China's The9 posts 23% drop in income

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SHANGHAI -- Leading Chinese online gaming company The9 Ltd. posted a 23% drop in net income for the quarter ending June 30, blaming infrastructure upgrades, the Nasdaq-listed company said Tuesday.

Shanghai-based The9's results come one day after Chinese online gaming rival Shanda Interactive Ltd. reported record quarterly revenue. The two do not compete head-to-head with the same game titles or services.

The9 reported net income for the quarter ending June 30 of $6.6 million, a 23% drop from its $8.7 million first quarter net revenue, and a 40% drop from $11.1 million in the second quarter of 2006. Fully diluted earnings per share were $0.25 for the period, compared with $0.35 for the first quarter of 2007, and $0.45 for the second quarter of 2006.

The company said the cost of services increased during the quarter because of the cost of upgrading servers and broadband infrastructure to support its wildly popular "World of Warcraft" game offerings, and costs for the launching of "Soul of the Ultimate Nation."

To support U.S.-based Blizzard Entertainment's "World of Warcraft" in China, the company said its "World of Warcraft" servers were shut down on a rotational basis to facilitate infrastructure upgrades for the massively multiplayer online role-playing game. "World of Warcraft" has more than 3.5 million subscribers in China, according to the company. Despite this, the company said it maintained stable revenues compared with the previous quarter at $35.5 million, an increase of five% of the same period in 2006. As of June 30, 2007, The9 had more than 22.4 million total registered users and peak concurrent users of about 930,000 during the second quarter of 2007.

China has 37.5 million mostly young, male gamers who play at least one online game per month.

The9 also faces a recent spate of legal troubles, including a lawsuit by Korean game publisher Hanbitsoft, reported Korea's daily technology newspaper the Electronic Times on Monday. Hanbitsoft alleged The9 delayed paying royalty fees amounting to $2.8 million for the game Granado Espada licensed to The9 in 2004.
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