid directly in the transaction and could avoid share dilution. The deal expands an agreement between Sony and RealNetworks made two years ago, which involved collaboration on Sony PlayStation 2 game consoles and audio compression technology.

- Koei will set up a team in Singapore to develop online games that are played simultaneously by thousands of people via the Internet. The Japanese software maker, with assistance from Singapore's Economic Development Board, will train Singaporeans in Tokyo for 18 months and then send them back to work for Koei.

A week in Korean tech

Hardware

- The $3.4 billion deal between Hynix and Micron faced collapse after the board of directors of South Korea's Hynix Semiconductor rejected a provisional agreement to sell the company's memory operations to Micron Technology of the United States. On Monday, HynixÆs creditors voted in favour of ratifying the non-binding memorandum of understanding signed by the two companies. Nearly 78% of creditors voted in favour of the deal, which required 75% of votes to be passed. But the deal, which would have created the worldÆs largest memory chipmaker, also required the approval of both companiesÆ boards. Hynix may now face insolvency, as creditors are unlikely to extend new loans to the cash-strapped company.

- Mobile phone companies suffer huge falls in sales. Domestic mobile phone shipments totaled about 800,000 units in March, an almost 100 % fall from a year earlier, and handset makers are warning of continued weak sales in April. Stiff competition and an ever-saturated market have driven mobile carriers to subsidize handsets. But now the government is cracking down on such subsidies, imposing large fines on SK Telecom, KTF and LG. The Ministry of Information and Communication says it will make handset subsidies illegal in the second half of 2002, forcing mobile phone vendors to revise 2002 sales expectations.

Telecommunications

- KTF, KoreaÆs second-largest mobile carrier, plans to merge with KT ICOM, the third-generation (3G) business unit of KT group, pending government clearance. KTÆs mobile arm said the merger would take place with a view toward minimizing the dilution of its share value. KTF expects income to grow by 20% to W600 billion this year, and its subscribers to reach 10.5 million by yearÆs end. KTF said it had some 653,000 customers for its CDMA2000 1X networks, also known as 2.5-generation mobile telephony. At the end of March, the average revenue per user of the 1X service was W9,000. KTF is already undertaking trials for the upgrade of its 1X service and plans to invest W90 billion this year. The company has said it would adopt Qualcomm's mobile Internet platform, but suggested it could change plans if better platform technology were available. The government is currently trying to standardize the wireless Internet platforms of the three domestic mobile carriers.

Internet

- Lycos Korea failed to reverse operating losses in the first quarter and is struggling to compete in the tight local Internet market. In January last year, the Web portal provided tough competition for Daum Communications and Yahoo! Korea. But Lycos has fallen behind as other portals moved to profitability in the first quarter of this year. Lycos attributes the lower-than-expected earnings in the first quarter in part to the ongoing merger talks with SK Telecom, the country's largest mobile carrier. Lycos is hoping to reach an agreement with SK Telecom within the second quarter of this year.

- Korea's online shopping malls expect to see a rise in earnings this year amid an overall recovery in the e-commerce and technology sectors. Online shopping malls such as LGeshop, Samsung Mall and Interpark saw better-than-expected earnings in the first quarter of this year. Analysts expect these online malls to post higher sales growth but warn that in order to increase profits, they must streamline their distribution networks and diversify marketing strategies. The number of shopping malls with positive monthly earnings is expected to increase from the third quarter of this year, helped by the hike in sales of private products and partnerships with related sellers.

A week in Chinese tech

Internet

- Online bookstores wage a price war. ChinaÆs three most popular Websites for books and audiovisual products - - DangDang.com, Joyo.com, and Bertelsmann's Bol.com - - are embroiled in fierce competition. Among the three online stores, DangDang.com is considered the most competitive in terms of price and variety of products; Joyo.com offers more popular products; and Bol.com has the biggest advertising budget. Competition among the three has been heating up, with the players offering special promotions and discounts.

- vChina's top Web portals see big potential in mobile phone Internet services. Web users with mobile phones have been forking out for downloads of ring tones and screen designs, as well as news and jokes. Although the transaction values are small, the potential is huge since China has 161.5 million mobile customers - three times the number of Web users. Chinese portals Sohu.com, NetEase.com and Sina.com use a business model similar to NTT DoCoMo's i-mode service in Japan. The customer is charged for downloads by his mobile carrier and the income is divided between the phone company and the portal, with the phone company getting 12% to 15% of the revenue.

Telecommunications

- Ericsson is reorganizing its China operations, concentrating production of its communication systems in Nanjing and its mobile phone handsets in Beijing. The Swedish telecom giant will also restructure the shareholding of its mainland joint ventures with domestic partners Nanjing Panda Electronics and China Putian. Ericsson will restructure three of its 10 joint ventures in China: Nanjing Ericsson Panda Communications, Nanjing Ericsson Panda Mobile Terminals and Beijing Ericsson Mobile Communications. Ericsson plans to sell its 65% stake in Panda Mobile Terminals to Finnish handset manufacturer Microcell, which will continue to make handsets under the Ericsson brand. Ericsson will continue making handsets in China, but will concentrate all its mobile phone handset production in Beijing, where its Beijing Ericsson Mobile Communications joint venture with China Putian also makes handsets. After restructuring is completed, Ericsson will be the largest shareholder of its Beijing joint venture followed by China Putian. Nanjing Panda will take a stake in Beijing Ericsson Mobile Communications and become the third-largest shareholder.

A week in Singapore tech

Telecommunications

- SP Telecommunications chooses Redback NetworksÆ SMS platform to provide broadband services. SP Telecom, a subsidiary of Singapore Power, will use RedbackÆs SMS platform of subscriber management systems to provide broadband services using its PowerLine Communications (PLC) technology. The PLC technology allows broadband telecommunications signals to be sent via low voltage cables underground, thereby using existing infrastructure to deliver broadband services. SP Telecom said that it began a three to six-month trial in April. Nasdaq-listed Redback Networks is a provider of software for metro broadband and optical networking equipment.

Biotechnology / Life Sciences

- GeneMedix and IndiaÆs Gland Pharmaceuticals join forces in a manufacturing, sales and distribution deal. Gland will market and sell biopharmaceutical company    GeneMedix's products throughout India, beginning next year. Gland will also    handle specialized manufacturing of products such as pre-filled syringes. GlandÆs    customers in India include Schering Plough and Aventis. For the fiscal year    ended November 30, 2001, GeneMedix posted an operating loss of $2.4 million    (S$6.3 million). The company, which is listed in London and Singapore, expects    to break even by 2004. 

A week in Taiwanese tech

Hardware

- Nanya Technology and GermanyÆs Infineon Technologies have entered into a joint venture to build a memory-chip plant in Taiwan. The two companies plan to sign a memorandum of understanding to build a 300-millimeter-wafer plant estimated to cost $2 billion to $3 billion to complete. Infineon will take an undisclosed stake in the plant. The plant, which will produce chips at a 30% lower cost than older plants, is scheduled to go into production in 2004. Infineon Technologies is the world's fourth-largest maker of dynamic random access memory (DRAM) chips, with 14% of the global market.

A week in Hong Kong tech

Telecommunications

- Hutchison Telecom will pay $120 million in cash to buy out Asia Global CrossingÆs stakes in three joint ventures that the two companies set up in Hong Kong. Hutchison Telecom, a wholly owned subsidiary of Hutchison Whampoa, will acquire Asia Global Crossing's 50% stake in Hutchison Global Crossing, its 42.5% stake in ESD Services and its 50% stake in Hutchison GlobalCenter. The deal is expected to help Asia Global Crossing in its search for investment after its parent company, Global Crossing, went bankrupt. Earlier, the company had said it had enough funds to survive this year, based on the $554 million in cash it had at the end of 2001.

A week in tech is brought to you by FinanceAsia, and IRG, Asia's boutique investment bank to the telecoms, media and tech sectors. More can be found at:

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