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ChinaCache International Holdings Ltd. (NASDAQ:CCIH)

Q4 2013 Earnings Conference Call

March 12, 2014 8:00 PM ET

Executives

Edith Kwan – Director, IR

Song Wang – Founder, Chairman and CEO

Ken Zhang – President

Jing An – Acting CFO

Analysts

Kai Qian – CICC

Jun Zhang – Wedge Partners

Operator

Hello and thank you for standing by for ChinaCache’s Fourth Quarter and Unaudited Full Year 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. After management’s prepared remarks there will be a question-and-answer session. Today’s conference call is being recorded. If you have any objections, you may disconnect at this time.

Now, I would like to transfer the call to Ms. Edith Kwan, Investor Relations Director of ChinaCache. Edith, please proceed.

Edith Kwan

Hello everyone and welcome to ChinaCache fourth quarter and full year 2013 earnings conference call. We distributed our earnings release earlier today. If you have not received a copy, you can find it in the Investor Relations section of our website.

Today you will hear from Song Wang, Founder, Chairman and Chief Executive Officer of ChinaCache; Dr. Ken Zhang, President of ChinaCache; and Ms. Jing An, Acting CFO of ChinaCache. There will be a question and answer session following management’s prepared remarks.

Before we proceed, please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC. ChinaCache does not undertake any obligation to update any forward-looking statements except as required under applicable law.

Our earnings press release and this call includes discussion of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures and is available on our IR website.

As a reminder, this conference call will be recorded. In addition, a live and archived webcast of the conference call will be available on our IR website as well.

I will now turn the call over to our CEO, Mr. Wang who will make his remarks in Chinese and then I will provide an English translation.

Song Wang

[Foreign Language – Chinese]

[Interpreted]

Good morning, everyone. Thank you all for joining us for our fourth quarter and full year 2013 conference call. 2013 was a year of robust growth for our company. We celebrated ChinaCache’s fifteenth anniversary as the leader of China's CDN industry and our revenues reached a record high for both the year and the fourth quarter.

During the year, we considerably advanced our business, both financially and operationally. We made key investments in our ERP and CRM systems operations platforms talent and mobile internet. This strategy has supported our growth and enabled our successful acquisition of new and enterprise customers, mobile internet technology development, and our expanded international operations, especially with carriers.

[Foreign Language – Chinese]

[Interpreted]

Today we are serving more than 330 million desktop and mobile internet users and supporting more than 2.6 billion page views takes place daily through our network. China’s thriving internet industry continues to support our growth. Our net revenue for the fourth quarter exceeded the top-end of our guidance by 14% reaching RMB339.4 million. This represents a 50.8% year-over-year increase and a 23.2% increase quarter-over-quarter.

Gross margin in the fourth quarter also improved year-over-year growing 50% basis points to 31.6%. Gross margin in 2013 also improved from 2013 and reached 31.4%. Additionally, our customer base is growing at a healthy pace, and increased by 6.8% in the fourth quarter to 1687 from 1589 in the prior quarter.

[Foreign Language – Chinese]

[Interpreted]

An important part of our growth strategy has been a mass enterprise customer and we have made a great deal of achievement toward this goal in the past year. We expect to further cultivate this expanding business as we continue to deepen our relations with traditional enterprises and assist them with the transition to internet adoption for both of their operations and business.

[Foreign Language – Chinese]

[Interpreted]

The mobile internet space has also become an important and rising component to our customers and end-users. We have not only welcome more major applications starts as customers, but have also seen the traffic surging over the past year, with some customers’ traffic spiking several folds in 2013.

We have also started serving many popular apps and supported them throughout their growth. Carriers are being influenced by a rapid shift in demand and voice transmission to data transmission and the issuance of 4G licenses last year is expected to trigger additional mobile internet traffic.

These dynamics are driving carriers to seek our cooperation in order to capitalize on new business opportunities brought on by the mobile era. As an example, in the fourth quarter 2013, we secured new business from China Mobile and signed a MoU to provide CDN at operation services for their media hub in Shanghai to enhance the mobile reader experience of end-users.

This successful cooperation also imparts an opportunity for us to work together on future video and dynamic content generation needs. Carriers are becoming important business partners for ChinaCache. In addition to China Mobile, we have also in discussion for potential innovative partnership with China Telecom and China Unicom and we will soon be making announcement on this front as these agreements are finalized.

[Foreign Language – Chinese]

[Interpreted]

Thanks to our broadband strategy, there are a lot more households in China that can now enjoy broadband internet experience and will surely boost internet consumption.

However, this strategy only takes into consideration enhancing the large amount of internet speed. According to our China internet report for the fourth quarter, most regions in China still experience a significant connection speed gap between the peak and off-peak hours. On average, the gap is as much as 35% across the whole country.

These connection speed gaps indicate that the content is not being hosted locally and needs to pass through other operators and other provinces which result in notable delays in transmission speed.

ChinaCache is dedicated to creating solutions to improve the internet speed in immediate mile so as to improve internet user experience. We are now currently rolling out our CDN services for Beijing and we look forward to provisions that enable us to expand to other provinces where we can implement our services that benefit the end-users, the carrier and our company.

[Foreign Language – Chinese]

[Interpreted]

In addition to our work to improve internet speed on a technical level, we are playing a strategic role in improving the overall network environment in China. In November 2013, we took an exciting step in this direction and set up a joint laboratory with the MIIT.

There is a cooperative effort with the government in which we will use our network resources and expertise to research and generate ideas for the next generation CDN and other important network technology developments, especially in the mobile internet, tech data and cloud computing areas.

For cloud computing in 2014, the company is committed to expand both our hardware and software engineering efforts to initiate and improve our internal cloud adoption and external public cloud offering. We have recently completed the upgrade of our public cloud infrastructure with a new platform to provide better performance with durability and scalability for our customers.

In addition, through the integration of our CDN resources, technology infrastructure and support systems, we will be able to lower our operating cost and increase productivity through the adoption of our private cloud. The completion of the initiative will be an important operational milestone this year.

[Foreign Language – Chinese]

[Interpreted]

Our network growth in 2013 is a small demonstration of what we think we can accomplish in the future. We see continued exponential growth in demand by the internet giants.

In order to service these growing needs, we will continue to focus our resources on developing technologies to enable mobile internet, video and OTT video, and e-commerce experiences. Cloud adoption is also vigorously driving CDN traffic and at the same time, we are deepening our cooperation with carriers.

Each of these represents a powerful market driver that will continue to propel our growth. While we are pleased with and optimistic about the macro market drivers, our near term focus will be also on internal operation enhancement in order to ensure our company’s continued ability to scale our business in tandem with the growing market opportunity.

[Foreign Language – Chinese]

[Interpreted]

Last but not least, we would like to welcome our new investors, whose investments have helped the company to transition our shareholder structure from PIPO fund to accreditation of global leading wealth merchant company as well as provide adequate funding to strengthen our CapEx budget to support our future growth.

The achievements we've made in 2013 are critical step towards our continued growth and goal to achieve sustainable profitability over the longer-term. These accomplishments strengthen our confidence that we are taking the right steps to scale our business.

I'll now hand over the call to Ken, who will walk through at the operations and technology for the fourth quarter. Ken, please.

Ken Zhang

Thank you, Mr. Wang. The fourth quarter was a strong quarter for us and we ended 2013 with record revenues. I am happy to report that the 2013 was marked by improvement in customer engagement, especially enterprise customers. Mobile internet technology development, internet market expansion and company’s efficiency enhancements.

As evidenced by our record revenue, the strategy that we have been implementing over the last year to improve the overall quality of our service has paid off. Internal enterprise customers being one of our strategic focus, we have sequentially increased the number of enterprise customers by 8%, with the revenue from this sector growing by 23.2% in the fourth quarter.

Among our enterprise customers, media, consumer goods, and education companies made up more than 50% of new revenue in the fourth quarter.

As a reminder we began our dedicated focus in this area with establishment of our enterprise sales units in January 2013. It was not a simple task. It is a change in how we acquire our customers. It is changing from bandwidth based pricing to platform based pricing.

It has changed our role from simple network service to comprehensive solution-oriented sales. It is a change in mindset. To assist with this changes we recruited some experienced sales staff in this field in the beginning of 2013. Our total headcount remains stable throughout the second half of the year.

We are happy with the business progress. Revenues from our enterprise vertical achieved a year-over-year increase of more than 150% in the fourth quarter contributing 10% of our total revenues. We recently saw a boost of our enterprise business from media industry as more and more traditional TV stations are using online channels to broadcast their shows.

Online video has been so popular that is now presenting opportunity to TV stations as audience has grown and also a challenge as audience is not scattered among different channels.

New technological program through either via TV, TV stations or websites or via mobile devices are called multiple screens that screening through different networks from different providers.

Additionally, audience now have the flexibility to watch programs online in real-time playback or even just watch select clips. With all these options and the medium of viewing traditional TV station require professional services from ChinaCache to provide all around guaranteed end-user experience.

Apart from media customers, our recent focus on financial institutions has yielded some early results. In the fourth quarter, we secured a new contract from the CITIC bank to provide CDN for their entire website.

Recently, we have also successfully renewed our contract with ICBC, China’s largest bank. We remain their exclusive CDN service provider. We have worked with them for the past five years and we continue to expand our scope of service to them including advancement from external website to internet, from domestic service to global service, as well as the security service.

We will continue to leverage our strong customer relationships to enhance our brand within the financial and other relevant markets where we continue to make important progress.

The considerable advancement we made with our enterprise strategy in 2013 will serve as our foundation for future growth. With our dedicated solution team that we put in place three months ago, we can now provide stronger support to our sales efforts and we will continue to develop more products and service to further penetrate the enterprise market.

For example, apart from providing external website solutions, we can also provide enterprises with assistance in application acceleration, which includes increasing the speed of their ERP, OA or CRM applications.

Other focus area for our team will be to help more traditional enterprise with their e-commerce needs, just like how Suning and Guo Mei transitioning themselves on traditional enterprise into e-commerce giants. We will also offer enterprises an attractive one-stop shop solution to help with the bulk of their needs such as cloud adoption , CDN, big data and operation outsourcing.

Mobile internet continues to be an area of strategic importance for ChinaCache. Last month, ChinaCache attended the Mobile World Congress in Barcelona, where we had our exhibit for the first time. Through this event we were able to connect with a number of global carriers, and the telecom vendors. We gained a great deal of attention at this event, especially related to our mobile caching solution.

In addition, in February, Ericsson announced the global CDN partnership between them and ChinaCache to support mobile operators content and media delivery service. In early March, we also signed a R&D cooperation on mobile CDN solution with Nokia Solutions and network.

This achievement demonstrates that ChinaCache is gaining important traction in mobile internet development and is keeping pace with the global market development.

Our goal is to expand faster, steadier internet capabilities across China to support the massive build up of next generation mobile network 4G and the cloud computing infrastructure. Looking at the business catalyst in the near term, cloud adoption is rapidly taking off.

Our enhanced CDN is critical to provide a better user experience for cloud computing and our strategic partnership with leading cloud service provider is critical to the progression.

We continue to see a number of sizable internet giants adding CDN support to their cloud offerings. Beside Microsoft cloud service, Windows Azure and Kingsoft Cloud, we recently added another major internet customer who already engaged over 100 million users on their cloud platform just several months after its launch leveraging our widely distributed content media network integrated with their cloud solution.

We can help our customers enhance the user experience and improve user adoption. We are extremely excited about the continued cloud computing momentum.

Our internet traffic in the fourth quarter was also greatly boosted by the Annual Online Shopping Gala on November 11. All of China’s major e-commerce providers posted record sales that date, from the 24 hours online shopping blow out. One of our customers, the Chinese smartphone maker Xiaomi was among the first companies to reach RMB100

million in sales during the festival.

Part of their sales was from set-top-boxes, together with other brands, a huge number of set-top-boxes and internet TVs has been sold during the shopping gala, which means there is a potential boost of video traffic in the longer-term that will translate into meaningful revenue contribution to our company.

In order to provide tailored service for the OTT market, we will continue advance of a one-stop OTT CDN solution as we further expand our video business in 2014. Recently, our overseas market has been funding beyond Asia, driven by our telecom vendor cooperation.

Over the past years we have worked to develop partnership with operators in Southeast Asia. We are really excited to continue this momentum with more global approach going forward.

In some business cases, we work in partnership with Ericsson and Ericsson’s media delivery network integrating with ChinaCache’s global CDN service to facilitate operators’ ability to deliver more content to subscribers.

This partnership marks a initial step that can open up new revenue streams, not only for ChinaCache but also for operators and the content providers which creates a win-win situation for all parties.

We have also progressed our internal organization enhancement initiatives by making advancement to our network cost optimization plans. While the things that we are doing is bringing on resource management systems, which we believe is going to help us optimize efficiency in bandwidth and collocation costs. We expect these enhancements to structurally reduce network cost and improve our bandwidth utilization by the end of 2014.

Going forward, we will continue to invest strategically to take advantage of China’s rapidly developing internet market, which provides us with considerable advantage to continue to build upon our success. Apart from our network cost enhancement initiatives, we are continuously improving our internal ERP capabilities.

For example, in the fourth quarter, we are successfully building sales cycle management function into our ERP that expected result is that, we will be able to better track and treat all the development projects in the pipeline and better match customer needs with our offering.

In the coming months, we will continue to enhance our ERP and CRM systems to support our company’s rapid growth. I am pleased that I have already seen improvement in the visibility and predictability across our organization.

These two are important part of our ability to effectively scaling the business as we pursue our sales goal and advance our strategic initiatives into both top-line and the bottom-line improvement.

By the end of 2013, we had also streamlined our workforce and also have planned to put in place to further drive our overall efficiency.

Going forward, the company will take a disciplined approach to our investment strategies on all front and ensure company’s sustainable, profitable growth. We are making steady progress across our business and I am pleased with our achievement today.

We look forward to keep everyone updated on these initiatives as we move through the year and we continue to build the business with particularly near term focus on mobile and enterprise where we continue to see opportunities to provide enhanced experience to new and existing customers and deepen our penetration with this market.

With that, I would like to hand the call to Jing for a financial recap. Please.

Jing An

Thank you, Ken. Hello everyone and thank you for your participation. Today, my presentation will start with the financial highlights for the fourth quarter 2013 followed by a review of our results of the full year. I will then conclude with our guidance for the first quarter of 2014 and open the call for your questions.

Please note that the denominating currency is RMB unless otherwise specified. In the fourth quarter ChinaCache set another record in revenues. Thanks for across the broad market trends, especially from the internet and software and media and entertainment and the e-commerce verticals, which increased 40%, 23.2% and 23.2% quarter-over-quarter respectively.

Compared to the previous quarter, net revenues for the fourth quarter jumped 23.2% to RMB339.4 million from RMB275.4 million in the third quarter.

Gross margin were 31.6% nearly flat compared with last quarter. Our gross margins have been quite stable over time. However, bandwidth cost in terms of revenue increased slightly in the fourth quarter due to the extra bandwidth cost to handle the spike in traffic in the fourth quarter.

Despite this, in the longer-term as Ken mentioned, we have our resource management system currently under development and is scheduled to be in place by the end of this year which should see some structurally lower bandwidth cost by that time and beyond.

Operating loss for the fourth quarter improved to RMB6 million compared to an operating loss of RMB17.1 million in the previous quarter.

Non-GAAP operating loss which includes share-based compensation expenses and the impairments of available for sale was RMB1.1 million, compared with a non-GAAP operating loss of RMB12.2 million in the third quarter of 2013 and a non-GAAP operating loss of RMB20.8 million in the fourth quarter of 2012.

Looking at the various operating expenses items, the cost of streamlining the organization and the payments of year-end bonus in the fourth quarter of 2013 triggered some extra personnel-related payments in each of our OpEx elements.

Our general and administrative expenses for the fourth quarter decreased by 10% over the previous quarter of RMB43.4 million. The decline in general and administrative expenses was primarily attributable to the previous quarter accrual of bad provision.

Excluding the accrual of the bad provision in the third quarter, the sequential increase in the G&A expenses in the fourth quarter was mainly attributable to the personnel-related expenses.

Sales and marketing expenses as a percentage of revenue were about flat at 11.2% compared to the previous quarter. Total sales and marketing expenses increased to RMB25.7 million to RMB38 quarter-over-quarter primarily due to the increased personnel-related expenses and more marketing activities during the end of the year.

R&D expenses for the fourth quarter were 9% of total revenue compared to 9.5% in the third quarter of 2013, but the actual amount went from RMB 26.2 million in the previous quarter of RMB30.6 million in the fourth quarter. The 16.5% sequential increase in R&D spending again was mainly related to the personnel-related expenses.

All in all, our total operating expenses including impairment of available for sale investments were 33.4% of revenue compared to 38% in the third quarter. In 2014, we will be very disciplined in overall expense as a project budget control. Meanwhile, we will also continue to refine our ERP system to provide better visibility across the organization to optimize our operational efficiency.

In addition, we have been continually making significant improvement of our sales cycle. In the fourth quarter, our DSO decreased to 93 days from 124 days in the third quarter.

Overall, adjusted net loss defined as net loss before share-based compensation expenses, foreign exchange loss, penalties on uncertain tax positions and impairment of available for sale investment improved to RMB5 million in the fourth quarter. This compared with an adjusted net loss of RMB16 million in the previous quarter.

Overall, our non-GAAP loss per ADS in the fourth quarter of 2013 was RMB0.22 compared with a loss of RMB0.70 in the previous quarter. Adjusted EBITDA, defined as EBITDA excluding share-based compensation expenses, foreign exchange loss and the impairment of available for sale investments, improved more than fivefold to RMB20.3 million in the fourth quarter, compared to RMB3.9 million in the third quarter.

Adjusted EBITDA margin for the fourth quarter was 6% versus 1.4% in the previous quarter.

Now, I would like to provide a brief recap of our performance of the 2013 full year. Compared with 2012, our revenue increased to 35.6% to a record RMB1.1 billion. Our gross margin increased to 31.4%, up 20 basis points from 2012, owing to a favorable customer mix and the lower depreciation cost.

For 2013, adjusted net loss was RMB15.8 million versus an adjusted net income of RMB3.4 million for 2012 as we made a considerable investment toward our future growth beyond 2013 as well as some streamlining efforts to position the company for long-term growth and sustainable profitability.

Our non-GAAP loss per ADS for 2013 was RMB0.70 compared with a non-GAAP earnings per ADS of RMB0.15 in 2012. For the full year, adjusted EBITDA was RMB48.2 million compared with RMB69.1 million in 2012.

In February, we were pleased to successfully raised $55 million U.S. in a private placement affiliated with one of the world’s leading institutional investment management firms. We plan to use $29.6 million to buy back shares from some existing pre-IPO lot shareholders.

So the net proceeds will be about $25 million and will be used for 2014 CapEx proposed, mainly for building out our resource management system. Right after the close of the deal on March 5, we had approximately 398 million ordinary shares outstanding, equivalent to 24.9 million ADS and the new shareholders will have about 13.5% equity ownership in ChinaCache.

Now let me provide you with our first quarter 2014 guidance. Based on current business projections, we expect our revenue to be between RMB303 million and RMB308 million representing 31.3% to 33.5% gross over the first quarter of last year.

This concludes my remarks. I would now like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Kai Qian of CICC. Please ask your question.

Kai Qian – CICC

[Foreign Language – Chinese]

Edith Kwan

Thank you, Kai. Certainly, maybe three of your questions, first of all, – congratulate the company on the personnel high revenue in the fourth quarter but still a – we can say less. So, you are asking what the plans the company to be profitable this year.

And also, the question two, you are asking about the quality development how this impacts our business and helps our cooperation with China Mobile and Nokia and the third one is about the financing of what uses will be the funding (inaudible).

Jing An

Okay, let me start with – about how or what kind of actions we will take to control our expenses. First of all, in this year we will imply very strict budget control and that will help us our expenses grow inline and slower than our revenue growth and going forward, we will expect more tightly control of our OpEx and we will continuously improve our employee productivity.

And as I mentioned in our remarks, we streamlined the organization in the latter half of 2013 and we will continually control the growth of headcount and focus on increase the quality and efficiencies of our productivity.

Song Wang

[Foreign Language – Chinese]

Edith Kwan

I just want to explain, first of all, now we should build out the network to have enough scale to be profitable and also through the cooperation with carriers it will also impact this apart how we achieve profit in the longer future.

And right now, we foresee – we envision in the three to five years, the market can be at RMB10 billion in size. So, right now we have enough large-scale and improving our internal efficiencies, so that we can embrace the market when the market really ramp up in the future.

Ken Zhang

Okay, I can answer the question about mobile internet. I think ChinaCache mobile internet solution, we have two tracks why is through cooperation with a telecom vendor and the carrier. This is what we have announced and Ericsson has announced with China Mobile and with all the carriers. So, this is one track.

The other track is actually our in-house development – accelerate content through the network. So this is second mobile internet solution. I can talk a little bit about the first one. The cooperation with Ericsson and Nokia Solutions. This is a cached content in the mobile network.

This need to have a bulk carrier and vendor and CDN service provider work together to make it happen. So this will – depending on all three parties and we are leading in this field because we actually manage the content through the network. We can help Ericsson, help Nokia Solutions, help the carrier to really make this happen as I said in my presentation.

The timing is a little bit unclear, it’s depending on many parties. But I believe this will happen during the year, before end of the year, so that will happen, but the timing will be decided by the carrier.

And the second solution is our own in-house developed mobile internet solution. We actually accelerate the content through the network, through the mobile network, cache the content in mobile device and – access through a home gateway as I mentioned, this product already on trial with the customer, the result is very promising.

So we believe this will generate revenue in the second half of this year. And I think the business model is, we will get additional revenue from our existing customer of course, we also can get new customers for this product. So, I don’t know if I answer the full question. So, I hope it is getting more clear after this.

Song Wang

[Foreign Language – Chinese]

Edith Kwan

Yes, other than that we are right now – actually we are the first and only company, senior company building for the mobile CDN solution tailored for this mobile market.

Jing An

Let me answer you the third question. As we mentioned, we are working very hard to improve our bandwidth efficiency. So we bring in a resource management system to help us to deploy the bandwidth and collocation cost efficiently, which we expect will improve our network cost in the third or fourth quarter. So to realize that, we need to invest in the CapEx. So this financing we get closer, that we get closer will actually come in the exactly right timing to support our plans.

Operator

(Operator Instructions) Our next question comes from the line of Jun Zhang from Wedge Partners. Please ask your question.

Jun Zhang – Wedge Partners

Thanks for taking my question. Congrats on the solid quarter. My question is, so we do see a very strong growth of top-line in Q4 and we also see a sequential increase of spending on the sales and marketing.

So my question is, so the strong growth of the top-line – the top-line growth supported by the spending on the sales and marketing and what we should expect the marketing sales, the general administration cost as well as the R&D costs over the percentage of revenue for Q1? And should we expect OpEx percentage over total revenue will gradually coming down in the rest of this year? Thanks.

Jing An

Okay, so, in my remarks, we – actually we explained fluctuation of the three items of the OpEx, the reason of the increase. So, just briefly say that, the mainly reason of the OpEx increase in the fourth quarter is the personnel-related expenses. That comes from our streamlined organization.

And the second reason of the growth is our share-based compensation and exclude that part, we will see – you will see that the higher efficiency of our OpEx investment. So, in the longer term, in the next quarter and in the coming – I mean, 2014, we have confidence to gradually increase our efficiency of OpEx.

Jun Zhang – Wedge Partners

Okay, could you give us a little bit color on the Q1 guidance about the OpEx or what the percentage of total revenue is coming down from Q4? Any chance in the cost side? Thanks.

Jing An

Due to the seasonality in the first quarter of 2014, we don’t expect quite difference from 2014. We will try our best to keep the similar trend of Q4. I think for the purpose of modeling, we target the similar number of – fourth quarter of 2014.

Jun Zhang – Wedge Partners

Thanks I’ll go back to the queue. Thanks.

Operator

(Operator Instructions) There is a follow-up question from the line of Jun Zhang of Wedge Partners. Please ask your question.

Jun Zhang – Wedge Partners

Thanks, my follow-up question is, on your Q4 results, we do see a very strong revenue growth from internet software. Your reported internet software percentage over total revenue increased from 22% in Q3 to 25% in Q4. So I'm just wanting more color on where those growth coming from, which area it's mostly strong in Q4? And should we expect that that segment to continue to grow? Thanks.

Jing An

Okay, so, actually in the last quarter of 2013, we experienced very strong growth across the board, especially the traffic from major customers, software downloads. And video revenue ramp up and also the traffic from our internet customers were strong contributors to our growth for the period.

Jun Zhang – Wedge Partners

Okay, thanks. My next question is that, it is actually to Ken Wang though. So any update on the mobile caching business? And you just mentioned the partner with China Mobile, should we expect the revenue contribution to start at Q3? And what's our current feedback from the clients – the current clients, if they are willing to pay extra for the 4G base station caching or smartphone caching service? Thanks.

Ken Zhang

Actually, as long ago I had said, we actually have very close cooperation with all three carriers in China, China Telecom, China Unicom and the China Mobile. So, we have – I think this seems that the 4G deployment is a massive deployment in China. We also see huge traffic growth in China. So, we actually have very deepen – very much close cooperation with Telecom, Unicom and China Mobile.

And to answer your second question about the business model part, because if we can demonstrate our mobile CDN and improve the end-user experience, and facilitate additional revenue.

So I think this is what we are doing now and the result, the trial result has been really promising. So, we are confident this will start to generate some revenue in the second half of this year, but the more significant next year, more significant revenue in next year’s revenue.

Operator

We are now approaching the end of the conference call. I’ll now turn the call over to ChinaCache’s President, Dr. Ken Zhang for his closing remarks.

Ken Zhang

Thank you to all our shareholders, employees and partners. We appreciate you spending this time with us today and we invite you to watch our progress. We are excited for our prospects in 2014. Our growth trajectory and the favorable market dynamic place ChinaCache in the favorable position as we continue to expand our business with an eye towards enterprise, toward internet technology and overseas expansion opportunities.

I look forward to updating you on this initiative in a few months on our next quarterly call. Thank you. Thank you all.

Operator

Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you so much for your attendance. You may now disconnect.

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