This summary is based on the third quarter fiscal 2005 earnings call conducted by AsiaInfo Holdings, Inc. (ASIA: chart) on October 27, 2005.

Management:

Investor Relations: Eileen Chu
President and Chief Executive Officer: Steve Zhang
Chief Financial Officer: Ying Han

Key Investors Issues

- EPS were 1 cent per basic share compared to 11 cents per basic share last year.
- Net income was $0.43 million compared to $5 million a year ago.
- Net revenue (total revenues net of third party hardware cost) was $22 million, an increase of 53% year-over-year and a 7% decrease sequentially.

Third Quarter Highlights

Net revenue (total revenues net of third party hardware cost) was $22 million, an increase of 53% year-over-year and a 7% decrease sequentially.

Earnings per basic share also met previously stated guidance of 1 cent.

- Gross revenues were $25.2 million, representing an increase of 26% year-over-year and a decrease of 7% sequentially.
- Gross margins grew to 43% compared to 42% in the year-ago period and 41% in the previous quarter. This represents AsiaInfo’s fourth consecutive quarter of growth in gross margins, a result of the company’s continued focus on developing its high-margin core businesses.

- Revenue from software products and solutions was $15.3 million, an increase of 59% from the year-ago period and a decrease of 5% sequentially. Service revenue increased to $6.3 million, a 47% increase year-over-year and an 11% sequential decrease.
- Third-party hardware revenue fell to $3.6 million as the company continued its focus on high margin software solutions and services.

- Lenovo-AsiaInfo contributed approximately 26% to net revenue, including a 21% contribution to software products and solutions revenue and a 36% contribution to service revenue.
- Total operating expenses were $11.4 million, an increase of 44% year-over-year and a 4% increase sequentially. The increase from the year-ago period is largely due to the expenses associated with the integration of Lenovo-AsiaInfo. Lenovo-AsiaInfo contributed 34% to operating expenses for both the third quarter and for the nine months ended September 30, 2005. Following the increase in operating expenses, AsiaInfo’s operating loss was $0.43 million, compared to a $0.42 million operating profit in the year-ago period and a $0.18 million operating profit in the second quarter.

- Lenovo-AsiaInfo had an operating loss of $2.1 million, before overhead allocation and after the amortization of acquired intangible assets, due to the revenue decrease resulting from the ongoing business restructuring. Lenovo-AsiaInfo is expected to achieve healthy growth in 2006 as it focuses on developing its leading security products and services business.

- Net income was $0.43 million, or 1 cent per basic share. Net income in the year-ago period was $5 million or 11 cents per basic share after a one-time investment gain of $4 million, and $0.83 million or 2 cents per basic share, in the previous quarter. Operating cash flow was $6.3 million.

- In line with AsiaInfo’s previously announced strategy of focusing on high margin core business lines, the company announced in October that it had entered into an agreement to sell certain assets constituting its human resources and business intelligence software business to Hinge Software Co. Ltd. (“Hinge”). Under the terms of the sale, Hinge has agreed to purchase the assets in exchange for cash in the amount of RMB15 million (approximately $1.85 million), and to assume certain liabilities associated with such assets. Hinge is obligated to pay the purchase price no later than the close of business on December 30, 2005. The payment of the purchase price is secured by 8% of the outstanding equity interests of Hinge. In connection with the sale, the company has agreed to reinvest the cash proceeds for 5% of the outstanding equity interests of Hinge.


Key questions from the third quarter earnings call conducted by AsiaInfo Holdings, Inc. on October 27, 2005.

Chang Qiu (Forun Technology Research): Can you give some detail on what the revenue run rate is for the diversity business?

Eileen Chu: For this quarter the net revenue for them is less than $1 million.

Steve Zhang: Going back to fourth quarter the average revenue per quarter is somewhere between half million to 1 million.

Chang Qiu (Forun Technology Research): What is the composition for the impairment charge?