A new war for wireless phone customers is breaking out in China -- and software-company AsiaInfo Holdings is all too happy to sell provisions to all sides.
Analysts say the Beijing company, which sells key back-office support to wireless carriers, is set for explosive growth after China announced a massive wireless industry restructuring in May. The move will create two strong carriers to compete against market behemoth China Mobile (NYSE:CHL - News), analysts say.
Though expected by many, the announcement spurred investor interest in AsiaInfo (NasdaqGM:ASIA - News), which saw shares climb more than 15% in the weeks following the news.
Analysts say AsiaInfo can leverage its marketing-leading position as the new wireless carriers try to establish and build on their market share. At the same time, China is looking to issue licenses for next-generation networks that will spur more spending.
Joshua Jabs, an analyst with Roth Capital Partners, says the moves could double or triple AsiaInfos market opportunity.
Forecasting Demand
Company officials are optimistic.
"There will be new demand," said Steve Zhang, president and chief executive officer of AsiaInfo. "The whole telecom field has a lot of opportunities."
Under the industry restructuring, China Unicom (NYSE:CHU - News) the countrys No. 2 mobile phone company, will buy China Netcom Group (NYSE:CN - News) for $23.8 billion in stock. China Unicom also will sell part of its wireless business to fixed-line carrier China Telecom (NYSE:CHA - News) for $15.9 billion, creating the third wireless provider.
China Mobile has been the clear market dominator with more than 65% of wireless cell phone users and facing little threat from China Unicom, Jabs says. Chinese officials were looking to level the playing field and bring market diversity, he says.
"Now you have three pretty healthy competitors," said Jabs, who rates AsiaInfo a buy.
Already, AsiaInfo is the leader in its market. It provides software that helps China Mobile and Unicom with billing, setting up customer accounts, customer management and data analytics. The company also provides security products to non-telcos along with some consulting services.
"Its ingrained with Chinas telco industry, and theres still a lot of investment that needs to be made there," said Sean Jackson, an analyst with Avondale Partners, who rates the stock a buy.
During the first quarter, AsiaInfos earnings climbed 57% to 11 cents per share, topping analysts estimates by 22%. Sales grew 16% to $35 million. Deferred revenue, an indicator of future sales growth, climbed 33% between Jan. 1 and March 31.
Until now, AsiaInfo has drafted off the rapid growth of mobile phone use in China and its massive population.
"(The carriers) have 600 million subscribers, and they are still adding 9 million subscribers a month," Zhang said. "Thats a lot."
To put that number in perspective, the entire population of the U.S. is roughly 300 million.
From Texas To China
AsiaInfos roots stretch back to Texas in 1993, when two Chinese students started the firm. But sensing more opportunities in China, they moved to Beijing in 1995.
The company made a name for itself in the 1990s by helping design Chinas Internet backbone networks. The wireless business grew in the earlier part of this decade as the company saw more opportunities selling software that supports the carriers. Today software makes up 85% of sales, Zhang says.
It recently expanded into Pakistan after its customer, China Mobile, began doing business in that country. Its also looking at some countries in southeast Asia, such as Indonesia and Vietnam.
He points out China Mobiles massive size will "open doors" for AsiaInfo.
"I think our focus is still on China as well as some of the emerging countries," he said, noting that its hard to replace competitors in more mature markets.
Despite the optimism surrounding AsiaInfo, the company faces a host of potential challenges. Companies in China and the U.S. are well aware of the telecom industrys restructuring and want that business, too.
Jabs notes Chesterfield, Mo.-based AmDocs (NYSE:DOX - News) -- which provides similar software to AsiaInfo -- is making some of the more aggressive moves to get into the market.
Still, AsiaInfo has long-standing relationships with the telecom industry, a key to succeeding in China, says Karl Keirstead, an analyst with Kaufman Bros. Equity Research, who rates AsiaInfo a buy.
Also, AsiaInfo stands to benefit not just from the restructuring, but from future technology upgrades at Chinese telcos.
"The fundamentals are really being driven not just by the well-publicized industry restructuring story in China," Keirstead said. "Longer term, the telecommunications sector is underinvested in technology."
Analysts say the Beijing company, which sells key back-office support to wireless carriers, is set for explosive growth after China announced a massive wireless industry restructuring in May. The move will create two strong carriers to compete against market behemoth China Mobile (NYSE:CHL - News), analysts say.
Though expected by many, the announcement spurred investor interest in AsiaInfo (NasdaqGM:ASIA - News), which saw shares climb more than 15% in the weeks following the news.
Analysts say AsiaInfo can leverage its marketing-leading position as the new wireless carriers try to establish and build on their market share. At the same time, China is looking to issue licenses for next-generation networks that will spur more spending.
Joshua Jabs, an analyst with Roth Capital Partners, says the moves could double or triple AsiaInfos market opportunity.
Forecasting Demand
Company officials are optimistic.
"There will be new demand," said Steve Zhang, president and chief executive officer of AsiaInfo. "The whole telecom field has a lot of opportunities."
Under the industry restructuring, China Unicom (NYSE:CHU - News) the countrys No. 2 mobile phone company, will buy China Netcom Group (NYSE:CN - News) for $23.8 billion in stock. China Unicom also will sell part of its wireless business to fixed-line carrier China Telecom (NYSE:CHA - News) for $15.9 billion, creating the third wireless provider.
China Mobile has been the clear market dominator with more than 65% of wireless cell phone users and facing little threat from China Unicom, Jabs says. Chinese officials were looking to level the playing field and bring market diversity, he says.
"Now you have three pretty healthy competitors," said Jabs, who rates AsiaInfo a buy.
Already, AsiaInfo is the leader in its market. It provides software that helps China Mobile and Unicom with billing, setting up customer accounts, customer management and data analytics. The company also provides security products to non-telcos along with some consulting services.
"Its ingrained with Chinas telco industry, and theres still a lot of investment that needs to be made there," said Sean Jackson, an analyst with Avondale Partners, who rates the stock a buy.
During the first quarter, AsiaInfos earnings climbed 57% to 11 cents per share, topping analysts estimates by 22%. Sales grew 16% to $35 million. Deferred revenue, an indicator of future sales growth, climbed 33% between Jan. 1 and March 31.
Until now, AsiaInfo has drafted off the rapid growth of mobile phone use in China and its massive population.
"(The carriers) have 600 million subscribers, and they are still adding 9 million subscribers a month," Zhang said. "Thats a lot."
To put that number in perspective, the entire population of the U.S. is roughly 300 million.
From Texas To China
AsiaInfos roots stretch back to Texas in 1993, when two Chinese students started the firm. But sensing more opportunities in China, they moved to Beijing in 1995.
The company made a name for itself in the 1990s by helping design Chinas Internet backbone networks. The wireless business grew in the earlier part of this decade as the company saw more opportunities selling software that supports the carriers. Today software makes up 85% of sales, Zhang says.
It recently expanded into Pakistan after its customer, China Mobile, began doing business in that country. Its also looking at some countries in southeast Asia, such as Indonesia and Vietnam.
He points out China Mobiles massive size will "open doors" for AsiaInfo.
"I think our focus is still on China as well as some of the emerging countries," he said, noting that its hard to replace competitors in more mature markets.
Despite the optimism surrounding AsiaInfo, the company faces a host of potential challenges. Companies in China and the U.S. are well aware of the telecom industrys restructuring and want that business, too.
Jabs notes Chesterfield, Mo.-based AmDocs (NYSE:DOX - News) -- which provides similar software to AsiaInfo -- is making some of the more aggressive moves to get into the market.
Still, AsiaInfo has long-standing relationships with the telecom industry, a key to succeeding in China, says Karl Keirstead, an analyst with Kaufman Bros. Equity Research, who rates AsiaInfo a buy.
Also, AsiaInfo stands to benefit not just from the restructuring, but from future technology upgrades at Chinese telcos.
"The fundamentals are really being driven not just by the well-publicized industry restructuring story in China," Keirstead said. "Longer term, the telecommunications sector is underinvested in technology."
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