The Ninetowns Mystery (NINE)

| About: Ninetowns Internet (NINE)

Ninetowns Digital (ticker: NINE) held a conference call on Tuesday to discuss its successful bid to develop a software product for the PRC Inspections Administration. Two questions come to mind: (1) why hold a conference call when the company so recently held a call to discuss it Q2 2005 earnings results; and (2) why hold a call to discuss a winning bid that will generate a grand total of $400,000. The simple answer is the news the company released less than a month ago along with its Q2 earnings results was devastating -- and from management's perspective any shred of good news is cause for celebration. But it gets worse:

Not only did the conference call provide little more than what was revealed in the adjoining press release, it was marred by a bad connection (that easily added 4 minutes to a 18 minute 54 second call), and attracted only one investor question in the Q&A portion -- a basic question about cash flow that the company took a surprisingly long time to respond to. You can access a replay of the call here. But be quick -- the replay will be removed as of September 5, 2005 at 11:59PM Eastern Time.

When I sent an e-mail to Ninetowns Investor Relations to request a transcript of the call (it was not released by Thomson) to share with readers of The China Stock Blog I was told that the company would not be releasing one and I should direct any further questions to Note: e-mails to go directly to the company's outside investor relations firm in New York -- NOT to Ninetowns Investor Relations. One would think that with the stock trading at historical lows (see chart below) and the company in the unenviable position of potentially having to change its business model Ninetowns IR would be more forthcoming and helpful to any investor even remotely interested in the company's fortunes -- and not send him off to the company's investor relations firm. But no such luck.

So in lieu of a transcript here are some notes from the call:

  • NINE won a bid from the PRC Inspections Administration to develop software products which could be both competitive with NINE's products and likely to be distributed for free.
  • One-time payment of $400,000 to NINE only allows the PRC Inspection Administration to buy rights to the software license.
  • Companies that utilize this software can still choose their own maintenance service provider.
  • PRC Administration is unlikely to provide these maintenance services due to a limited budget and resources.
  • As NINE expects to be the sole developer of PRC Administration's e-filing software it believes that software users will likely choose its maintenance service plans.
  • NINE's enterprise software revenue model will likely become a subscription-based model for software services.
  • NINE expects a slight decrease in revenue from software development services in 2005.

NINE chart.


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