This summary is based on the fourth quarter fiscal 2007 earnings call conducted by AsiaInfo Holdings Inc. (ASIA) on February 14, 2008.
Chief Executive Officer, President, Director: Steve Zhang
Chief Financial Officer, Vice President: Eileen Chu
Manager, Investor Relations: Charles Zhang
Key Investors Issues
- The earnings per share were 19 cents as against 5 cents in the prior year.
- Revenue rose 17% sequentially to $40.8 million.
- Net income for 2007 was $23.6 million, on revenue of $115 million.
Fourth Quarter Fiscal 2007 Financial Highlights
Total revenue was $40.8 million, an increase of 27% when compared to the fourth quarter of 2006, and 26% compared to the third quarter of 2007.
Fourth quarter telecom software products and solutions revenue increased 31% year over year and 17% sequentially. The growth was driven by a strong market demand for industry leading telecom software solutions, which enable telecom operators to differentiate service offerings and improve service quality in the face of ever intensified competition. Sequentially, the increase also reflects market seasonality, which is the strongest in the fourth quarter.
Fourth quarter net revenue for telecom business increased 28% year over year and 13% sequentially.
Lenovo-AsiaInfo’s net revenue increased 97% year over year and 44% sequentially. The significant increase reflects continued strong recovery of this division. Sequentially, it also reflects market seasonality of China’s IT security market, which is stronger at the end of the year.
Gross margin of the group increased 6% year over year and decreased 2% sequentially.
The year-over-year and sequentially fluctuation in gross margin primarily reflects changes in the percentage of revenue generated from third-party hardware sales. On a year-over-year basis, the increase also reflects improving gross margin of the Lenovo-AsiaInfo division. As a result of the firm’s focus on core business of high margin software solutions, third-party hardware sales have been generally decreasing over the past few years. However, from time to time, the firm does offer third-party hardware as part of its total solutions in response to its customers’ requests. Gross margins of Lenovo-AsiaInfo increased from 52% in the year-ago period to 53% in the fourth quarter, as revenue growth outpaced that of costs.
Gross profit as a percentage of net revenue was 56% as compared to 54% in the year-ago period and 55% in the previous quarter.
Total operating expenses for the quarter were up 20% year over year and 12% sequentially.
The year-on-year increase was primarily driven by increased sales and marketing and R&D expenses, and partially offset by a decrease in G&A expenses. Sequentially, this reflects increased R&D, sales and marketing, and G&A expenses.
R&D expenses increased 31% year over year and 8% sequentially. Sales and marketing expenses increased 21% year over year and 13% sequentially. The increase in R&D and marketing expenses was partially driven by expenses such as traveling expenses and sales commission, as revenue grew. It also reflects the firm’s efforts into new customer accounts and initiatives to capitalize on growing opportunities in China’s telecom software and IT security market.
G&A expenses decreased 6% year over year and increased 17% sequentially. The year-over-year decrease of G&A expenses reflects improvement in operating efficiency. Sequentially, the increase of G&A expenses was due to recognition of a government fund in the third quarter of 2007, which lowered G&A expenses.
- During the quarter, the telecom business posted a contribution profit before corporate G&A expenses of $5.7 million, an increase of 65% year over year and 39% sequentially.
- Lenovo-AsiaInfo posted a contribution profit before corporate G&A expenses of $1.4 million, as compared to a loss of $0.1 million in the year-ago period and a profit of $0.2 million in the previous quarter.
The group operating income increased by 253% year over year and 60% sequentially.
This reflects the strong revenue growth and continued improvement of operating margins in both telecom and IT security division.
- During the fourth quarter, operating margin of net revenue for our telecom business division increased to 14% from 8% in the year-ago period and 13% in the previous quarter.
- Operating margin of net revenue for the Lenovo-AsiaInfo division was 14%, as compared with 11% in the year-ago period and 0.2% in the previous quarter.
