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Executives

Will Davis – SVP, Business Development and Chief Marketing Officer

Jeffrey Kang – Chairman and CEO

Frank Zheng – CFO

Analysts

Matt Ramsay – Canaccord Genuity

Mark Tobin – Roth Capital Partners

Russell Cleveland – RENN Capital

Cogo Group, Inc. (COGO) Q3 2011 Earnings Conference Call November 10, 2011 4:30 PM ET

Operator

Ladies and gentlemen thank you for standing by and welcome to the Cogo Group Incorporated third quarter 2011 earnings results conference call. During today’s presentation all parties will be placed in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today Thursday November 10, 2011. And I would now like to turn the conference over to Mr. Will Davis, Chief Marketing Officer. Please go ahead sir.

Will Davis

Thank you and good afternoon everyone. I’m Will Davis, Cogo’s Chief Marketing Officer and I would like to thank you for joining us today to participate in Cogo’s 2011 third quarter earnings conference call.

After the market closed today, Cogo issued a press release reporting unaudited financial results for the quarter ended September 30, 2011. This release can be accessed in the investor relations section of Cogo's website at www.cogo.com.cn and on most other financial websites. 

The discussion today will be hosted by Jeffrey Kang, Chairman and CEO, who willdiscuss the Company’s business operations; Will Davis, our Senior Vice President of Business Development and Chief Marketing Officer, who will also comment on aspects of the business; and Frank Zheng, our CFO, who will report on the Company’s financials.

Before we begin, I'd like to remind everyone that the call today may contain forward-looking statements regarding future events and the financial performance of the Company. We wish to caution you that such statements are at present just predictions, and actual results may differ materially as a result of the risks and uncertainties inherent in the Company's business. We refer you to documents that the Company files periodically with the SEC, specifically the most recently filed Forms 10-K and 6-K, as well as the Safe Harbor statement made in today’s press release. These documents contain important risk factors that could cause actual results to differ materially from those contained in the Company's current projections. Cogo assumes no obligation to revise theforward-looking information contained in today's call.

At this time, I'd like to turn the call over to Jeffrey. Jeffrey, the floor isyours.

Jeffrey Kang

Thank you, Will, and thanks to everyone for joining the call.  I will focus on a few key points and leave plenty of time for Q&A.

Cogo’s third quarter revenue of $146.4 million was up 46% year over year and above the high end of our guidance range. We saw strong bookings in similar areas to Q2: Telecom, Healthcare, Smart Grid/Meters, 3G Smartphones and HDTV.   The continued credit tightening, particularly in the SME marketplace, has materially reduced our visibility and we have decided not to provide fourth quarter revenue or EPS guidance. However, we plan to stay profitable in this difficult environment. As we have indicated in previous earnings calls, the revenue shift toward our blue-chip customers negatively affects our gross margins and increases our working capital requirements.  

 We clearly see that our blue-chip customers are gaining share across our end markets versus their SME competitors. It is difficult to predict when the credit tightening situation will ease, but we expect it will be sometime in 2012. In the meantime, we will continue to work to gain share and expand our footprint so that we can be in an even stronger position when business conditions and visibility improve.  In these uncertain times, our customers and semiconductor partners, who are among the global leaders, are increasingly relying on our services and products and these strengthened relationships will benefit us once macro conditions normalize.   We are in a cyclical business and we have seen these cycles before and when the cycle turns, it can be abrupt and we will be in a position to capture the increased growth and margin.   

Our Non-GAAP EPS diluted earnings in the quarter were 16 cents, at the high-end of our guidance. Cogo posted a gross margin of 10.4% in the quarter as continued strength in telecom lowered our blended gross margin and we saw continued gross margin deterioration in both digital media and telecom segments. As we indicated on our August conference call, we expect these trends to continue in the fourth quarter and into 2012 as these industries mature. 

In the quarter, Cogo posted operating margins of 4.8%, roughly in line with our prior expectations. We are still investing in new hires and new sales offices in order to aggressively pursue scale. At some point in 2012, we would expect this market uncertainty to have lifted and we expect to be in an even stronger position to leverage our increased footprint. To be clear, I am investing aggressively in the business because I see tremendous opportunities in the marketplace and I have to take a longer term approach. The current market forces give us an unprecedented chance to aggressively consolidate the market to drive scale while others are cautious. Maintaining our current banking facilities in order to continue to finance our growth is a key priority for me over the next few quarters. 

Now on to some segment highlights. Full details are in the press release. 

Our Industrials business grew 71% year over year in the quarter and now represents 21% of total revenue. For 2011, we continue to expect that our Industrials revenue will be split 60% for Smart Meter/Grid, 15% for Autos, 15% for HighSpeed Railways and 10% for Healthcare.  

We continue to see very strong telecom growth across our key Tier 1 telecom customers. Most of the upside in our telecom revenue is coming from one of our key Tier One vendors; and this strength is focused on fiber and PON build-outs and less focused on wireless.   

Within digital media, the key strength was found in HDTV and 3G Smartphones, with overall consumer spending slightly weaker than expected. We believe that Tier One handset vendors gained share in the quarter versus white box handset vendors. We expect that low-cost 3G baseband solutions more geared for smaller white box vendors will be available within a couple of quarters.   

In the third quarter, we bought back 2 million shares of Cogo stock at a total cost of $8.6 million. This is on top of the 865 thousand shares we bought in the second quarter. These buybacks represent asignificant reduction in the public float of Cogo and we continue to view share buybacks as a strategic use of cash. However, as we have noted, our focus will remain on driving scale and share in the business and we are currently examining the best ways to utilize our balance sheet to accomplish our targets.  With that, I would like to turn the call over to Will. Will, over to you. 

Will Davis

Thank you Jeffrey. Good afternoon everyone, and thank you for joining our call.   

Cogo ended the third quarter of 2011, with 96 blue-chip customers, an increase of one customer sequentially and up 10% from the prior year period. The Company grew its SME customer base sequentially by 48, reaching 1,633 at the end of the third quarter, up 14% year over year and 3% sequentially. Cogo’s total customer base is now 1,729, up 14% year over year and 3% quarter over quarter.

Cogo’s blue-chip Average Revenue Per User (“ARPU”) was $1.13 million in the third quarter of 2011, up 13% sequentially and up 44% year over year. Clearly, much of the telecom strength is evidenced in that statistic. The Company’s SME ARPU in the quarter was over $23,000, down 6% sequentially and up 4.5% year over year. Total Cogo ARPU was up over 28%year over year.  

In the third quarter, total stock comp related to SG&A was around $1.29 million and it was $1.65 million for R&D. Acquisition and amortization of intangible costs in the third quarter were $613 thousand.   

Other than the items noted above, there are no significant differences between GAAP and Non-GAAP results. With that, I would like to turn the call over to Mr. Frank Zheng, our Chief Financial Officer.   

Frank Zheng

Thank you, Will. Good afternoon everyone. Unless otherwise noted, all items are in US dollars. We ended the quarter with about $5.5 million in net cash as we used a significant amount of cash in the third quarter due to increased working capital demands to finance our strong revenue growth. There was a very large payment due to us that we were not able to collect before the quarter ended but we have now collected it and this buffers our current net cash position. We are maintaining our current strategy to utilize our balance sheet to fund our working capital to drive growth.   

Our cash conversion cycle increased from 111 days in the second quarter to 128 days in the third quarter, largely related to an increased Accounts Receivable.   

In the third quarter, we spent $8.6 million for buybacks and $5.5 million towards the MDC Acquisition.  

We continue to be very pleased with our ongoing relationship with our auditors, KPMG in Hong Kong. They have been our auditors consistently since the spring of 2006.         

This concludes my remarks. Thank you everyone for joining the call to discuss our 2011 Third quarter unaudited results. At this time, let’s turn the call to the operator to open up the floor for questions.  We will look to end this call at around 5:30. Operator?

Question-and-Answer Session

Operator

Thank you, sir. We will begin the question-and-answer session (Operator Instructions) and our first question comes from the line of Matt Ramsay with Canaccord Genuity. Please go ahead.

Matt Ramsay – Canaccord Genuity

Thank you very much for taking my question and congratulations guys on very good results to the quarter considering the bad debts that you guys are facing.

Will Davis

Thanks Matt.

Jeffrey Kang

Thanks.

Matt Ramsay – Canaccord Genuity

I guess my first question today is with respect to the visibility that you guys talked about for the next several quarters and particularly with respect to credit for your SME customer base Jeffrey you talked about that you thought that some of the credit constrains for SME might go away towards sometime in 2012, but you didn’t really have any visibility into that. Can you discuss a little bit further about what makes you feel somewhat comfortable around that and maybe to put some case to when that might happen and might not I guess this was the timing within 2012 and also I guess the magnitude of the potential shift and withstanding credit for SME. Thank you very much.

Jeffrey Kang

Well, yeah that’s actually a very good question. Actually in the last earnings call we actually expect like this credit tightening could it be somehow easy end of this year. But at this moment we are going to have a little bit more pessimistic I think you know we think this situation could be the change in the next at least two quarters, so that’s why in our view we was not able to state that the credit ease in the first half of next year. So also from that point we just a little bit of worry of the current situation did get worse in the next two quarters. So our SME customer may need to continue to strengthen our size and also that has been they were with a blue-chip customer base.

So that’s the reason why we think about you know maybe we need that you know next year, sometime it’s not that type will be looking at say the macro (Inaudible) and lead into next year. But at this moment we don’t have better visibility yet so where we have to wait and see and so that’s our overall strategy is to continue to expand our business and try to expand our footprint among SME base even though in relatively speaking the revenue side and not throw as their blue-chip customer base. We believe once the macro situation change in the next year we will see the result in our investment where we will get it back.

Matt Ramsay – Canaccord Genuity

Great, that’s really helpful. Thank you, Jeffrey. I guess one additional question for me and then I will pass the line. This question is to Frank you mentioned in your comment that there was a large intro payment that didn’t get recognized in the quarter. Can you give us some additional color as to if it’s been recognized now and the relative size of that and then also I guess what’s the level of net cash that we think we can maintain at the floor in order to continue to work towards a strategy of expanding the top line of the business. Thank you very much guys.

Frank Zheng

That’s a good question. This is Frank, as well as the top growth accounted to the largest customer they failed to settle the AR about a few days, so we collect the money the money been collected instead of end of September actually to be collected on October 3, the money is around about $10 million something like that. So that I think it will be your first part of your question and but as we experienced tremendous growth in the telecom sector of the business we still see continuously working capital demand for the telecom business because telecom business and other we generate is more towards the blue-chip accounts so we will continue this working capital demand. At this time, it’s a little bit difficult to quantify those events and we are working hard as Jeffrey pointed out to try to work into more banking facility it the next few quarter and maintain the term facility for supporting those growth. Thank you.

Matt Ramsay – Canaccord Genuity

Thank you very much.

Will Davis

Thanks Matt.

Operator

Thank you and our next question comes from the line of Mark Tobin with Roth Capital Partners. Please go ahead.

Mark Tobin – Roth Capital Partners

Hi, thanks for taking my questions. One is more of a modeling question I still haven’t picked up the press release yet. But could you give us the revenue breakdown by segment industrial telecom and digital media?

Will Davis

Yes, I can handle that for you Mark. In the quarter, telecom was $57.9 million.

Mark Tobin – Roth Capital Partners

Okay.

Will Davis

Digital media was $58.55 million and industrial was $29.99 million so basically it’s $30 million.

Mark Tobin – Roth Capital Partners

Okay, that’s helpful and then kind of following up on the prior question as far as the credit environment is so forced. How much scrutiny are you giving your accounts receivable at this point and what I’m hearing is that the current situation looks quite a bit different especially for SME’s as it did back in 2008. So I guess, how are you addressing the potential collection issues that you could run into here?

Frank Zheng

As we explain to our investors, because we normally only grant the credit to the blue-chip customers, we have a very limited exposure and the collection exposure to the SMEs so that’s why our blue-chip customer revenue growing off pace the SME for the longer term and a much bigger amount of AR. But always we are very confident about the quality of our AR so all of those AR most of it are coming from the Tier One blue-chip customers. So that’s a point we are going to think even though they are among increasing because of revenue increasing that we didn’t see too much of the risk in terms of we have the collection problem in the foreseeable future.

Mark Tobin – Roth Capital Partners

And I guess of your existing AR balance roughly what percentage is blue-chip versus SME?

Frank Zheng

Well I don’t have that exact number there I think that we can still maybe over 80%, 85% up from the blue-chip customer only 10%, 15% from the SME.

Mark Tobin – Roth Capital Partners

Okay, that’s helpful and I guess I will jump back in the queue that’s all I have for now. Thank you.

Frank Zheng

Thanks.

Operator

Thank you and our next question comes from the line of Russell Cleveland with RENN Capital. Please go ahead.

Russell Cleveland – RENN Capital

Hello feller, hello Jeff and Will. As you know I have been a very long-term investor here a good friend of the company who always like what you always done. I think the question in the market has been the reason our stock is down here at $2 is that this idea that we are going to have a 46% rise on revenue, which was good but a 50% drop in net income and it seems as though we are I like the term buying business, and we are using the old Japanese model of market share which has failed miserably.

And so the marketplace has been telling the company that we would rather have less sales and more gross margin and make money on a lower volume than to have $146 million and produce net income of only $2 million. So this idea of here of the Japanese model does not, has never worked in history and maybe this is going to be the first time. I think we got to understand this a little bit more because maybe it’s a central question about Cogo right now. And I’m wondering whether you could give us some light on this?

Jeffrey Kang

Yeah, let me just explain to you my ideas about this situation, I completely agree with you your idea the Japanese model only throw the revenue by the way the margin without no profit is not a sustainable. It’s actually it’s the model I’m pursing but even we look at this business so you know I think every few years there is a business cycle in 2008 the financial crisis right now we are, just the overall economy heading to another bumpy road.

So my overall strategies when the business is in the good year so we want to get it focusing on pursue and the profitability. And when we are in the downturn side we have to keep that in a month we are here. So one thing is clear I’m not just blindly pursuing the market shares but in our view is that you know we are in this environment so the first thing I understand a lot of the divestiture are going to, kind of require me to strengthen the business advice, adjusting overall strategy even cut off a lot of the business.

But I want to just explain to you a few things, setting up a new business or cutting off a new business is unlike a buying or dispose a stock which can be done overnight. But you know either we establish a business or we dispose the business and terminate the business normally if we want to implement a strategy it normally takes us three to four quarters to complete the increment. So that’s the one thing so I’m telling you well management is analyzing what’s the best strategy so I’m listening to what investing our shareholders voice.

But at this time we are continue to, what we are seeing is the demand still there in the market just that the demand is coming from the blue-chip customer and we have taken that more out of a business it may get it profitable but not as profitable as if the business is coming from SMEs. So that’s a dilemma we are facing at this moment so but the demand end believe at this moment within our beneficiate we will be able to manage the growth. So that’s why we keep growing the business and the size and I believe at a sense and point in the future when the overall macro situation improve and we might, we are going state a significant benefit from this new strategy. So that’s again, I’m not (Inaudible) just pursuing the revenue in the area of profitability.

Russell Cleveland – RENN Capital

Okay, well I guess it’s true for most of us who had been an observer here for a long time that we’ve kind of lost our course. And that’s why our stock again is here at $2 but I’ve always had a lot of faith in the company if you know and hopefully we can get back on track as I said I think the idea here is that let’s not do business that doesn’t have profits now not the future, but profits now. And that strategy has worked pretty well for a long time in other parts of the world, so that’s all I had I appreciate the time and good to speak with you all.

Jeffrey Kang

Thank you.

Will Davis

Thanks Russ.

Operator

Thank you and the next question comes from the line of (Inaudible). Please go ahead.

Unidentified Participant

Thank you and congratulations on your top line it reminds me of companies in the ’95 to 2000 during the internet growth cycle in America without the margin. I have a question, about a part of the question I want to just get clear on first and then a couple of tough spots. Could you please state again the amount of money you’ve acquired to stop buybacks last quarter and this quarter and the amount of shares you’ve bought back in each period.

Jeffrey Kang

Will, you have got a number there.

Will Davis

Well I think we in the last Q3 last quarter we bought about 2 million shares at a average cost of about $4.50 and on the second quarter we bought some share of around 861,000 something like that, it was 865,000 we bought last quarter in Q2 here at an average price of $5.60. So we spent $4.9 million last quarter, $8.6 million this quarter, that’s $13.5 million.

Unidentified Participant

Yeah, in this quarter how many have we bought again I’m sorry.

Will Davis

We’ve bought 2 million in the third quarter nothing so far in the fourth quarter.

Unidentified Participant

Okay, 2 million shares.

Will Davis

That’s correct, so in the last two quarters we bought 2.865 million shares.

Unidentified Participant

Okay, now again just along the lines of just clinging up some lose ends; your general outstanding -- correct me if I’m wrong -- was 38,683,000 last year and 37,878,587 this year. So you bought 4 million shares and only declined the outstanding by 100,000 shares.

Will Davis

I think you are not issuing.

Unidentified Participant

A lot of options there was.

Will Davis

Well it’s actually well we are I mean our share count at the end of fourth quarter last year was 38.7 million.

Unidentified Participant

At the end of the fourth quarter.

Will Davis

Right and now that number is 36ish.

Unidentified Participant

What do you mean 36ish?

Jeffrey Kang

I think you missed it there is a weight average particularly the shift earnings per share. If you see the compare apples-to-apples the end of the third quarter the share not any share 33,110,000 share as of end of September 2011 versus the 35,848,764 shares in the sense to last year. So there is a more than 2 million share reduction.

Unidentified Participant

So when is that I’m getting this off from your press release.

Jeffrey Kang

This is the in the earnings you can check the release out on the balance sheet side under the common stock the portion of the balance sheet.

Unidentified Participant

Okay, I’m on page one of your press release.

Jeffrey Kang

Please see the (Inaudible) it should be on page six.

Unidentified Participant

Well you mean what you’ve got on page one of your today’s release is to nine months of ’10 your 37 million is changed and these nine months of ’11 your 36 million or about 900. Pardon me.

Frank Zheng

You know I think the number I’m my understanding is correct I know the number there is for the consolidated for EPS purpose. So for example if you wait buy the stock in the middle of the quarter and so in the end of the quarter the share account will be reduced but in a week we it will have reduced in the middle of the three months.

Unidentified Participant

Okay, let me take your number. Let’s deal with your 2 million okay you bought, you are saying you have been buying shares that this number is relevant and you decline this shares from 37 million fully diluted 853,000 to what 35 million?

Jeffrey Kang

Yeah, it could have been I think that’s the number I think that’s the number in the end of the quarter you know.

Unidentified Participant

Okay, well what’s my point is just two fold. It’s depending on have a check if this options issuances going against them they wouldn’t be nearly as effective. I mean I’m a friend of the company I’m a shareholder I own shares the point on trying to (Inaudible) is there has been kill issues that sort of I think maybe a bail out. I think a number of small Chinese companies that have shorted the shares that have been shorted by hedge funds in the United States and others one China Natural Gas they had a whole trading in it.

I know many brokers who just make it sort of to stop even though they have been called to buy it they just ignore the order. And I suspect that there was an article by effect by Bloomberg on July 29, the new guys been subject to short sellers I think the backdrop of having China increase interest rates presents an environment where there is downward pressure on market general. And I if you guys aren’t accommodating the with option share then you are definitely taking share, that it is contracting the way we hope it is the number of shares outstanding and your numbers do indicate a million now that I look at them again your number is on the sheet for fully diluted will indicate a million about a million five decline.

And if that were to continue at one point the short sellers are going to have to buy the stock God only knows when because a lot of that firms making and they can just do it. But I think you guys even though you are sort getting painted with the same brush I think a lot of Chinese companies have been sorted and I suspect without having specific dollars you guys have been sorted too. Then you might be mindful that it comes out too you know if I go to the Yahoo website, which is a very popular website your news does not fit, your 4:00 PM news or whatever PR newswire didn’t hit that website but hit my brokers machine instantly but I would say a few websites, now your own personal website looks very good, but it should also hit the Yahoo website and the other websites.

Most companies that I’m involved and do I don’t know why that you might want to expand knowledge of many, many investors use that website for stock information that aren’t in the brokerage desk’s. But if you aren’t declining the shares are you aware of any shorts outstanding significant shorts outstanding in your stock?

Will Davis

No, there a couple of points I would make one we use PR newswire and there was some error in certain websites got the release but it looks like it’s been fixed so that was just a technical glitch on the part of PR newswire that’s number one. Number two, yes we do look at the short interest it has been declining over I think we can look every two weeks and get a report from NASDAQ and it has been declining over the last couple of reporting periods.

So yes that’s something that we do watch closely and clearly it’s to your point when we look at tangible book value at the way the stock is trading clearly there is a lot of leverage in buying stock down at these levels, I just think that it needs to be the appropriate time and we need to balance M&A, buyback and growing the company through working capital. But we are clearly mindful of the amount of leverage that buying a few more million shares would have on the tangible book value, that’s very clear, something we look at closely.

Unidentified Participant

Well your window net as you paid 5.50 a share when your window opened and I don’t report I’m not it all be testing I would be in a position to determine and so nobody wants the company to be at risk or short of capital, but also personally it would seem to me that these levels that it would be a real short of confidence if the (Inaudible) financial officers you know not a lot during the window they bought some shares now in the dollar range, when their window allows to do it I think that’s when also started to some momentum reverses negative momentum in the stuff. But that’s just that maybe correct and may not and that it is something I’ve seen effectively done in other stuffs where it’s just that lists investors up a little and then they buy more when they see it but anyway.

Will Davis

Great thanks.

Unidentified Participant

Seems like you get the very cheap stock provided the only thought it could internally disappear and we are not going to run into capital problems for a couple of quarters and there has been no guidance for that effect. So, it seems like you well good luck best of luck and keep it up. Keep up the good work. Thank you.

Will Davis

Thanks for your feedback.

Unidentified Participant

You are welcome.

Operator

Thank you. And our next question is a follow up question from the like of Mark Tobin with Roth Capital Partners. Please go ahead.

Mark Tobin – Roth Capital Partners

Yeah, just along the share count question what is the current management ownership given the reduced share count maybe just a rough number side?

Frank Zheng

May be like 35% to 40% I guess.

Will Davis

It’s about 35% Mark.

Mark Tobin – Roth Capital Partners

And how much how many shares are remaining on the authorized buyback that you have?

Will Davis

About 1 million shares from the initial 5 million share count.

Mark Tobin – Roth Capital Partners

Right, okay. That’s all I have thank you.

Will Davis

Thanks Mark.

Operator

Thank you and our next question comes from the line of (Inaudible) Capital. Please go ahead.

Unidentified Participant

Great, thank you for taking my question. I realized you are not giving guidance going forward. But maybe if you could give us some of your thoughts on the constrains that you have on the cash conversion cycle how long are you letting DSOs are you willing to let DSOs stretch for the blue-chip customers. Now, so sort of your targeted operating margin for these bigger customers that are coming in at lower margin business.

Jeffrey Kang

So, hi this is Jeffrey, I’m thinking about we are in the fourth quarter in the third quarter we have a lot of the revenue jump and so in the fourth quarter we still expect that we are going to see a revenue increasing fourth quarter. And so as I believe our revenue growth is even though the management is trying to slow down the revenue growth trend from our Tier One customers. I just noted (Inaudible) so it’s not a lot easy for us to either establish our business or just immediately terminate a business particularly this demand that’s coming from the Tier One blue-chip customers. So one rare thing is we are going to continue to use some cash and most of it I believe will be coming from our financing, bank borrowing to continue to finance the business growth in the fourth quarter. And by the, I think the revenue growth speed, we are slowing down in the midst of few quarters so that’s what I trying to in effect of visibility. So that’s the reason why we don’t have we don’t think that we have that appeal visibility off the road in the next few quarters because we are adjusting our overall strategy.

Unidentified Participant

I get that Jeffrey and I appreciate that very much there is very little visibility out there. I’m just curious what terms you are extending to these Tier One accounts is it 180 days, is it 90 days so I can kind a feel for where the working capital is going to go and how much bank borrowing you are going to need.

Jeffrey Kang

I figure that you can normalize you can think of there is a revenue for 90 days, 90 days or 100 days that’s a normal current form of that Tier One customer.

Unidentified Participant

Okay, so we didn’t see that conversion cycle go obviously you can’t predict it but it goes much beyond where it was this quarter?

Jeffrey Kang

I think that’s you know this quarter it should be a little bit over our normal range I think a little bit more than our normal range. I think that normally it should be around 110 days that will work in normal case. But you know in this quarter as just Frank explained that one of our key customer settled a payment few days late not settling at the end of September just a few days late but that makes our overall cash investment base longer than in surety.

Unidentified Participant

I get it. And then on margin, gross margin for the larger customers what sort of the target range for them?

Jeffrey Kang

It depends so we are I don’t, I cannot give you a specific number but we can just that’s a range that could be anywhere from 3% to 8% or 10%, 3% to 10% case by case. So it’s an, I couldn’t give you a specific number there.

Unidentified Participant

On gross margins?

Jeffrey Kang

Yeah, on gross margin.

Unidentified Participant

You realize at 3% given your cost of cash you are not making money.

Jeffrey Kang

Yes.

Unidentified Participant

Okay, thank you.

Jeffrey Kang

Yeah.

Operator

Thank you and we have a follow up question from the line of (Inaudible). Please go ahead.

Unidentified Participant

Thank you it’s just a point of information. As I said my brokerage new service picked up the announcement right away on the Yahoo site which is very, very popular among investors they are the kind of people that buy $2 stocks whereas they are right particularly one with quality. And last announcement on Yahoo was quarter three 2011 Cogo Group earnings release will be 4:00 PM EST and this was posted Thursday 7:08 AM so there is not again yet now I don’t know how many similar sites haven’t picked it up yet. But it’s only positive to get your news, you have great growth in the top line you are information now to all the sites over here. But there is some reason it’s not on Yahoo and I suspect maybe other similar sites.

Jeffrey Kang

Thank you that’s as we indicated PR newswire is investigating there was some technical glitch some sites got it some didn’t so that’s something we are working through. But thank you again for the feedback.

Unidentified Participant

You are welcome.

Operator

Thank you. And now, I would just like to return the call back over to management.

Jeffrey Kang

So, yes, in this uncertain times, I continue to remain focused on growing our market share and scale for our weaken competition. We expect to continue to remain profitable and when the recovering market uncertainty and tighten the credit we believe we will be in an even stronger position to capitalize on the rapid growing industrial and technology segment in China. This is a cyclical business, I have seen this cycle many times before and I’m confident about our approach is the right one. Thanks very much for joining our call. And we will meet you again next quarter. Thank you. Okay, we are done.

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