Sohu to benefit from consolidation flux

Analysts agree that Sohu.com can benefit by standing outside the China's current dotcom consolidation flurry

By CNN's Kristie Lu Stout

HONG KONG, China (CNN) -- Sohu.com has been left out of the recent surge in China dotcom merger and acquisition talks, a position it regards as a window of opportunity.

Reports of mounting consolidation in the China Net sector include every Nasdaq-listed player except Sohu.

Sina.com is seen as a Chinadotcom acquisition target, with Netease in talks with I-Cable for a buy-out.

"The instability with Sina and Netease creates a window for Sohu to step up more in the next one to two quarters," Sohu.com senior vice president business operations Victor Koo told CNN.

"The strategic fit between I-Cable and Netease is not the strongest. Chinadotcom is facing challenging problems, so I wonder if merging with Sina would help or hurt," Koo added.

Outside the flurry of deals

Analysts agree that Sohu can benefit by standing outside the current flurry of deals.

"In terms of a Sina and Chinadotcom transaction, yes there is potential for Sohu," said CSFB analyst Matt Adams.

"There would be lengthy period of integration for the two companies, which gives Sohu some ability to gain some ground."

"It's great if they have the cash to sit through it," adds Kristian Kender of Strategic Intelligence. "If Sohu has the wherewithal, the financial ability, to stay viable while the dust settles in this consolidation."

Hong Kong pay-TV operator I-cable is reported to be in talks to buy China portal Netease.com, boosting the consolidation frenzy in the sector.

While Netease founder and majority owner William Ding agreed to sell his company for $85 million in cash, the signing of an agreement between the two firms is reported to have hit a standstill.

Last week, chief executive of China's leading portal Sina.com Wang Zhi Dong resigned. Market talk suggests that Wang moved aside so a more suitable CEO could take the reins of the company as it woos potential buyers including Chinadotcom.

AOL-Legend to heat up the sector

Reports of both Netease and Sina deals-in-progress arrive as AOL prepares to formally announce its tie-up with China PC maker Legend and its FM365.com portal later Monday.

Victor Koo concedes that the current wave in deal making activity will heat up the sector, and Sohu will carefully gauge its next step during the flurry.

"AOL/Legend will probably take some time to gel, but will become a key player by next year," said Koo.

"My view is that the competitive landscape is stepping up again and Sohu is actively looking at our strategic options as well, but it's probably too early to announce specifics at this point," he said.

Analysts say all four Nasdaq-listed China portal firms -- Chinadotcom, Netease, Sina.com and Sohu.com -- need to cut costs to boost revenues in a crowded market that will only get more uncomfortable when AOL enters the fray.

All four Web sites are all vying for control of China's limited $100 million Internet advertising market.

But CSFB's Adams is optimistic that Sohu.com has what it takes to weather the shakedown.

"Sohu has been doing quite well -- it is the only portal offering positive guidance or revenue growth for the next quarter, whereas Sina and Chinadotcom are talking about revenue declines."

Sohu nudged up 1.8 percent on Friday to end the week at $1.71.