AsiaInfo Q3 2007 Earnings Call Transcript

| About: AsiaInfo Holdings, (ASIA)

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AsiaInfo Holdings, Inc. (NASDAQ:ASIA)

Q3 2007 Earnings Call

October 25, 2007 8:00 pm ET

Executives

Charles Zhang - Manager, Investor Relations

Steve Zhang - Chief Executive Officer, President, Director

Eileen Chu - Chief Financial Officer, Vice President

Analysts

Brendan Barnicle - Pacific Crest Securities

Donald Wu - Goldman Sachs

Henry Ai - BNP Paribas

Reed Aban - Bernard Almedoff

Presentation

Operator

Welcome to today’s AsiaInfo Q3 2007 results announcement event call. I am pleased to present Mr. Charles Zhang, IR Manager of AsiaInfo. (Operator Instructions) Mr. Zhang, please begin.

Charles Zhang

Thanks, Operator. Hello, everyone and welcome to AsiaInfo's third quarter 2007 conference call. Today, Steve Zhang, President and Chief Executive Officer of AsiaInfo, will review business highlights achieved during this third quarter and Eileen Chu, our Chief Financial Officer, will further discuss financial results and give fourth quarter guidance. Mr. Zhang will then provide a few closing remarks and open the call to questions.

Before we continue, please allow me to read you AsiaInfo's Safe Harbor statement: some information we will discuss during this conference call is forward-looking in nature and subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in forward-looking statements, please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2006, and other reports as filed with the Securities and Exchange Commission.

Also, please know that some of the information we will discuss included non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the nearest GAAP financial measures can be found in our earnings release available on our website.

Finally, please take note that unless otherwise noted, all figures mentioned during this conference call are in U.S. dollars.

I will now turn the call over to AsiaInfo's President and CEO, Steve Zhang. Steve.

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Steve Zhang

Hello and thank you for joining us today. I am pleased to report strong third quarter results, with net revenue growing 26% and net income growing over 200% year over year. This growth was driven by the continued execution of our strategy to deliver industry-leading telecom software solutions that help improve our customer’s business performance. It also reflects strong recovery in our IT security business.

In the third quarter, we signed a number of contracts for our industry-leading business and operation support systems, i.e. BOSS solution. This included our first international contract for China Mobile Pakistan, a high quarter level CRM and PRM contract with China Unicom, and a contract with China Telecom’s Zhejiang subsidiary to deploy and integrate account inquiries listing.

These deals represent significant achievement in diversifying our customer base, both geographically and among China Telecom’s operators.

We also signed several important contracts to upgrade our existing deployments. This included a contract with Zhejiang Mobile to optimize their BOSS system, which is the single largest in China; and a contract with [Sutran] Mobile to expand their [cost system].

All of those deals extend our long-term strategic partnerships with Chinese telecom operators in the billing CRM field.

As the competition for users between China’s carriers continues to pick up, we are seeing more and more opportunities for providing innovative, value-added services. In the quarter, we signed an agreement with China Unicom to deploy their online short message mailbox system, which will enable collaboration between the short message services and the Internet-based mailboxes.

Another result of this increased competition in the telecom service area is the continued demand for business intelligence solutions and the related consulting services. This past quarter, we signed an agreement to expand China Mobile’s headquarters business intelligence system and we expect to see similar agreements in the quarters ahead and a strong market potential from other operators in China.

Our deal with China Mobile in the third quarter to build an over-the-air billing solution for Jiangxi Mobile is another example of our innovative telecom offerings. This product is designed to help operators penetrate China’s WAP [LULU] telecom market by providing selectable payment options for users who may not live near a China Mobile retail center.

And the preparation for the issuance of 3G license resulted in a contract with China Telecom to provide billing solutions for their extended TD-SCDMA trial. We believe we are well-positioned for China’s future 3G billing and CRM markets.

This was an important period for our IT security solutions as well. With strong management and a solid strategy in place, the Lenovo-AsiaInfo business turned a profit for the quarter and we believe that this turnaround will continue.

In short, this was another strong quarter for AsiaInfo. We have a leading position in the telecom software market and our strategy to stay ahead is straightforward -- bring telecom customers the solution they need to stay competitive and back it up with the best delivery and execution.

This, combined with our deep understanding of China’s telecom business and a commitment to investing in R&D, means that we should be able to stay ahead of the curve and anticipate carrier needs.

China’s telecom industry is changing rapidly, with new developments every day and we are excited by the many opportunities we see ahead for AsiaInfo.

I will now turn the call over to Eileen Chu, our CFO, to walk you through the financials.

Eileen Chu

Thank you, Steve, and hello to everyone on the call. First quarter telecom software products and solutions revenue rose 31% year over year and 12% sequentially, as we continued to see strong demand for AsiaInfo's telecom software solution.

Our telecom service revenues increased 3% year over year and 6% sequentially. Total net revenue for the telecom business increased 19% year over year and 7% sequentially. Lenovo-AsiaInfo's net revenue increased 76% year over year and 42% sequentially. The large increase reflects continuous improvement of operation in this division. Sequentially, it also reflects the seasonality of China’s IT security market, which is typically stronger in the second half of the year.

Gross margin of net revenue was 55% compared to 51% in the year-ago period, and 54% in the period previous quarter. The improvement in gross margin is the result of our long-term strategy to focus on high margin software solutions, as well as improving operating results of our Lenovo-AsiaInfo division.

Total operating expenses were up 19% year over year but decreased 2% sequentially. Our operating margin of net revenue for the quarter was 11%. Going forward, we expect operating margin to be in the range of 8% to 10%, but there will be quarterly fluctuations depending on seasonality and other factors.

R&D expenses grew 18% year over year and 8% sequentially, reflecting our initiative to capitalize on growing opportunities in China’s telecom software market.

Sales and marketing expenses increased 24% year over year and 4% sequentially. The year-on-year increases were primarily due to increased sales headcount and performance [dot unit] program, which we introduced at the end of last year.

Our investment in sales and marketing is showing strong returns in the form of new contracts and business prospects, and we will continue to invest in this area in the quarters ahead.

General and administrative expenses increased 5% year over year and decreased 35% sequentially. This increase was due mainly to a government incentive and to internal budget control.

Our effective tax rate this quarter was 17%, up from 13% from the last quarter. This is largely due to a higher-than-normal dividend income, which was subject to U.S. tax.

During the quarter, our telecom business posted a contribution profit before corporate G&A expenses of $4.1 million, and our security products and services business posted a contribution profit of $0.2 million.

Net income excluding share-based compensation expenses, amortization and impairment charges, and after tax dividend income, a non-GAAP measure, was $4.8 million, or $0.11 per basic share.

Non-GAAP net income in the year-ago period was $2.5 million, or $0.06 per basic share, and $3.9 million, or $0.9 per basic share for the previous quarter.

Operating cash flow in the third quarter was a net inflow of $2.4 million.

Moving to our balance sheet, our total cash position, including cash and cash equivalents, restricted cash, and short-term investments, was $174.4 million, representing a sequential increase of 6%.

DSOs for the quarter were 124 days versus last quarter’s 116 days.

I will now read you AsiaInfo's financial guidance for the fourth quarter 2007. Please note that the following outlook statements are based on our current expectations. These statements are forward-looking and actual results may differ materially.

Net revenue for the fourth quarter of 2007 is expected to be $31 million to $33 million, representing an 22% to 30% year-over-year grow, and we expect fourth quarter earnings per basic share from continuing operations to be $0.10 to $0.11, representing 100% to 120% year-over-year growth. This is compared to earnings per basic share from continuing operations of $0.05 in the fourth quarter of 2006.

Now let me turn the call back to Steve for his closing remarks.

Steve Zhang

Thank you, Eileen, and thank you all for your continued support of AsiaInfo. I will now open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Brendan Barnicle from Pacific Crest Securities. Please go ahead.

Brendan Barnicle - Pacific Crest Securities

Thanks so much for taking my question. Nice quarter, and a couple of follow-up questions that I had. You mentioned operating margins of 8% to 10%, and if I just run through sort of the higher end of the guidance and the midpoint of the revenue guidance and the $0.11 at the high-end of the EPS guidance, that gives me actually in my model, about an 11% operating margin. Is the 8% to 10% something we should think about sort of generally as a target? I end up at about 10% on that way for the year, and then fluctuations around the quarter?

Eileen Chu

Thanks for the question. Actually, our operating margin -- I think we have discussed this question since last quarter, since Q2. Our Q2 operating margin was about 4.5% and this quarter, we have a much higher operating margin at about 11%. But I think for the whole year, I think 8% to 10% is our target.

Brendan Barnicle - Pacific Crest Securities

Okay, but that was for the whole year, not for Q4?

Eileen Chu

That’s for Q4 and going forward as well.

Brendan Barnicle - Pacific Crest Securities

I guess that gets back to my question, which is that if I run, just running the numbers that you’ve given and the $0.11, I end up with a GAAP operating margin of 11% already, just in that one -- just in the fourth quarter.

Eileen Chu

The 11% was only for Q3 2007, and for Q4 2007, we are expecting 8% to 10%. Because actually in Q1 and Q2, usually our operating margin will be slightly lower because Q1 and Q2 is our slowest season. So even though our Q3 and Q4, we will achieve a much higher operating margin. So I think if you average out the whole year, it will be slightly lower than 8%.

Brendan Barnicle - Pacific Crest Securities

And then, does that 8% to 10%, is that sort of a target operating margin that we should think about for next year as well?

Eileen Chu

Yes, you’re right.

Brendan Barnicle - Pacific Crest Securities

Okay, and then also, as we start to think about next year a little bit, you saw 29% net revenue growth it looks like this year, if Q4 pans according to guidance. What’s the longer term growth rate we should be working with?

Eileen Chu

Sorry, Brendan, we don’t give annual guidance but based on the previous year’s numbers, our net revenue did increase about 20% to 25% per year. So I would say that your assumption is reasonable.

Brendan Barnicle - Pacific Crest Securities

And then just lastly, I just have a follow-up question on the move into the Pakistan market. You moved into one province or one region during the quarter. What’s the size of that total addressable market? And also, are there other opportunities with the Chinese carriers in other geographies other than Pakistan?

Steve Zhang

The deal with the Pakistan was actually with a subsidiary of China Mobile and currently, China Mobile Pakistan is the fifth mobile operator in terms of subscriber numbers in Pakistan. And we believe with having -- China Mobile is already an expertise -- their internal target is to shoot for, to become number two or number one in the Pakistan market in the next three years.

So we believe the deal with have with China Mobile Pakistan will grow in size as our client business grows there. We are following very closely with other China telecom carriers’ overseas expansion and hopefully we can get into more markets as they get into more markets globally.

Brendan Barnicle - Pacific Crest Securities

Forgive me if this is a -- I’m sure this is an overly simple question, but which other foreign subsidiaries do the Chinese carriers have and what other geographies are they in, other than Pakistan?

Steve Zhang

They are looking at several candidates for making investment overseas and other than working with carriers, we are also looking at the Southeast Asia market independently. For example, we have been talking with several customers in the Philippines and Vietnam and our solutions are very attractive to them.

Brendan Barnicle - Pacific Crest Securities

Absolutely. What is -- is that a growth opportunity for next year or is that going to take longer to develop?

Charles Zhang

It might take longer to develop, because we want to be -- we are taking a step-by-step approach in the overseas expansion, because we don’t want to move too aggressively because it will require pretty huge marketing and sales expenses.

Brendan Barnicle - Pacific Crest Securities

Great. Thank you very much.

Operator

Our next question is from Donald [Wu] from Goldman Sachs.

Donald Wu - Goldman Sachs

Good morning. Can you hear me?

Steve Zhang

Yes, we can hear you, Donald.

Donald Wu - Goldman Sachs

A few questions, first is on the 4Q guidance. It seems like the growth is -- the guidance is guiding to a pretty much flattish Q4. I think seasonally, your Q4 is stronger. Can you give us a breakdown of your Q4 revenue in terms of software, security business and others?

Steve Zhang

Our Q4 guidance is actually a 22% to 33% year-over-year growth. It is not a flat guidance. Because we are giving the guidance for net revenue, probably you are comparing our net revenue with Q4 guidance with Q3 gross revenue. So for our net revenue, which is mostly our software and services, we are guiding year-over-year growth 22% to 30%.

Donald Wu - Goldman Sachs

Right, right -- sorry. I think you are absolutely right. I’m probably looking -- so the guidance is net revenue and the reported revenue is total revenue?

Steve Zhang

Right, right, that’s right. Did I miss your second question? Hello, Donald?

Donald Wu - Goldman Sachs

Can you give us a breakdown of the Q4 revenue breakdown in terms of how much is from software, how much is from others? And also the security business.

Steve Zhang

Right now, we don’t give the breakdown for software and other services, but we expect our telecom revenue is somewhere between 24 to 25, and security revenue is around 6.

Donald Wu - Goldman Sachs

Security is around $6 million?

Steve Zhang

Yes.

Donald Wu - Goldman Sachs

Okay. So the security business seems to have a pretty good momentum, if I’m correct?

Steve Zhang

The security business -- typically, our security business, Q4 is their strong quarter. So the $6 million for Q4, that represents over 50% growth from Q3.

Donald Wu - Goldman Sachs

Okay, right. And also, for the security business, it just turned profitable in Q3. And going forward for next year, is there a goal for the operating margin for that business?

Steve Zhang

We are looking at the next quarter and we are also in the middle of doing strategic budgeting for next year, so I cannot give you the whole year for 2008 operating margin guidance for our security business yet, but we definitely think it will be better than 2007 numbers.

Donald Wu - Goldman Sachs

That’s great. In terms of the cost control, it seems like there is a lot of progress in Q3. So going forward, how should we look at in terms of absolute dollar terms, the operating expense? For example, for R&D, will this continue to increase next year and where is the money spending on?

Also, for sales and marketing, I mean, next year we are going to see the China Telecom restructuring. Will that be driving up the cost of sales and marketing?

Steve Zhang

You can use a ballpark number that our sales and marketing, as a percentage of our revenue, will stay in the range of 15%.

Donald Wu - Goldman Sachs

Fifteen percent?

Steve Zhang

Fifteen to 18%, it depends on -- you know, it fluctuates a little bit from quarter to quarter.

Donald Wu - Goldman Sachs

Sure. Okay, and how about R&D?

Steve Zhang

R&D, our R&D expenses, that’s mostly headcount related and we are forecasting there will be still a 10% to 15% growth next year for our R&D expense, because right now, our challenge is to hire enough good people.

Donald Wu - Goldman Sachs

Sure, sure. Talking about people, how is the wage inflation in China? It seems like last quarter, I think the CPI increased about 6%. That’s pretty high. Do you expect to have to increase wages significantly?

Steve Zhang

Well, of course there’s pricing pressure for everything in China, and we are looking at the labor market and definitely we want to make sure our employees are well taken care of and so there are real, taking home income can sustain their existing level.

But on the other hand, there is also a new labor supply coming into the market. But in general, we are looking probably for the salary will increase 5% next year.

Donald Wu - Goldman Sachs

This is average salary or average per person salary? Because I understand you have probably most of the service companies have this pyramid structure, so you probably hire more low-level employees.

Steve Zhang

We probably won’t be able to give that indication until the first quarter next year, because we are still working with outside consulting firms to evaluate the labor market.

Donald Wu - Goldman Sachs

I see. Okay, turning to the business, you mentioned in the previous question that the increase in competition among the Chinese carriers are driving the revenue growth for business intelligence and another kind of business -- can you just repeat that again? What other business?

Steve Zhang

We see pretty strong demand for our consulting services related to business intelligence delivery and consulting. For example, we are working -- we have a lot of consultants working with carriers’ marketing departments to plan and execute their marketing initiatives.

In the past, we tend to spend most our resources working with IT departments. Now we also have a team of consultants working with the marketing department that in turn will generate extra requirements and demand on IT system implementations. So we are moving to have more resources working with the marketing department of our clients.

Donald Wu - Goldman Sachs

And also, you mentioned that kind of forward-looking kind of -- I mean, the pioneering kind of business model is mostly starting at China Mobile and you are expecting other carriers to follow?

Steve Zhang

Right now, that kind of model is mostly with China Mobile. It probably will take another one to two years to be more popular with other carriers.

Donald Wu - Goldman Sachs

So the other carriers are that far behind China Mobile in terms of --

Steve Zhang

I won’t comment on that.

Donald Wu - Goldman Sachs

Okay, I guess -- yeah, in terms of the other carriers, I know your market share, I know this is much higher in China Mobile than in other carriers. Are the other carriers, what are they -- is there any new initiatives or pipelines, like an acquisition or something that you can really improve the penetration at other carries in the near-term?

Steve Zhang

For China Unicom, we see good potential for us to grow organically, and they are in the middle of executing a changeover from their legacy billing CRM to a new billing CRM system. And we think we will, our market share within China Unicom will grow.

For the two fixed line operators, we are seeing good businesses growing related to their broadband business, because the broadband business is the only bright spot for the fixed line operators. We believe for our future growth with the two fixed line operators, we’ll go along with when they get the mobile licenses.

Donald Wu - Goldman Sachs

Right, right. When do you think -- is there any update on when is that restructuring will happen eventually?

Steve Zhang

That’s a question nobody can answer. Well, everybody is talking about mid-2008. It is still not clear to us.

Donald Wu - Goldman Sachs

Right, right, yeah, I think that’s correct. The governments usually don’t look at the consensus views. In terms of the -- this is a question maybe for Eileen; in terms of the interest income and tax rate -- how should we model that for Q4 and 2008? Is there any new guidance there?

Eileen Chu

Actually, this quarter we have a much higher than normal dividend income, as you can see in our interest income line in our P&L. Actually, in the coming quarters, we don’t really expect -- even though we hope that we do have this kind of dividend income every quarter, but I don’t believe that we will have this type of high level dividend income every quarter. So on average, each quarter our investment income is more or less around $1 million to $2 million, and that is what we are expecting.

Donald Wu - Goldman Sachs

One-million dollars to $2 million for investment income?

Eileen Chu

Per quarter.

Donald Wu - Goldman Sachs

Okay. And how about headcount plan for 2008? Are you going to announce it some time in the near future?

Steve Zhang

I didn’t get your question. What’s our plan for 2008?

Donald Wu - Goldman Sachs

Yeah, I think related to the costs is your headcount plan for 2008. Is there any kind of a ballpark we can start to use for modeling?

Steve Zhang

Our headcount plan tends to grow with our sales contract. Since Q4, our budgeting session for next year probably will be more clear in another three months.

Donald Wu - Goldman Sachs

Sure. Sorry to jump back and forth -- in terms of budgeting, how does your business work? By Q4 this year, are you going to see a pretty good visibility into 2008, of your major customers? Or is that still too early to discuss that?

Steve Zhang

I think normally our Q4 is always our large quarter, because the carriers need to spend their budget before the year ends. But they are also working on the plan for 2008. For 2008, I think that we know pretty much what they want to do and we are also trying to have pretty intense discussions with them to influence them to make these plans in our favor.

Donald Wu - Goldman Sachs

I see. Okay. Great. Thank you very much.

Operator

Our next question is from Henry Ai at BNP Paribas. Please go ahead.

Henry Ai - BNP Paribas

Good morning, everyone. I have a couple of questions. The first one is what is the revenue percentage of China Mobile, China Unicom, China Netcom and China Telecom in this quarter?

Eileen Chu

For the third quarter, actually, it is more or less around the same as previous quarters. China Mobile accounts for about 60% of our net revenue, China Unicom about 10%, Telecom and Netcom the remaining percentage.

Henry Ai - BNP Paribas

What do you think of the percentage change in 2008? Will they change significantly or just remain the same?

Eileen Chu

I think we are expecting an increase in Unicom and Telecom and Netcom, but the growth - because the growth in China Mobile will continue to be strong. We still expect an increase in market share in the three carriers that we are [inaudible] in right now.

Henry Ai - BNP Paribas

So what does management think about expansion globally? Any plan or any progress so far?

Steve Zhang

As I mentioned before, we are taking a step-by-step approach for overseas. We are looking right now mostly in Southeast Asia market. Because going global takes a lot of marketing and sales dollars.

Henry Ai - BNP Paribas

So after Pakistan, are you guys going anywhere else? Like, will you go with China Mobile all the time or will you expand the market by yourself sometimes?

Steve Zhang

Well, going with China Mobile definitely is one strategy for us. But at the same time, we are also actively, very actively looking at the Southeast Asia market.

Henry Ai - BNP Paribas

Nokia Siemens just announced a convergence billing win at Guangdong Telecom, so what is Nokia Siemens strength and weakness and how AsiaInfo can win in future convergence billing projects?

Steve Zhang

Actually, both Nokia Siemens, AsiaInfo, as well as [DP] and Huawei, are the five vendors that are short-listed to provide what we call an online charging system, OCS, that’s for real-time billing for the future prepaid users.

We got -- the province we got for the trial is Hubei Telecom and Nokia Siemens got Guangdong Telecom.

Henry Ai - BNP Paribas

Okay, and what is the current win rate in the 3G BOSS projects for AsiaInfo? We know AsiaInfo has won the China Mobile 3G project, but how about Unicom WCDMA and CDMA 1X projects?

Steve Zhang

Well, for Unicom, their evolution path to 3G is pretty clear and we are -- our existing system will be upgraded to support the future 3G. We are mostly working on Unicom to focus on acquiring more customers. Because on Unicom, there is still not real 3G implementation yet.

Henry Ai - BNP Paribas

So do you have any win rate right now?

Steve Zhang

Our win rate for China Mobile is 100%. We are the only provider for their TD-SCDMA. And we are also the provider from China Telecom’s TD-SCDMA trial in Hubei Telecom.

And for China Unicom, their strategy is to upgrade their existing billing system to support the future 3G.

Henry Ai - BNP Paribas

Thank you.

Operator

There are currently no questions in queue. (Operator Instructions) Our next question is from Brendan Barnicle at Pacific Crest Securities. Please go ahead.

Brendan Barnicle - Pacific Crest Securities

Thanks so much. I just had a quick follow-up. I didn’t catch what you thought the tax rate would be for Q4.

Eileen Chu

Actually, the tax rate for this quarter is higher than normal, but I think for the fourth quarter, assuming our investment income goes back to normal, I think the effective tax rate should be much lower for Q4. Our Q3 effective tax rate is about 18%, so for the nine months, it is 13% right now. I think fourth quarter, we are expecting the Q4 effective tax rate for Q4 to be 15% to 18%.

Brendan Barnicle - Pacific Crest Securities

Fifteen to 18% for Q4?

Eileen Chu

Yes.

Brendan Barnicle - Pacific Crest Securities

Okay, and then I also wanted to clarify -- did you say that the software product and solutions revenue line breakout would be $24 million to $25 million?

Steve Zhang

We didn’t give that breakdown. We gave the breakdown by our telecom revenue versus security revenue. Our telecom related net revenue will be in the range of $24 million to $25 million, and the security is $6 million.

Brendan Barnicle - Pacific Crest Securities

Okay, so as we look at the -- all right, so in terms of thinking about services and third party hardware, did those -- typically, what sort of pattern do we see in the fourth quarter there? Just so we can gauge how those might look.

Steve Zhang

Probably it will stay in the same number range with Q3.

Brendan Barnicle - Pacific Crest Securities

Okay, so flat sequentially?

Steve Zhang

Yes.

Brendan Barnicle - Pacific Crest Securities

Great. And then also, as we think a little bit about how the business moves kind of sequentially through the year, it looks like last year, the software and services business was up sequentially from Q4 to Q1. It had been sort of flattish the year prior to that. Have you built enough of a backlog in that business now that we can continue to see a sequential progression where it continues to increase each quarter?

Steve Zhang

We are happy with our current backlog situation, so we -- our target is to continue to increase our backlog. So you are asking for the sequential growth of the software revenue?

Brendan Barnicle - Pacific Crest Securities

Well, I’m asking for -- not so much the growth, but how that would trend, if that would continue to trend up sequentially from Q4 into Q1, like it did last year, or with seasonality, do we see some fall-off in Q1 like we do in traditional software companies?

Steve Zhang

Well, seasonality is always a factor because Q1 is mostly Chinese New Year. Also, the first quarter after, our clients have their new year budget. And normally, our Q1 is always the weakest quarter, in terms of revenue and the sales contracts. Because people take almost three weeks off for the --

Brendan Barnicle - Pacific Crest Securities

Okay. When I look back at Q1 this year though, there was the third-party hardware business was quite a bit higher. Was there something that was going on in Q4 last year and Q1 this year to account for that increase in third party hardware?

Steve Zhang

Remember in the last quarter for 2006, we signed some contracts with hardware components in it. Our hardware number tends to fluctuate a little bit because we -- sometimes we will sign the contracts if the margin and the payment terms we think is acceptable, and sometimes we just give up some of the hardware contracts.

I believe that -- more than a year -- closer to nine months ago, I think in Q4, we signed two contracts where we delivered hardware to our clients. So in Q1 this year, in the revenue, you will see the reflection of that.

Brendan Barnicle - Pacific Crest Securities

Okay. Very good. Thank you.

Operator

Our next question is from Reed [Aban] from Investment Securities. Please go ahead.

Reed Aban - Bernard Almedoff

Thank you for taking my questions. It’s Reed Aban from Bernard [Almedoff] Investment Securities. My two quick questions are this: are you seeing opportunities to expand into new markets, that being cable and satellite TV? Secondly, the cash on your balance sheet, in what currency is that cash? Thank you.

Steve Zhang

I will answer your first question. Our CFO will answer your second question. Right now, we are not -- we don’t have the plans to expand into the cable and satellite TV business. Because in China, the cable industry is different from the U.S. In China, the cable TV operators are financially pretty weak, also very fragmented.

Eileen Chu

Our total cash position right now is about $174 million, and about 50% of it is in U.S. dollars and the remaining 50% is in RMB.

Reed Aban - Bernard Almedoff

Okay, great. Thank you.

Operator

There are no further questions. (Operator Instructions) As there are no further questions, we will now begin closing comments. Please go ahead, Mr. Zhang.

Steve Zhang

Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact myself, Eileen, or Charles. Bye-bye.

Operator

This concludes our conference call. Thank you all for attending.

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