culturecom

funding and around ten software engineers for the project,
CAS has supplied facilities in Beijing and more than 100
software engineers of their own, according to Gary Liu of
Sassoon Securities, in a report obtained by ChinaOnline.

CAS has been trying to develop a Chinese operating system
for the past fifteen years. Worried that Microsoft and/or the
U.S. government may have built secret "backdoors" into the
Windows OS, Beijing has been vigorously supporting efforts
to come up with a homegrown platform.

Chinese 2000 is not the only OS under development,
however. CAS is also behind Red Flag Linux, a Chinese
version of Linux, the open source code OS. (Other
participants in this project include the Peking University
Founder Group and Compaq Computer Corp.)

But if CAS bets on Chinese 2000, this could result in
immense profits for Culturecom. Making the OS China’s
national standard should, at the very least, result in millions
of RMB worth of sales to official government bodies.

This is hardly a fait accompli. CAS won’t even consider
giving the software "national standard" status until final
testing is complete – sometime in the third quarter of this
year.

Gary Liu is bullish, however. "Buy Culturecom, mainly for its
Chinese 2000 OS ambitions," he says in his report.

If you’re up to it, Culturecom’s Hong Kong ticker number is
0343. According to the Sassoon report, "it hopes to float
Chinese 2000 [separately] either on Hong Kong’s Growth
Enterprise Market or Nasdaq by 1Q2002."

Culturecom, The Company

Culturecom Holdings Ltd was not always a software
development firm. In fact, until recently it was primarily
involved in print media, particularly newspapers and comic
books. The company also made safes and furniture.

In the late 1990s, as a result of prodding from new
shareholders, Culturecom started to change its focus. It
began selling off its money-losing publications: Huanan Jingji
Journal and Fresh Weekly Magazine in 1996, TV Weekly in
1997 and Young Generation Magazine and S Magazine in
1998.

The company disposed of Ying Kee Safes and Furniture Ltd
in August of that year and sold off the publishing operations
of Tin Tin Daily News in 1999.

Although it has gotten out of newspaper publishing in a big
way, Culturecom has held on to its comic book publishing
arm, and for good reason: it makes a healthy profit. The firm
sells 2.5 mln copies a month in Hong Kong.

At HK$3 (US 39¢) in profit per copy, that translates into
almost a million US Dollars a month from comic books
alone. And that’s just in Hong Kong.

The company is, of course, looking to market its wares in
China. In September of last year Culturecom hooked up with
China’s Ministry of Culture to publish, print and sell comics
in 8 cities.

According to the Sassoon report, "sales from comics [in
China] can be expected to increase from HK$6 mln
(US$772,000) a month to HK$10 mln (US$1.29 mln) a month
in 12 months."

Ecommerce: CultureKid i-shops

Comics are, of course, primarily sold to children. Taking
advantage of its presence in this market sector, Culturecom
is launching a series of ecommerce stores that wed the
Internet to brick-and-mortar retail outlets.

In December of last year the company launched its first
CultureKid i-shop, a store that sells goods advertised and
marketed over the Internet. While the kids will see and find
out about the products from the website, they have to
physically go to the store to buy the goods. (No transactions
are completed online.)

The company plans to open 200 shops in Hong Kong and,
eventually, 1,000 in China. To keep costs low, Culturecom
plans to set up 95% of these outlets as franchises.

Qcode and Q9

To round out its new focus, the firm is also involved in the
development of a Chinese character input system. It has a
30% stake in Qcode Technology, the developer of the Q9
software.

According to Sassoon Securities, the software is a simplified
Chinese character input system based on the use of 9
numeric keys.

"The system is being developed for application in set-top
boxes, cash register hardware and portable electronic
devices like mobile phones and the PalmPilot." In fact,
3Com’s Palm Pilot unit has reportedly signed a deal to use
the Q9 software.

Qcode "will receive a HK$50 (US$6.50) royalty fee for every
Chinese version Palm Pilot to be manufactured," the report
says. Culturecom plans to float Qcode Technology in 2001.

Potential competitors include Zi Corp and Microsoft Windows
CE.

To contact Lester J. Gesteland:
P: (312) 335-3022
F: (312) 335-9299
E: lgesteland@chinaonline.com