This was mainly a result of the "very conservative" forecast offered by Chief Operating Officer Michael Tong about the performance of its online gaming business in the third quarter, which is expected to either rise or fall 1 per cent from this quarter's US$60.80 million.

Performers stand at the booth of NetEase at a recent online games fair in Shanghai. Beijing-based NetEase said its revenue in the past quarter was US$72 million, 8.6 per cent up on the first quarter and a year-on-year rise of 38 per cent. [newsphoto]

Tong attributed this to the fact that many gamers were glued to their TVs during the FIFA World Cup in June and July and complaints about the alleged pro-Japanese nature of some of NetEase's games.

Tong said that both of these were one-off problems.

However, what is more worrying is that NetEase's new game Datang, which was launched on July 19, has only attracted 30,000 players.

"In the short term, NetEase appears to be a healthy business, but in the long term, the attractiveness of its new games remains to be seen," said the Shanghai-based analyst.

Shanda Interactive Entertainment, NetEase's major competitor, which is also listed on the NASDAQ, is expected to announce its results today.

The9 Ltd, another of NetEase's competitors, reported "better than expected" results last Thursday.

KongZhong Corp, one of China's major mobile value-added service providers, also released its financial results yesterday, saying its net income rose 15 per cent year-on-year to US$7.6 million on sales of US$30.07 million. Its diluted earnings per share were 21 US cents.

The mobile value-added service business, which includes text and multimedia messages, ringtone downloads, and ringback tones, is under severe regulatory pressure, as the Chinese Government strives to prevent the spread of pornographic and violent content on mobile phones, and is cracking down on fraudsters in the sector.

Mobile operators such as China Mobile and China Unicom want to strengthen their controls on service providers and develop their own value-added services, further squeezing companies such as KongZhong.

(China Daily 08/16/2006 page10)