Stone changes tack after wireless market jolt
With new billing rules of mobile carriers hitting sales at Me to You unit, group eyes location-based niche
Stone Group Holdings, faced with falling sales in mobile value-added services at its Me To You Holdings subsidiary, said the unit would focus more on location-based services to benefit from the mainland's burgeoning demand for cars.
Stone, which also makes health-care products and printers, is seeking to combat a fall-off in MTY revenue after mainland mobile-phone carriers said suppliers of mobile value-added services such as ringtones would have to confirm new subscriptions twice before they could charge customers for their services.
China Mobile, the mainland's largest mobile-phone carrier, said the move was in response to customer complaints. In June, the company also said it would allow content providers to charge handset users only fixed monthly packages instead of charging on the level of use.
No2 mobile operator China Unicom made similar policy changes.
'The change in mobile-fee policy will continue to have a negative impact on China's wireless service providers in 2007, including MTY,' chief financial officer Zhu Yan-lan (right) said. 'So we must find a way to maintain MTY's growth momentum.'
Net profit at MTY, which relies mainly on its wireless service provider business, collapsed 66 per cent to HK$9.8 million in the six months to September from the same period in 2005 as turnover tumbled 30 per cent to HK$48.2 million.
The contribution of wireless value-added services to MTY's total revenues declined to 80 per cent in the six months from 86 per cent a year earlier. The rest came from location-based services, including global positioning system (GPS) and navigation services.
MTY's rival mobile content providers were also hit by the mobile carriers' policy change. Sina.com, in which Stone has a 4.6 per cent stake, reported a 23 per cent decline in fourth-quarter revenue from wireless valued-added services to US$20.6 million last year from a year earlier.
The fall helped to drag down overall net profit at Sina, the largest mainland online portal, 15 per cent to US$11.7 million.
Net profit at Sohu.com, the mainland's second-largest online portal, declined 32 per cent to US$6.07 million in the three months to December from a year ago as sales of wireless services dropped 7.2 per cent to US$6.75 million. The contribution of wireless services to Sohu's total revenue tumbled to 19.7 per cent in the period compared with 24.4 per cent a year earlier.
Location-based services would probably be MTY's next growth engine, Ms Zhu said.
The company launched TanLu 303, a safe-driving voice notifier, in July last year and started to provide GPS services to drivers in six cities, including Beijing and Chongqing.
The company has sold about 8,000 units of TanLu 303 at about 1,000 yuan each, contributing about HK$2 million in revenue to Stone Group.
Ms Zhu said MTY spent about four million yuan to develop TanLu 303, which was equipped with a chip from SiRF of South Korea, a specialist in GPS technology. TanLu 303 can also provide telecom functions as a handset. 'We have signed up with China TieTong to provide telecoms services for our GPS subscribers,' she said. 'This is a value-added service that other competitors cannot match.'
MTY has also launched a high-end GPS model called GPS4000 retailing for about 3,000 yuan to 4,000 yuan. The company's GPS users need to pay 60 yuan to 100 yuan per month after a first year of free services.
'The GPS market in China has great potential because of increasing demand for automobiles,' Ms Zhu said.
Sales of cars on the mainland may jump 18 per cent to 8.5 million this year after surging 25 per cent last year to about 7.2 million, according to the China Association of Automobile Manufacturers.
MTY's rivals in the GPS market include Shenzhen SEG GPS Scientific Navigation.
MTY is seeking partnerships with carmakers so that its GPS products are built into cars before sales.
Stone Group paid US$19.2 million in April 2005 to take control of MTY, which is 25 per cent owned by its management and 35 per cent by Richland, an investment fund.
Stone, which spent two years to restructure its electronic products business and develop its health-care products business, reported a 3.7 per cent gain in total sales for the six months to September to HK$929 million compared with a year earlier. Its net loss narrowed 22 per cent to HK$53.9 million, including HK$51.5 million from fluctuations in the market value of Sina.com.