China Economy-Hotel Chain Goes Luxury

TALES OF THE TAPE
China Economy-Hotel Chain Goes Luxury By KATE ZHAO Of DOW JONES NEWSWIRES NEW YORK — China’s largest economy-hotel chain is moving into the luxury market, betting that rising living standards in China will attract more visitors to high-end hotels. Home Inns & Hotels Management Inc. (HMIN), the operator of 583 economy hotels in China, last year launched its first H hotel in Shanghai, equivalent to Starwood Hotels & Resorts Worldwide Inc’s. (HOT) W hotel chain. While it’s seeing some initial success, analysts say Home Inns has a long way to go before it can grab a significant chunk of China’s luxury hotel market. Founded in 2002 by the co-founder of Ctrip International Ltd. (CTRP), Nanpeng Shen, Home Inns has grown into China’s biggest economy-hotel chain by market share. The company went public on Nasdaq in 2006. At the end of 2008, Home Inns launched the first trial of H hotel in Shanghai, targeting medium- to high-end business travelers and pricing rooms at CNY600-CNY900 ($85-$129), comparable to Marriott International Inc.’s (MAR) average price in China. Home Inns declined to detail its expansion plans for Dow Jones Newswires, but China’s Nanfang Daily recently quoted chief executive David Sun as saying the premium-branded hotel market has the biggest potential to grow and that the company is likely to open H hotels in other cities, including Hangzhou, the capital city of Zhejiang province. IBISWorld analyst George Van Horn said globalization has made the luxury-hotel market in China highly competitive, with both domestic and international players, including Shangri-la Asia Ltd. (0069.HK) and Hyatt Hotels Corp. (H). In China, the number of star-rated hotels targeting tourism last year totaled 14,100, of which two- and three-star hotels accounted for the largest portion. Oppenheimer analyst Paul Keung said: “Home Inns is still developing, testing and fine-tuning its four-star H hotel concept.” He added that the chain targets traditional four- to five-star hotel customers looking for greater value and three-star customers looking to trade up with minimal costs. Sun told Dow Jones Newswires that the H hotel won’t seek a star rating, the same strategy as the economy-hotel chains. But he said the average daily rates and service levels–including high-speed Internet access–will target upscale business travelers, many of whom Home Inns hopes to attract from its economy-hotel business. After a slump last year, Home Inns’ American Depositary Shares have risen from a 52-week low of just over $7 to trade near a two-year high of $37.41. Shares on Monday were changing hands around $34.25. Home Inns Chief Finance Officer May Wu said in a recent conference call that the company doesn’t break out the performance of the H hotel but that “what we could report to you is that the H hotel continued to improve a bit gradually .. This is the first hotel that’s a prototype in the slightly high-end range, and we are still tweaking the models and learning from our operational experience.” Wu said the H brand has already broken even on earnings before interest, tax, deportation and amortization. Home Inns for the third quarter reported 31 cents earnings per share on revenue of $107 million, topping Wall Street’s estimate of 24 cents per share on revenue of $95 million. Home Inns now expects revenue for 2009 to grow between 37% and 39%, increasing from the 33% to 35% guidance previously announced.

NetEase Shares Fall As China Restricts Online Gaming

   By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of NetEase.com Inc. (NTES), China’s largest online gaming company by market capitalization, slumped Monday as Chinese authorities have banned foreign investors from operating online games “in any form” in the country.

China’s General Administration of Press & Publication and National Copyright Administration announced Friday that no foreign-invested companies are allowed to operate online games in China either through setting up wholly owned enterprises or joint ventures and cooperatives.

The decision contradicts an earlier one made by the Ministry of Culture, which in late September allowed NetEase to relaunch the World of Warcraft, an international game, with Blizzard Entertainment, a subsidiary of a U.S. online game developer Activision Blizzard Inc. (ATVI).

But “in what appears to be a never-ending story, the relaunch has taken another interesting turn,” said Roth Capital Partners analyst Adam Krejcik. The decision aims “to prevent overseas firms from participating in or effectively controlling online game operations,” said Krejcik.

Shares of NetEase dropped 5.3% to close at $38.35, after falling as low as $36.15. Shares of other Chinese online game companies also fell, with Perfect World Co. (PWRD) down 4.2% and Changyou.com Ltd. (CYOU) falling 1.3%.

NetEase had decided to commercialize the World of Warcraft in late September without GAPP approval. With the new regulation, the administration will probably try to shut down the game again, analysts said.

“NetEase is stuck in the middle of an ugly power struggle between two government agencies in China,” said Krejcik. “Therefore, siding with one government department is risky and could result in longer term problems for NetEase.”

China’s online game players reached 49.4 million in 2008, the largest online game population in Asia. The industry generated revenue of $2.7 billion last year, representing a 76.6% increase over 2007, according to International Data Corp.

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com

ViroPharma Shares Fall As Rival Gets Marketing OK For Drug

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of ViroPharma Inc. (VPHM) dropped Monday after the U.S. Food and Drug Administration announced marketing approval of Australian biopharmaceutical company CSL Ltd.’s (CSL.AU) treatment Berinert for acute abdominal or facial attacks of hereditary angioedema.

The approval spurs competitive concerns for ViroPharma’s Cinryze, which is also approved to prevent hereditary angioedema symptoms that involve episodes of swelling in various body parts.

“There has been concern amongst investors that Berinert could be a formidable competitor to Cinryze and capture market share in the prophylactic setting,” said ThinkEquity analyst Brian Skorney.

ViroPharma shares dropped 3.6% to $9.45 in recent trading and are off 27% so far this year.

But company spokesman Robert Doody denied the possibility of increased competition or market share loss, saying the drugs are approved for different indications. Cinryze is approved to prevent HAE, while CSL’s Berinert is approved to treat the attacks themselves.

“The labeled indications are important from a commercial perspective because it limits the marketing activity of either company,” said ThinkEquity’s Skorney, adding that neither company would take the risk of marketing illegally.

Still, there has been speculation that Berinert’s approval could lead to off-label competition between the two companies.

“Once a drug is approved, it is up to physicians how to use it,” Skorney said.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of ViroPharma Inc. (VPHM) dropped Monday after the U.S. Food and Drug Administration announced marketing approval of Australian biopharmaceutical company CSL Ltd.’s (CSL.AU) treatment Berinert for acute abdominal or facial attacks of hereditary angioedema.

The approval spurs competitive concerns for ViroPharma’s Cinryze, which is also approved to prevent hereditary angioedema symptoms that involve episodes of swelling in various body parts.

“There has been concern amongst investors that Berinert could be a formidable competitor to Cinryze and capture market share in the prophylactic setting,” said ThinkEquity analyst Brian Skorney.

ViroPharma shares dropped 3.6% to $9.45 in recent trading and are off 27% so far this year.

But company spokesman Robert Doody denied the possibility of increased competition or market share loss, saying the drugs are approved for different indications. Cinryze is approved to prevent HAE, while CSL’s Berinert is approved to treat the attacks themselves.

“The labeled indications are important from a commercial perspective because it limits the marketing activity of either company,” said ThinkEquity’s Skorney, adding that neither company would take the risk of marketing illegally.

Still, there has been speculation that Berinert’s approval could lead to off-label competition between the two companies.

“Once a drug is approved, it is up to physicians how to use it,” Skorney said.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

THQ Shares Rally Amid Takeover Speculation

DJ THQ Shares Rally Amid Takeover Speculation >THQI

By Kate Zhao    Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)–Shares of THQ Inc. (THQI) surged Tuesday amid speculation the game and interactive entertainment software company may be a takeover target for Time Warner Inc. (TWX) or Viacom Inc. (VIA). “We do think that both Time Warner and Viacom are interested in the gaming space,” said ThinkEquity analyst Atul Bagga, adding that in the recent earning calls, the companies’ managements have talked about an increased focus on gaming. Competition among media conglomerates has intensified, and both Time Warner and Viacom are looking for new revenue growth opportunities. Wall Street Strategies analyst Brian Sozzi pointed to THQ’s successful cost-cutting moves over the past year, which have expanded margins and made the company more attractive to potential suitors. A THQ spokeswoman declined to comment on speculation, as did both Time Warner and Viacom. THQ shares closed up 13% at $7.46 after earlier surging as high as $7.57. Sozzi has THQ’s price target at $9 but said if either Time Warner or Viacom is going to buy the company, they probably will pay $12 to $15 a share, at least a 60% premium. Analysts also think other gaming companies might be takeover targets. “While we won’t be surprised by an offer for THQ, we believe that Take-Two Interactive Software Inc. (TTWO) could be a better take-out candidate,” said ThinkEquity’s Bagga, adding that Take-Two has a number of strong franchises and a number of wholly owned Internet Protocols. Wholly owned IPs not only carry higher profitability, but also are more valuable to media companies because they could be adapted into movies, TV serials and online destinations. Take-Two shares closed up 5.1% at $11.72 on Tuesday.   -By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Deckers Shares Rise On Aug Retail Sales, Optimism For Fall

By Kate Zhao Of DOW JONES NEWSWIRES NEW YORK

(Dow Jones)–Shares of Deckers Outdoor Corp. (DECK) rose nearly 7% Tuesday, helped by stronger-than-expected August retail sales and as analysts said the footwear and apparel company is well-positioned for the fall season.

In recent trading, the stock was up 3.7% at $74.80 after earlier rising as high as $76.80. Shares are off 6.7% so far this year.

Despite the popularity of its Ugg brand, Decker is dealing with slowing growth. Second-quarter Ugg sales increased 23%, well below a 67% surge in the first quarter. But analysts commented Tuesday that boot and outdoor footwear sales always perform better in fall and winter seasons.

“There is an industrywide trend towards boots,” Piper Jaffray analyst Jeffrey Klinefelter said, while also adding investors are recognizing stronger retail sales across the country will lead to refreshment orders for vendors.

The U.S. Commerce Department said Tuesday that retail sales last month exceeded expectations and climbed 2.7%. Wall Street expected a 2% increase in overall retail sales.

“We think the company has great long-term potential,” said Klinefelter, adding that the expansion across Europe and Asia markets will also help boost Deckers’ sales globally.

Deckers now sells in the U.K. and other European and Asian countries through outside distributors. Klinefelter expects the company to continue expanding both distribution agreements and direct agreements over the next several quarters and said it also has opportunities to further develop some smaller brands domestically, such as Teva, Simple and Tsubo.

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Consumer Cos Push High-End Products In China As US Cuts Back

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–After years of peddling higher-end offerings in the U.S., consumer-product companies have begun to tout their most affordable offerings. In China, they are headed in the opposite direction.

Cosmetics giant L’Oreal SA (OR.FR) said Friday in Beijing it is officially launching its Elseve hair-care product line in high-end drugstores in China in its first attempt to squeeze into the premium hair-care market there.

Other multinationals are doing the same. Proctor & Gamble (PG), which recently said it will sell more lower priced products in the U.S., has been touting the success of a more expensive version of its Pantene brand in China.

P&G launched the new product line for its popular Pantene hair-care brand, Clinicare, in Asia at the end of 2007, and sold it at a 30% premium to the brand’s other products. Sales of Clinicare in China have doubled in one year. The product became so successful that P&G’s new chief executive, Robert McDonald, singled it out on a recent conference call.

By contrast, P&G recently launched Tide Basic, a lower priced version of its well-known detergent in the U.S.

“We’ve got Chinese consumers buying [Pantene Clinicare] and liking that form of Pantene a lot,” McDonald told investors. P&G’s profit declined 18% in the quarter, hit by the economic recession as consumers shied away from its higher price products in the U.S.

“You got more millionaires in China, buying premium products than you do in the United States,” McDonald said. “So in China we got to have higher priced products that meet the needs of those consumers looking for that kind of value.”

China’s middle class has surged in the past few years. Around 1.6 million families now earn more than CNY200,000, or $29,412, a year in urban areas. McKinsey & Co., which uses that income threshold to define a middle-class family, estimates the number is going to reach 4 million in 2015. This rising middle class has become the target of international companies seeking new revenue sources outside slower growing developed countries.

The demand for high-end products is rising fast. The premium hair-care market in China is expected to reach $166.6 million this year and grow up to $238.2 million in 2013, according to marketing research firm Eurominotor International.

Many international brands are relying on celebrities to promote their brands as representatives of a lavish lifestyle. Pantene Clinicare uses international supermodel Du Juan, whose appearance in the Milan fashion week with shimmering hair further helped boost its brand awareness and credibility. To maintain the brand’s premium image, P&G limits the distribution of the product to Watson Pharmaceuticals Inc. (WPI) drugstores, Carrefour SA (CA.FR) markets and a few other high-end retailers.

P&G competitor Unilever PLC (UL) recently reformulated its Lux shampoo and launched a new product line called Lux Super Rich. The company filmed a seven-minute video with Catherine Zeta-Jones that aired only in the Asia market.

Shiseido Co. (4911.TO) and Kao Corp. (4452.TO), two Japanese personal-care and cosmetics companies, both launched similar premium product lines last year using supermodels and actresses from the region in advertising.

P&G’s Clinicare is likely to perform well in the short term in China, as the product is in line with the latest consumer trends, according to a report by market-research firm Euromonitor International.

Clinicare is also offering a smaller pack for convenience-driven consumers looking for just one wash, Euromonitor analyst Michelle Huang said. Consumer multinationals are expected to continue to focus on the middle market in China and to push into poorer rural areas, home to a big chunk of the population. Still, Huang says only a limited number of Chinese consumers will choose to buy premium hair-care products, especially during the economic downturn.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Family Dollar Gets Boost From Food Subsidy Program Expansion

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–The U.S. government is expanding its food subsidy program to cover more low-income individuals and families, and Family Dollar Stores Inc. (FDO) is reaping the benefits.

One quarter of the core consumers visiting Family Dollar, the nation’s largest publicly traded dollar-store chain, participate in the federal subsidy program, and the number is on the rise, according to a recent report by Pali Research.

Four years ago, Family Dollar began adding more varieties of food to its shelves to meet increasing demand from its customers. The company also installed more refrigerators and coolers to carry milk, eggs and cheese.

About 34.4 million low-income children and individuals participate in the Supplemental Nutrition Assistance Program, or SNAP, formerly the Food Stamp Program. Participation jumped 21% in May compared with a year ago, according to the U.S. Department of Agriculture. The government spent $6.1 billion on the program in the 12 months ended in May, USDA data showed. Pali Research estimates spending will reach $15 billion this year.

The federal government is expanding its stamp program to cover more low-income Americans. Meanwhile, it’s also giving more cash to those existing receivers. “So when they walk into the store, they have more to spend,” said Stacey Widlitz, an analyst at Pali Research.

MKM Partners analyst Patrick McKeever said the food subsidy program “has been material for same store sales growth” at Family Dollar, allowing shoppers to “free up some dollars to spend on other items.”

McKeever said the company has put more stores on the program, and, as more consumers become aware that Family Dollar accepts the form of payment – now an electronic payment card similar to ATM cards – the program could become more meaningful to same-store sales growth. He said he expects to see a 1% to 3% same-store sales increase in the following months.

Analysts say Dollar Tree Inc. (DLTR), another publicly listed dollar store, isn’t expected to benefit as much from the food subsidy program as fewer of its stores accept the payment method. Dollar Tree representatives couldn’t be reached for comment.

Officials at Dollar General Corp., a large, privately owned discount chain, were not immediately available for comment.

In July, Family Dollar reported that its inventories grew by 1.3% in the fiscal third quarter, with added consumables more than offsetting lower inventories in discretionary categories. Sales of consumables, by far the largest division, rose 13% in the last three months.

“We’ve seen over the last few years there is a need for more fill-in grocery trips,” said Family Dollar spokesman Josh Braverman. “It’s not automatically a reaction to the recession. It’s more of a long-term strategy for us to grow our food business … People changed to buy what they need, not necessarily what they want.”

The company is upgrading its systems to enable more stores to accept the SNAP card. About 60% of Family Dollar’s 6,617 stores can now accept payment through SNAP, compared with about 25% a year ago. Family Dollar is expecting to complete the rollout in all stores by early 2010.

While dollar stores may be seeing a sales bump, traditional grocery chains aren’t.

For traditional grocery stores, food stamp revenue is “not enough to mitigate the negative sales pressure stemming from continued and escalating consumer duress,” said Robert Summers, an analyst at Pali Research, adding that the latest round of earnings data out of the grocers showed weak sales and margin declines across the board.

Widlitz also said the program could have a long-term impact on consumer habits.

“Why would I switch back to pay a premium for something when I can find out a really good bargain with great value?” said Widlitz. “I don’t think consumers’ habits will switch back.”

Shares of Family Dollar have risen more than 28% over the last 12 months, recently changing hands at $31.23, while the S&P 500 is down more than 23% over the last 12 months.

 

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com

China Travel Co Ctrip Buys Taiwan Co Stake; Tourism Mkt Opens

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–China’s biggest travel service company has acquired a controlling stake in the No. 1 online travel company in Taiwan, betting on the growing cross-strait tourism market that had been closed for 60 years.

Shanghai-based Ctrip.com International Ltd. (CTRP) has raised its stake in EZ Travel Co. (2717.OT) to more than 50%, its second-quarter financial report showed. It also raised its stake in China’s biggest budget hotel chain, targeting the increasing number of Taiwanese visiting China.

Taiwan opened its doors to mainland tourists last July, shortly after Ma Ying-jeou, chairman of the Nationalist Party who favors closer ties with the mainland, was elected president.

Nearly 380,000 mainland tourists have since visited the island, according to Taiwan’s tourism bureau. They brought $768 million in revenue to the island in the first year. Surveys suggest 70% of the mainland’s 1.2 billion people expect to visit Taiwan at some point.

“We see the market slowly stabilizing,” said Jane Sun, chief financial officer at Ctrip. “From a strategic perspective, the alliance with EZ Travel is very important for us because the government is working hard to make sure the travel restrictions are very prudently lifted.”

She also expects to see an increase in the number of direct flights between China and Taiwan.

Ctrip reported Tuesday that its second-quarter profit surged 33% to 159 million yuan ($23.4 million), topping analysts’ expectations. Total revenue rose 26% from a year ago, driven by rising air travel and hotel bookings. The company’s market share is five times bigger than its nearest competitor, eLong Inc. (LONG), a unit of Expedia Inc. (EXPE).

Analysts at Piper Jaffray raised their target price of Ctrip shares to $55 from $44. Shares are changing hands at $51.76, up slightly. Over the last 12 months, shares have traded between a low of $16.41 and high of $55.88.

Since the Communist Party took control of the mainland in 1949, and Nationalists withdrew to Taiwan, mainland tourists had been forbidden from visiting Taiwan and bilateral investment was subjected to tight scrutiny.

Relations started to thaw after Ma was elected, and politicians have increased bilateral visits, pushing through major breakthroughs in bilateral ties. In April, China Mobile Ltd. (CHL) offered NT$17.77 billion (US$542 million) for a 12% stake in Taiwan’s Far EasTone Telecommunications Co. (4904.TW). If approved, it would be the largest cross-strait business deal in more than 60 years.

On Thursday, China’s UnionPay, the country’s dominant payment network similar to Visa and Mastercard, announced mainland tourists can use its transaction service in major Taiwan cities from Aug. 7.

“We see the increasing use of broadband Internet, and also increasing use of credit cards [among middle-class Chinese],” said Michael Orlson, an analyst at Piper Jaffray. “We see the overall e-commerce growth in China, and as part of that, we see online travel growth in the foreseeable future.”

After attracting millions of visitors during last year’s Beijing Olympics, mainland businesses are now awaiting next year’s World’s Fair in Shanghai, an event that’s a “definite positive” to the tourism industry, said Orlson.

Such events will benefit Home Inns & Hotels Management Inc. (HMIN), which just reported its second-quarter net income jumped 13 times to CNY100.4 million from CNY7.5 million a year ago.

In May, Ctrip bought more than 7 million shares of Home Inns, China’s biggest budget hotel chain, for $50 million. The purchase increased Ctrip’s stake in Home Inns to 18%. Ctrip said it doesn’t have plans to further increase stakes in Home Inns. Nanpeng Shen, a co-founder of Ctrip, founded Home Inns.

“The two companies work under different business models, so it doesn’t make sense that Ctrip would take risks to enter the hotel business,” said Hao Hong, an analyst at Brean Murray Carret & Co.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Duoyuan Global ADRs Jump After Hours On 2Q Results

Aug 2009 16:59 EDT =DJ Duoyuan Global ADRs Jump After Hours On 2Q Results

By Kate Zhao    Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)–Shares of Duoyuan Global Water Inc. (DGW) jumped sharply in after-hours trading after the company posted a near 50% jump in second-quarter earnings. China’s continuing water crisis may stand as the next investment opportunity in the world’s biggest emerging market, with Duoyuan Global, a Beijing-based water-treatment-equipment manufacturer, leading the charge for U.S. investors. The company said its earnings for the quarter jumped to 65.3 million yuan ($9.6 million, or 63 cents per America depository share), from CNY43.7 million a year ago. Net sales were CNY213.7 million, a 32% increase from CNY161.4 million a year ago. Gross margin jumped 3.7 percentage points to 49.6%. Duoyuan Global, which listed its shares on the New York Stock Exchange in late June, forecast third-quarter revenue of CNY240 million. There were no analysts’ expectations for the quarter’s results because the company is newly listed. “Despite the global economic environment, China’s water treatment industry continues to create strong demand for our products,” Wenhua Guo, the company’s founder and chief executive, said in a statement. Duoyuan produces both wastewater-treatment equipment for industrial use and purifying equipment for residential communities and commercial buildings. The company’s shares debuted at $16 on June 24, demonstrating renewed interest for Chinese companies by U.S. investors, and have continued higher, closing Monday at $29.32. In after-hours trading, shares were changing hands at $32. Listing in the U.S. not only offers Chinese companies better access to the capital markets, it also increases the company’s “visibility to the Chinese government and…the manufacturer’s visibility to its clients,” said Katherine Lu, an analyst at Oppenheimer & Co. The amount of water available per person in China is just one quarter of the world average, according to the World Bank, which estimates that more than half of China’s major cities suffer from water shortages, affecting 160 million people. As a result of widespread water pollution, 700 million people in China drink contaminated water every day. Analysts say the Chinese government has and is expected to continue to invest heavily in its infrastructure, including water supply and wastewater treatment facilities. The market for Chinese water treatment will be mainly driven by severe water shortages and water pollution in China, as well as the government stimulus package, which will increase the infrastructure construction investment, Lu said. Duoyuan is a market leader in northern China, where water scarcity is more severe than southern China. Last week, major cities across China raised the price of water to 31 cents a cubic meter, to encourage consumers to conserve water. Demand for purified water in residential communities and commercial buildings is growing fast in China, leaving Duoyuan well-positioned to increase revenue, analysts said. -By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

IT Companies Helping Make Smart-Grid Vision A Reality

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–The vision: It’s 2 a.m. and the dishwasher starts after receiving a signal from the utility company because demand is low and electricity is cheap.

The reality: Electricity grids sprawling across the U.S. are in need of an upgrade, and large information technology companies are entering the arena in a bid to drag the grids into the Information Age.

In a “smart-grid” world, not only could appliances be triggered to run in off-peak hours, but power companies would be able to instantly alert consumers when power shortages strike and have better estimates when power levels should return to normal.

Helping press the charge is $16 billion in potential funding from the federal government’s stimulus package and private investors. The payoff would be smart-grid investments that grow into a $64 billion market over the next four years, according to energy consulting firm KEMA.

“Bring to mind the craze of ‘dot-com’ investments and telecom mergers and acquisitions, and a reasonable picture starts to emerge of what can be expected of smart-grid investments and merger and acquisition in the next five to 10 years,” said David Leeds, an analyst at market research company Greentech Media.

With annual revenue of roughly $300 billion, the U.S. electric utility sector is twice the size of the telecommunications industry. Future smart grids could help cut consumers’ monthly electricity bills and reduce utility companies’ operational costs, while IT companies will see a new business of “grid computing.”

International Business Machine Corp. (IBM), Cisco Systems Inc. (CSCO), Oracle Corp. (ORCL), Google Inc. (GOOG) and others are already working to cultivate the existing market and compete with each other for future market share.

IBM Global Financing has set aside $2 billion to help jump-start projects in smart-grid and related technologies, and its parent IBM has created an alliance of industry players.

“This is a complex problem with a lot of different layers and applications,” said Michael Valocchi, lead consultant at IBM’s energy and utilities sector. IBM is working with General Electric Co. (GE), Cisco and Honeywell International Inc. (HON) in networking gear and manufacturing supply.

“You will see in different times we are partners with people you would assume are natural competitors,” said Valocchi.

Cisco announced last month a three-year partnership with Duke Energy Corp. (DUK) to work out a two-way digital communications architecture.

“What we do with Cisco is primarily about getting the things done in architecture, standardization, and further design and review of the smart grid and ‘energy Internet,’” said Todd Arnold, senior vice president for smart grid and customer systems at Duke.

Rick Geiger, director of business solutions with Cisco, said the company is working to build intelligence and security into the grid with secure and scalable communications infrastructures.

Oracle has created software to link utilities operations and consumer access to detailed consumption data. Google is testing free Web-based software to track and manage daily energy consumption for buildings.

“In certain levels of certain products, we are competitors; in other areas, we complement each other in smart grid and energy,” said Guerry Waters, Oracle vice president of industry strategy.

As the market matures, Waters said, some of the smaller players will be absorbed by bigger players. “We will certainly be moving into that consolidation period in the next couple of years.”

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com