Later this year the Beijing-headquartered company will release ``TianXia,'' the working title of its first-ever 3-D game, and possibly its most important single product ever.

It will be pitted directly against new domestic games and the battle-hardened wiles of overseas firms such as US-based Blizzard, whose ``World of Warcraft'' game has taken the world - including China - by storm.

``We have been developing [the game] for nearly two years, and in terms of graphics we think it will be the best [game] in China,'' NetEase chief operating officer Michael Tong said. ``We expect it to become at least as successful as any of the games we have now.''

Lehman Brothers analyst Lu Sun predicted in a May 18 research note that ``TianXia'' should see ``meaningful revenue contribution'' by the end of the year, and put a 12-month target of US$60 (HK$468) on NetEase's stock. The company's shares closed Friday at US$51.25.

Investors will be watching closely.

NetEase continues to plug itself to customers as one of China's ``Big Three'' portals along with fellow Nasdaq-listed firms Sina and Sohu, despite its increasing emphasis, some may say dependency, on Internet gaming.

Whatever its identity, its star is certainly on the rise: First-quarter revenue rose 18 percent quarter on quarter to 328 million yuan (HK$308.38 million), and nearly 60 percent on an annualized basis. Online gaming revenues grew nearly 50 percent in the six months to March 31 and by 192 percent for the full year 2004.

Lehman's Lu noted that NetEase was on ``track to deliver robust growth'' of 15 percent in online games and 18 percent in Internet advertising.

So far the good has far outweighed the bad. NetEase has two of the top three online games in China, according to industry statistics. ``Fantasy Westward Journey,'' a game based on the 16th century Chinese classic Journey to the West, boasts 680,000 concurrent mainland users, more than any other game in China. The game's prequel, confusingly titled ``Westward Journey Online II,'' is in third place with 460,000 regular players.

But fortunes can quickly turn sour in the fickle gameplaying industry. British gaming firm Eidos suffered for years despite creating the hugely successful ``Tomb Raider'' games.

``Westward Journey II'' is expected to peak at the end of this year, however, while ``TianXia'' will be pitted against ``World of Warcraft,'' which has taken six months to top online gaming charts in the United States, Europe and Korea.

Blizzard's mainland partner, The9.com, which completed its Nasdaq IPO last December, paid US$70 million for the license - a huge sum of money for any firm, let alone a mainland company with a short but often troubled history. Early signs are that The9.com could have a hit on its hands in China. More than 500,000 users have signed up since it started beta (pre-launch) testing to the public earlier this year.

This provides something of a Catch-22 for NetEase, which needs 3-D games (hitherto unpopular among mainland users) to take off before launching ``TianXia.'' Conversely, it doesn't want ``World of Warcraft'' to become too much of a hit, either for Blizzard or for The9, one of NetEase's closest rivals. Tong says that if the June launch of ``Warcraft'' turns out to be a flop, it may be too much for The9's finances to bear.

sherman.so@singtaonewscorp.com

elliot.wilson@singtaonewscorp.com