Tech Market WatchBy Perry Wu
Over the years, the company formally known as Chinadotcom and now named CDC Corporation (CHINA) has been a punching bag for me. In many ways it illustrated the oddities of Asian business practices with bloated internal structures, missing executives, ironic merges, worrisome tender offers, and unclear business scope. But with the company's announcement a few days ago that it has now filed to separate its online games subsidiary, it's finally doing the correct thing.

CDC filed a registration statement with the Securities and Exchange Commission in the United States for an initial public offering of up to US$200 million aggregate principal amount of Class A Common Shares of CDC Games Corporation by the end of 2007. In the company's press statement, it says it is doing this to "provide a more targeted investment vehicle for investors". Great!

CDC Corporation is a truly diversified business. Its Nasdaq ticker symbol is "CHINA", but over the years it has moved away from the Middle Kingdom, and now counts Atlanta in the United States as home for many of its subsidiaries' activities. Over the years the company, which was once prematurely hailed by AOL and Dow Jones as a close partner, has expanded from being a second-tier Chinese Internet portal to owning valuable software assets like Pivotal and Ross Systems. Along the way, the company also bought disparate businesses like Ion Global, TTG Asia, and Newpalm.

As a whole, I still worry about CDC Corporation's focus and management. I have written extensively about that. But by separating the online games division, they are lessening the blow for when the China game bubble implodes. And while Chinese gaming is riding high, that division should also place good returns for day traders. How high will returns go? As far as the public relations departments can pump out spectacular releases, the stocks should continue trading high. CDC Corporation today trades just below US$10, doubling over the last twelve months. For the first quarter of 2007, total revenue for CDC Corporation was US$91.3 million, an increase of 41.4 percent from the first quarter in 2006.

Total online game revenues for CDC Games during the first quarter 2007 was US$9.5 million. The company has also announced the establishment of a subsidiary called CDC Games Studio to place strategic investments with selected game developers and also support emerging games developers with the resources they need to rapidly develop new innovative games. From an operational standpoint, this subsidiary seems ready to separate now.

"Before CDC Corporation splits, it has many decisions to make about its personnel and its brands. I would like to see it utilize its vast resources to build great brands, but that is only possible if it can focus," I wrote 14 months ago in 'What Happens After CHINA Splits?'. The company is now on a roll with focusing what is best for its most important stakeholder: the investor.

About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.

1 COMMENT

  1. Game sector imploding?? You crazy man! Shanda, Netease, THE9 are all kicking butt and taking no prisoners! Chinese gaming is hot!

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