Mr. Grinnan: I head up the regional telco and media team. And we have a six-person team and cover roughly 40 stocks in Asia. I am the primary analyst on China and cover the Chinese telco services, telco equipment and China Internet names. And the other key markets we focus on are Korea, India and Southeast Asia. I follow Tencent, Baidu, Shanda, (SNDA) NetEase and Perfect World.
TWST: What are the key growth drivers for the China Internet services space?
Mr. Grinnan: I think, again in a context of the broader Chinese market, China telco services, particularly wireless subscriber growth, has been the main growth driver for the industry as a whole. And investors have been positioned - particularly global investors - in a stock like China Mobile because it's consistently sort of a structural play on the expansion of telco services in China. That is no longer the case. Subscriber growth has slowed, usage has slowed, revenue growth has slowed, in particular now that Chinese telco companies are transitioning to 3G and there is a wave of cap ex. China is spending roughly 50 billion this year on telco cap ex, which is half of global cap ex. So an enormous expansion of the underlying telco network, both the fixed-line and the wireless portion. And the biggest beneficiaries of these are actually these China Internet service companies because their services are riding over top of this infrastructure, and you have an enormous expansion of the infrastructure at no direct cost to them. Overall, the Chinese Internet penetration rate today is around, let's say on our numbers, 27% to 28%. We expect that to double over next three years. The China online services space is growing at something north of, let's say, 30% a year compound annual growth rate in terms of revenues. Online gaming represents roughly 50% of that, and the other key areas are search, ad and e-commerce. The key point I'm trying to emphasize is that while we can talk about how all these companies are positioned within the China Internet space, and what the various advantages and disadvantages are, the underlying revenue base is growing explosively at roughly 30% a year. So not the rising tide that lifts all boats, but it makes it a lot easier to sail.
Tickers included in this excerpt: 035420.KS, 0700.HK, 1688.HK, ATVI, BIDU, CHL, GA, GOOG, NCTY, NTES, PWRD
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