Asiainfo Holdings, Inc.

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Asiainfo Holdings, Inc.

4/F, Zhongdian Information Tower
No.6 Zhongguancun South Street
Beijing, China
Telephone: +(86)10-6250-1658
Fax: +(86)10-6250-1893
Web site:http://www.asiainfo.com

Public Company
Incorporated: 1993
Employees: 650 (2000)
Sales: $176.1 million (2000 est.)
Stock Exchanges: NASDAQ
Ticker Symbol: ASIA
NAIC: 541511 Custom Computer Programming Services;511210 Software Publishers; 541512 Computer System Design Services

Less than a decade after its incorporation, Asiainfo Holdings, Inc. has grown from its humble beginnings as a small venture in Dallas, Texas to the leading provider of software products and Internet infrastructure systems in China. The Beijing-based company is divided into two main business units. Its Network Solutions business caters to Chinese telecommunications service providers. Asiainfo has built most of mainland China’s Internet infrastructure and has pioneered the way for much of China’s burgeoning Internet and telecommunications industry. The company is known for designing and building China’s first national commercial Internet backbone (a main Internet line that carries data to smaller sub-networks), its first provincial Internet backbone, its first WAN (Wide Area Network) providing public services, and its first network system providing nationwide roaming capability. Its other core area of business is Software Products. Asiainfo has developed messaging and e-mail programs and billing and customer management software for Internet service providers and continues to develop proprietary software for Internet and telecommunications companies. The management team of Asiainfo consists of native-born Chinese, and most have studied abroad and returned to “work for China.” This image has helped the company in its dealings with the central Chinese government—Asiainfo is the first Internet company to receive official approval from the Chinese Securities Regulatory Commission to list abroad.

Early Inspiration

Asiainfo was founded in 1993 by Edward Tian and James Ding, two Chinese-born academics who had studied in the United States. Tian came to the United States in 1987 to earn a Ph.D. in Natural Resources Management at Texas Tech University. When he heard a 1993 speech by Vice President Al Gore on the information superhighway, Tian’s direction began to shift from academics to entrepreneurship. He wanted to somehow bring Internet connectivity to China. “We were starved for information,” Tian told Wired magazine in 1999. “The Internet could give Chinese children access. From an isolated province, they could visit the Louvre or any library in the world.” He began writing articles about the Internet for Chinese journals and began e-mail discussion groups for expatriate technology professionals. Later in 1993 he teamed up with his acquaintance James Ding, who had recently moved to Dallas after earning his Master’s degree in Information Science from the University of California at Los Angeles and graduating from the Executive Program at Hass Business School at UC Berkeley. Ding was also driven by a loyalty to his homeland. “You see how big the difference is between the U.S. and your home country,” he told The Industry Standard in 2000. “And you want to be able to do something to help. It’s not a comfortable thing to say, ‘OK, now I’m living my life in the United States. I’m just going to forget about China.”

While Tian and Ding’s ultimate ambition lay in China, they wanted to prove they could run a successful company in the United States first. They approached Tian’s business mentor, Louis Lau, a U.S.-born Chinese-American who supported their vision of a wired China. He loaned the pair $50,000 to begin their venture. Tian and Ding started Asiainfo as a service that sold research on Chinese markets to U.S. companies. They also founded Asiainfo Daily News, which translated Chinese news into English for American readers. While they ran the business in the United States, Ding and Tian also made trips to China to promote the Internet in academic and political arenas.

Return to China

In 1995, Tian and Ding moved to Beijing, China, to set up operations. (Asiainfo still maintains an office in the United States and, while its headquarters are in Beijing, the company remains a U.S. incorporated company.) Initially, they worked as consultants to other companies, developing information systems software. Soon they were hired by Sprint, who had made an early entry into China and had received a commission from the Chinese government to design and build a prototype commercial Internet network. Asiainfo and Sprint worked together until the government asked for bids on a contract to build ChinaNet, the first national Internet backbone. Sprint and Asiainfo dissolved their relationship and competed for the contract. Thanks in part to the close relationship that Tian had created with the Ministry of Post and Telecommunications (now the Ministry of Informational Industry), Asiainfo secured the $8 million contract in November 1995.

Internet Explosion

Prior to 1993, all telecommunications industry in China was under the control of the government. After that year, the government took steps to reform the industry, and, as a result, the years between 1994 and 1998 saw a tremendous surge in the growth of the Internet in China. The rate of installed fixed lines tripled in those four years. In 1994, there were approximately 50,000 Internet users in China. By 1997, there were 620,000, and by mid-1998, that number had risen astonishingly to 1.2 million. Asiainfo grew in sync with this explosion, and its business helped the industry expand. At the end of 1995 the company began work on ChinaNet. While such “backbones” depend on cable and wires, Asiainfo’s contribution to ChinaNet was not the physical infrastructure—this was built by China Telecom. Instead, Asiainfo designed the network and determined the number of servers to attach. Their work required over $4 million in imported equipment, including Sun SPARCstations and Cisco routers. The result was the primary commercial Internet system for all of China.

More success soon followed. In 1996 Asiainfo signed an agreement with the Shanghai Post and Telecom Administration Bureau to build Shanghai Online, a municipal public information network, and began construction of the China Financial Data Communication Network, a national network linking major financial institutions across China. It was soon apparent that the company needed an infusion of cash to grow, and Tian and Ding approached Bo Feng, one of the first venture capitalists in China. Feng, who was only 26 years old at the time, saw great potential in Asiainfo and its hope for China’s future. “I’m not interested in a company if it only has a great product,” he told Wired magazine in 1999. “I’m not interested in a body without a soul.”

At that time Feng did not have his own fund, so he approached contacts in the United States and Hong Kong. One meeting in particular illustrated the infancy of the Internet in China. During their conversation, a potential investor asked Feng and Tian, “What’s the Internet?” Tian gave the man a comprehensive description of the Internet and Asiainfo’s place within it. The man, whose investments included bacon fat and pork sides, responded, “Aha! Now I understand. You are a plumber.” Eventually, Asiainfo was able to round up $18 million from investors such as Warburg Pincus, ChinaVest, Fidelity Investment Company, and Sandy Robertson.

The next two years saw further growth for the company. In 1997 Asiainfo entered the Internet software market with two network management software products, AIOBS and AINexus. Also that year, the company won the contract from China Telecom to build a nationwide narrowband Internet access network known as 169.net. Additionally, Fidelity Investment Company chose Asiainfo as one of the world’s most promising companies for investment. In 1998 the company promoted the concept of Carrier Class IP which became the industry standard in China. Asiainfo also installed its new e-mail software, AIMailCenter, at 21cn.com, China’s largest Internet portal. The company made two strategic acquisitions that year: a 40 percent controlling interest in Guangdong Wayngying, a company that provided systems integration services and software products in China’s Guangdong province, and a full acquisition of AI Zhejiang, a producer of wireless customer management and billing software.

Surviving Rapid Changes 1998-99

By 1998, Asiainfo had designed 90 percent of China’s Internet infrastructure and was growing 200 percent a year. Tian and Ding’s technical expertise was legendary, but they were less knowledgeable about how businesses worked. All the earnings Asiainfo took in were immediately spent on expansion, and the company had almost no cash. The venture capital firm Warburg Pincus invested an additional $11 million in Asiainfo, with the condition that the company hire a professional CFO. Tian and Ding recruited Han Ying, Hewlett-Packard’s China operations controller. Han immediately got the company a $5 million bridge loan, and she dramatically reduced the time it took the company to get paid from six to three months.

Company Perspectives:

Asiainfo’s mission is to be the leading China-based company providing world-class software products and network solutions that enable its customers to build, maintain, operate, and continuously improve their Internet and communications infrastructure. To fulfill this mission, Asiainfo combines this advanced knowledge of cutting-edge technologies, best practice management, and thorough understanding of China’s unique operating environment to strive to stay ahead of domestic and international competition and to meet its customers’ highest expectations.

Also in 1998 the company opened an office in Santa Clara, California. This new office—Asiainfo Holdings, Inc. became the sole owner of the company, even though the headquarters—Asiainfo Technologies (China) Co. Ltd.—remained in China. “We operate 100 percent in China, but because China does not have a modern legal system, we decided on this structure,” Tian told Global Tech Ventures in 1998. In 2000 Ding further explained the dual office approach to CNN, “It’s very important because the positioning of Asiainfo is to build a bridge between China’s Internet infrastructure and the United States’ technology.... Our U.S. office has a very important role in ... helping to bridge both countries to promote the business for both countries.”

In 1999, Edward Tian was invited to become the president and CEO of state-run China Netcom, the third-largest telecommunications company in China. Tian left Asiainfo that year, but remained one of the company’s largest shareholders. James Ding became CEO of Asiainfo upon Tian’s departure. Although Asiainfo went on to do business with China Netcom, the company did not enjoy a special advantage due to its former leader’s new position. “We had a mutual understanding that Asiainfo was not going to take advantage of Edward’s position [at China Netcom],” Ding told Virtual China in 2000. China Netcom went on to build the country’s most advanced telecommunications network—in only 16 months.

A New Century

In December 1999, Asiainfo filed a registration statement for an initial public offering on the NASDAQ of up to $50 million of its common stock. On March 3, 2000 the company announced the IPO. Five million shares were offered at an initial price of $24. The IPO raised $127 million, its shares rising 315 percent on the first day of trading alone.

The new century also saw a shift in direction for Asiainfo. Although the company had a virtual monopoly on the telecommunications systems integration market in China, this business was not very profitable. As CEO, Ding began to focus more on the company’s software and Internet service businesses, where margins were better. Asiainfo was restructured into two business units: Network Solutions and Software Products. At first this shift was seen as risky, because software was a relatively unproven part of Asiainfo’s operations. But skeptics were soon proved wrong. “They’re demonstrating that it’s a viable business now,” James Chang, an analyst for Credit Suisse First Boston told The Asian Wall Street Journal Weekly in 2001. In August 2000 China Unicom launched a nationwide IP network that used Asiainfo’s software programs AIOBSv5 and AIMailCenter. By the third quarter of 2000, software represented about 37 percent of Asiainfo’s net revenue—an increase of 16 percent from the previous year. The company turned a profit for the first time in the second quarter of 2000.

Its success as a software company did not inspire Asiainfo to abandon the networking business that had made it so successful in the mid-1990s. In January 2000 China Netcom hired Asiainfo to engineer a high-speed IP backbone for 17 cities in southern and eastern China, known as CNCNet. In March China Unicom contracted with the company to expand its VoIP (Voice over IP) network to an additional 300 cities nationwide. And in September China Mobile contracted Asiainfo to engineer a national IP backbone connecting the country’s 31 provincial capitals.

Despite the wildly fluctuating stock market of 2000-01, and a decrease in capital spending in China for telecommunications interests, Asiainfo continued to flourish. In 2001 the company posted a net income of $2.6 million on revenue that rose 45 percent to $17 million. Plans for the future included continuing to build the software business so as to be able to develop products for new telecommunications services soon to be available in China such as wireless messaging, wireless data, long distance via VoIP, and unified messaging. “We have the first-mover advantage,” James Ding predicted to Dow Jones News-wires in 2001. “In the next few years, we’re still going to maintain our dominant position in the Internet and software spectrum.”

Principal Divisions

Software Products; Network Solutions.

Principal Subsidiaries

Asiainfo Technologies; Guangdong Wangying Information Technology (40%); Zhejiang Asiainfo Telecommunciations Technology; MarSec Holdings (75%).

Principal Competitors

ASPAC Communications; New Tel; UTStarcom.

Key Dates:

1993:: Company is founded by Edward Tian and James Ding and incorporates in Dallas, Texas.
1995:: Asiainfo relocates to Beijing, China and wins the contract to build ChinaNet.
1996:: The company begins construction of the China Financial Data Communication Network.
1997:: Asiainfo wins the contract to build 169.net, a nationwide narrowband Internet access network.
1998:: Company opens an office in Santa Clara, California, and hires Han Ying as CFO to manage rapid earnings.
1999:: Edward Tian leaves Asiainfo for the telecommunications firm China Netcom.
2000:: Asiainfo has an initial public offering (IPO) on NASDAQ and raises $127 million; the company divides into two business units: Network Solutions and Software Products; the company engineers CNCNet, a high-speed IP backbone for 17 Chinese cities.