Interactive Q&A: Steve Zhang, CEO of AsiaInfo Holdings (ASIA)

This article has 14 comments.

•  
  mhousealum

  Jul 30 11:07 AM
  Hello Steve,
  
  I am interested in what your projected growth rate will be for the second half of '07 and for full year '08? Also, do you feel the current stock price accurately reflects the growth of the company?
  
  Thanks.
•  
  Steve
  Zhang, CEO
  of AsiaInfo
  Holdings
  (ASIA)

  Jul 31 04:16 AM
  Thanks for your question. While we don’t give annual net revenue or bottom line projections, I can give your our net revenue guidance for the third quarter and also give you some color on our historical growth rate.
  
  We expect third quarter 2007 net revenue to be in the range of US$27 million to US$29 million, representing an increase of 15% to 23% year-over-year, and net income from continuing operations per basic share to be in the range of US$0.07 to US$0.08, representing an increase of 40% to 60% year-over-year.
  
  Looking back at the past few years, our total net revenues from 2003-2006 grew at a compound annual growth rate of over 15%. Within this, our revenue for software solutions, which is our core growth driver, grew at a compound annual growth rate of approximately 32% during the same period.
  
  As a matter of company policy, we don’t comment on the performance of our stock price.
  
  - Steve
•  
  David Zhang

  Jul 30 11:42 AM
  Steve,
  Thanks for conducting this interview.
  Can you elaborate on your recently announced acquisition? What was your thinking on this? Is it consistent with your overall acquisition strategy?
  Thanks,
  Josh
•  
  Steve
  Zhang, CEO
  of AsiaInfo
  Holdings
  (ASIA)

  Jul 31 04:22 AM
  Thanks for your question, Josh.
  
  Our general acquisition strategy is to acquire small to medium sized enterprises in the telecom sector that provide similar products and services to AsiaInfo and have contracts with our target customers. These types of businesses can be easily integrated and allow us to expand our market share and customer base quickly. Over the past two years, we have had a lot of success with this strategy and have made four small acquisitions that have all developed into profitable additions to our company.
  
  On July 19, 2007 we acquired certain assets of a telecom software company in Shenzhen that had existing telecom business support system (BSS) contracts with three provincial subsidiaries of China Unicom in Zhejiang, Hunan and Yunnan. This will significantly increase our share of the China Unicom BSS market from 5 provinces to 8 provinces and gives us the opportunity to generate ongoing revenues through delivery of new telecom solutions, system upgrades and system maintenance. This acquisition is in line with our Company’s acquisition strategy.
  
  - Steve
•  
  Joe Mama

  Jul 30 12:27 PM
  I would think that the inevitable Chinese telecom restructuring/consolid... will negativey affect ASIA being that all of the big four Chinese telecoms are your customers. Is that true? If so, what are you doing to prepare for that reality?
  
  Joe
•  
  Steve
  Zhang, CEO
  of AsiaInfo
  Holdings
  (ASIA)

  Jul 31 04:36 AM
  Thanks Joe for your question.
  
  The Chinese telecom industry has actually undergone restructuring activities in the past. Based on our experience, while restructuring may have a temporary impact on our revenues in the short-term, we believe that it will have a positive effect on the demand for AsiaInfo’s leading telecom software solutions in the medium to long term. Currently, the bulk of our telecom revenues are generated from contracts with the two mobile operators China Mobile and China Unicom. We believe that restructuring and the issuing of 3G licenses should result in at least one more operator being granted a mobile license and increase the competition for new and existing mobile subscribers. This should lead to greater spending on BSS system upgrades, and business intelligence and CRM solutions that help operators to identify key customer segments and differentiate their services. As a leading provider of these solutions, we are confident that AsiaInfo is well positioned to benefit from this growth.
  
  To prepare for potential industry restructuring, we are strengthening our already strong relationships with the mobile and fixed-line players. Back in the 1990s AsiaInfo played an integral role in the development of national network backbones and provincial network infrastructure for all of China’s major telecom operators. Currently, we provide billing, BSS, business intelligence and CRM solutions for China Unicom and China Mobile, and we also provide broadband billing and network infrastructure services for the leading fixed-line operators. We are also working with fixed-line operators to help them prepare for potential mobile licenses. For example, we recently announced a contract with China Telecom to deploy an integrated account inquiry system in Zhejiang province, our first time selling this solution to a fixed-line operator in China. We are also working with China Telecom in developing their future prepaid billing systems.
  
  - Steve
•  
  Ralph F

  Jul 30 01:49 PM
  Steve,
  
  Thanks for doing this interview. I have a few questions:
  
  1. What do you think are your biggest growth opportunities in the next 12 months, in terms of products, customers and markets?
  
  2. Which Chinese carrier do you think is best positioned in the market?
  
  3. If you were a US investor in Chinese stocks, based on what you are seeing in China, which stocks would you buy for your own personal account?
  
  Thanks!
•  
  Steve
  Zhang, CEO
  of AsiaInfo
  Holdings
  (ASIA)

  Jul 31 04:56 AM
  Thanks for your questions, Ralph. Let me address all three.
  
  1. We believe there are four key areas that will drive AsiaInfo’s growth in the next 12 months – 3G licenses, business intelligence solutions, wireless value added services (VAS), and the rapid growth of mobile and broadband subscribers.
  
  While we can’t say for sure when 3G licenses will be issued, we are confident that 3G will be a catalyst for growth. The official launch of 3G should lead to industry-wide BOSS upgrades and development to support new services and a growing user base. It should also lead to greater competition and greater demand for telecom software solutions as we believe that at least one fixed-line operator will be granted a mobile license. Recently, we were selected by China mobile as the exclusive BOSS provider for their extended TD-SCDMA trials in four provinces and three municipalities.
  
  A second area of growth is in the business intelligence (BI) market. We believe that demand for BI solutions is the fastest growing segment in China’s telecom market as operators seek to learn more about their user base so they can develop targeted marketing plans and differentiate their services. Currently, we have approximately 50% market share in the BI market.
  
  Third, the growing demand for wireless VAS such as push-mail, mobile music, and other data services will require telecom system upgrades to support the new services. For example, in January this year we announced a contract with China Unicom to develop their push-mail service.
  
  Finally, the rapid growth of broadband and mobile subscribers in China will generate ongoing demand for broadband billing systems and upgrades to telecom systems. There were 59 million broadband subscribers at the end of June 2006, and the number has been growing at a compound annual growth rate of 32% for the past 5 years.
  
  2. By number of subscribers and network infrastructure, China Mobile is definitely the market leader. In fact, China Mobile is the largest mobile operator in the world with over 316 million subscribers. China Mobile is a key customer of ours and their collaboration with AsiaInfo has helped them to make rapid progress in improving their and operational efficiency, service innovation, and marketing.
  
  While China Mobile is the market leader, there are still many opportunities in the market for the other operators to gain market share and competitiveness. We believe software systems and IT infrastructure is the key weapon for them to catch up.
  
  3. I’m afraid I can’t comment on this.
•  
  Ralph F

  Jul 31 04:04 PM
  Thank you Steve!
•  
  Lisa

  Jul 30 01:52 PM
  Hi Steve, thanks for answering our questions.
  
  - On your enterprise security products, how do you plan to reach enterprises in China in terms of distrubution and reach?
  
  - Can you tell us a bit about Internet access for enterprises in China: how easy is it to obtain, what is pricing like, and how reliable is it?
•  
  Steve
  Zhang, CEO
  of AsiaInfo
  Holdings
  (ASIA)

  Jul 31 05:10 AM
  Thanks for your questions, Lisa.
  
  1. AsiaInfo has a nationwide sales network that includes distribution and direct sales teams. We also leverage our telecom sales force and cross-sell security solutions to our existing telecom customer base.
  
  2. As for internet access, in China’s major cities China Netcom and China Telecom provide a range of internet services to their enterprise users that are comparable to the services available in the US. These services include ADSL, Ethernet and leased line. The pricing varies depending on the type of connection and package, and generally internet access is very reliable.
  
  - Steve
•  
  Hiren Doshi

  Jul 31 11:34 PM
  Hi Steve,
  
  With increasing competition between the mobile operators and fixed line carriers in the 3G era, do you see operators demanding more exclusive arrangement with their software solution providers to safeguard their trade secrets ? If so, will it have adverse impact on Asia Info's ability to continue doing business with all 4 major players in the future ?
  
  - Hiren
•  
  Steve
  Zhang, CEO
  of AsiaInfo
  Holdings
  (ASIA)

  Aug 01 10:37 AM
  Thanks for your question, Hiren.
  
  In the telecom industry, it is very common for a telecom software solutions company to provide billing and other telecom solutions to competing customers. This is the case both in China and in all other mature markets around the world, so we don’t see this as a problem. In fact, we are confident that the 3G era and the increased competition that arises because of it will have a positive effect on AsiaInfo’s business development.
  
  
  One of AsiaInfo’s key values is our ability to provide customized solutions that suit the specific requirements of our customers. For example, we currently provide billing solutions to nine China Mobile subsidiaries in different provinces, and while each solution is based on our core technology, the final solution for each customer is always designed to meet local requirements. As a result, each solution is often very different from the others.
  
  
  Telecom operators come to AsiaInfo because we have the strongest technology and extensive expertise in understanding customer needs and end-user behavior to create a tailored solution. As a leading provider of telecom software solutions we are looking forward to the 3G era and the new opportunities that it will bring.
  
  - Steve
•  
  SeekingAlpha
  Editors

  Aug 07 08:23 AM

  My Website
  This Seeking Alpha interactive Q & A is now closed for further questions. Thank you very much to Steve Zhang, and to all of our readers who participated.
  
  ~ The Seeking Alpha Team