Saturday, October 22, 2005

Shanda to report

Shanda to report earnings on Nov. 9

We expect Shanda to report a good quarter.

However, we do not see significant moves of SNDA in a short term for a couple of reasons:

1. Competitions getting stronger

Shanda's major earning power is in it's online games especially the MMORPGs. In the last quarter, similar games from and Netease continue to overshine Shanda's and the pipelines of competitive new releases will continue to erode Shanda's dominant market share position.

2. Taking over attempt continue to drag

Shanda's attempt to take over will continue to drag on. First, we think it's an unwise decision to go hostile takeover for Sina because the trend of moving away from portals to search engines by internet users is too powerful to ignore. Secondly, the fighting over the control of is going to interrupt Shanda's focus inevitably.

What's in Shanda' future?

Shanda still is the dorminant player in China's gaming market. Shanda also owns the most extensive sales network in China which has attracted many partnerships.

Shanda is also betting heavily on the so-called "Shanda box". They have demonstrated the EZ Station and EZ Pod in the just held International Communications Forum after formally annouced their joint product with Mitac, the EZ Mini a day earlier.

The major strategy to use the EZ Station and EZ Pod to occupy the most living rooms in China. It is pretty much similar to what Microsoft has been "TALKED" about in the last ten years of "interactive TV". So far, the receptions from the media are very timid and we see this strategy as very risk for Shanda.

First, we also do not see many specific functions in the EZ Station and EZ Pod that could make these products very attractive. Secondly, since these products carry very low profit margins and we have not seen clear strategy from Shanda how they are going to derive value-added services from these products. Whether these lines of product will be successful is a big question mark.

One thing could potentially propell Shanda up is the EZ Mini product. The product is revolutionary and so far very well received in China. It combines a handheld device with internet gaming. Shanda has indicated they might move the device into an open platform for gaming development. China's wireless market has been expanding very fast. With broadband 3G expanding soon to happen, value-added wireless gaming could have huge potential both in China and in the world. With first move advantage, Shanda could collect a very handsome payout from the services.

The product also looks like less threatened by Sony's Playstation line and Microsoft's xBox line. The EZ Mini likely to be sold at much lower price but with better choices of internet games that are more community oriented and cheaper to access.



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