July 22 - A market rumor that China Mobile (0941.HK) has terminated cooperation with Eastcompeace Smart Card (002017) due to frequent quality problems in its SIM cards began circulating on July 19, reports nbd.com.

The firm is now in communications with the state-owned telecom giant regarding that matter and will release a public filing before next Wednesday.

Eastcompeace expand »reportedly could not evaluate the impact of the rumor. SIM cards are its largest source of revenue, and China Mobile is its most important client, the source noted.

On July 20, Eastcompeace did not post a clarification notice, exacerbating investors' concern.

Some analysts have expressed their doubts about the hearsay, as the two companies have a long history of operations together.

Eastcompeace started supplying to China Mobile in 1998 and has sold it 3G cards for three years. Some analysts assert that the problem could be related to mobile payment cards or CMMB mobile phone television cards.

In 2010, Guangdong Mobile and Sichuan Mobile were the Zhuhai-based company's second and fifth largest clients, respectively, and together contributed 8.87 percent of its total revenues.

China Mobile reportedly contributes 20 percent of Eastcompeace's total revenue. Its SIM card business generated 655 million yuan in 2010 revenues, yielding profits of 154 million yuan.