...and a US-China Pair

01/27/2006 12:00 am EST

Focus:

Robert Hsu

Editor, China Strategy and Asia Edge

Also new to our coverage is Robert Hsu, whose has just joined the Phillips Publishing family with China Profits. Here, he looks at National Semi, a US-company poised to benefit from China's growth, and Tom Online, a Chinese Internet firm.

"Our conservative pick is National Semiconductor (NSM NYSE), an American company that’s sure to benefit from the American-style consumerism that’s sweeping through China and the low-cost manufacturing there—not to mention consumer spending right here in the US. All electronic gadgets require semiconductors to operate, so semiconductor manufacturing is indeed booming in China, and NSM leads the way in the analog chip industry. It derives a whopping 45% of its revenue from the Greater China region—more than any other company in the S&P 100.

"China also happens to be the world’s largest market for wireless handsets, with over 400 million cell phones currently in circulation—and still growing 20% a year! National Semi is the largest supplier of power control units to cell phone companies selling in China, and strong handset demand there has been a key factor in sales growth. The combination of National Semi’s heavy exposure to China’s growing electronic manufacturing base and emerging consumer electronic trends make the company an ideal China play. I’m eyeing gains of 30% or more.

"For a more speculative pick, Tom Online (TOMO NASDAQ) is the best China Internet stock to own. In a nation where cell phones outnumber PCs by 4-to-1, the way most Chinese access the Internet is through a handset, not a computer. Last year, Chinese consumers spent $4.4 billion on these value-added services—using their cell phones to go online, send and receive short messages, download images, music and games, etc.—and the market is growing at over 30% each year. Tom Online is the leading provider of these services. It owns the biggest online ring tone portfolio in Asia.

"Tom Online also offers dozens of other services, such as daily astrology. With millions of potential users, the money adds up quickly. Given that there are 400 million cell phones in China, the company’s cash register ‘rings’ thousands of times per minute. As China’s wireless networks upgrade to the next generation (2.5G and 3G), newer and more sophisticated value-added services will become possible and open up more growth opportunities for Tom Online. TOMO is a great pure play on China’s wireless communication industry and the role of the Internet, and I’m looking for a double in the next year."

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