VanceInfo IPO Off To Strong Start

VanceInfo Technologies Inc. (VIT) is off to a strong start in the Chinese software outsourcing company's market debut Wednesday on the New York Stock Exchange. In early afternoon trade, its American Depositary Shares are at $9.80, up 15.2% from an opening price of $8.50. VanceInfo's initial public offering raised $65 million.

VanceInfo's venture capital backers include DCM and Sequoia Capital China, according to the company's registration statement, with Sequoia Capital China partner Kui Zhou sitting on the software developer's board. Other backers include Legend Capital, the corporate VC arm of Chinese  information technology giant Legend Holdings Ltd. 

DCM describes VanceInfo, formerly called WorkSoft, as the "leading China-based provider of IT outsourcing services to Asia Pacific, North American and European clients as well as multinationals in China." Software outsourcing is obviously a crowded field. In China, VanceInfo competes with players such as Achievo, Augmentum and Chinasoft International, while globally it's up against heavyweights including Infosys Technologies Ltd. and Wipro Ltd.

 The company derives a big chunk of its business from only two customers: Microsoft Corp. and IBM Corp., which as of June collectively accounted for some 40% of the company's net sales. But VanceInfo has been working to diversify it client base, expanding the roster from 66 in 2004 to 187 as of Sept. 30. Today the company draws roughly 60% of its revenue from the its top five customers, compared with nearly 78% in 2005. And as software development picks up in China, VanceInfo looks well-positioned to grow. 

See Dec. 11 story from Reuters
See VanceInfo's IPO prospectus
See Dec. 10 post from Seeking Alpha
See VanceInfo profile from Renaissance Capital's IPOhome

Comments

[WTJ:]

As soon as they were mentioned on CNBC,
the morning of their offering,
I and thousands of others began researching the two IPO's:
VIT and ZIN.

VIT seemed without substance.

ZIN, however is a real estate developer
with several completed
and currently under-construction developments.

ZIN gave guidance with their offering that they would have serious competition in China's 2nd tier cities for the fast growing middle class market.

VIT promised nothing but success.

I went with ZIN,
and I'm sure glad that I did.
Although it was already up to $14.60 when I came in,
(The others that heard the CNBC report read faster than I did)
It's well over $17 today.

2007 Dec 13 09:40 PM

[NOT a sucker:]

As former VP at Worksoft (oops, I mean VanceInfo), it's really a sham of a company with inexperienced senior management who couldn't punch their way out of a paper bag. Many held very low level positions in the States, middle management at best; nobody held senior management positions at any respectable software company or systems integrator. They couldn't even pull off a merger deal with a key SI based in the East Bay, probably for a host of reasons, one of which is that the East Bay company probably saw through them.

This report factually states that they are Microsoft and IBM puppets, jumping at every little thing that comes their way from either company. ("Puppets" isn't the word I'm thinking of, really. It beings with a "W" and rhymes with "shore".)

They've made acquisitions to boost their headcount leading to their IPO, but they haven't had much (if any) success in each of their endeavors to move up the IT food chain. They're still stuck in relatively low margin testing and localization, unable to do much in software development or ADM for end users.

And now they're trading at a P/E of over 100! Boy, they must be happy that they've suckered a lot of people. A P/E ratio of 10 is more appropriate. Oh, and it's funny that their market cap is only $112 million; when I was there, $400-500 million was what they were aiming for.

I've written about how their senior management totally screwed up what is the most important project going on in China. It's for BT (British Telecom) and it's for a play similar to what BT did in India with MBT and their successful IPO. I don't follow what happened, don't really know what BT ultimately did, but Worksoft (oops, VanceInfo) lost what was clearly the most important deal in China circa 2006.

Their management style can be described by a "shoot first, ask questions later" approach. Shooting from the hip can be expected, though, when virtually nobody on their senior management team has any training in strategic planning. (MBAs in China are worthless except for networking purposes. Ask a newly minted MBA in China the difference between Porter, Prahalad and Ghemawat and they'd be clueless.) Frankly, there's very little positive that I can say about the company except for one thing: I believe they do their best in servicing their customers.

BTW, they play a cost leadership game in a country known for cost leadership. This means that they're HIGHLY susceptible to losing on price from competitors based in second, third and fourth tier cities in China. Yes, Worksoft/VanceInfo (who came up with this stupid name, "VanceInfo"; "Worksoft" was bad enough) has ops in second tier cities, but they have the bulk of their ops in Beijing, NOT a cheap city, with their second largest operation in Shanghai, also NOT a cheap city. (BTW, I might be wrong about this. One of their latest acquisitions might give them a higher headcount in Xi'an, but I doubt this.) So a company comprised of sea turtles (overseas returnees) who have had SENIOR management experience and who are willing to start from day one in Xi'an, Chengdu, Wuhan, Jinan, ..., might be able to beat them at their own game, beat them with their cost leadership strategy.

At this point, it doesn't appear that Augmentum or Achievo want to play this game. Chinasoft might be willing to play this game, though. Also, let's not forget iSoftStone, who surpassed Worksoft/VanceInfo in quality and where they play in the China ITO food chain. And let's not forget HiSoft or Freeborders, either.

Anyway, it appears that the (mostly) American public has been suckered ... once again.

FYI, I left Worksoft/VanceInfo after they blew the BT deal. I was gone for a couple of weeks to attend a conference at Stanford and their COO pulled a totally dumb ass move, sent a proposal without having anyone check it, and made it seem as if Worksoft was asleep during our discussions with BT.

2007 Dec 17 09:54 AM