AsiaInfo Reports Fourth Quarter and 2006 Year-End Results

-- AsiaInfo Exceeds Net Revenue Guidance for the Fourth Quarter

-- Fourth Quarter Telecom Software Products and Solutions Revenue Grows

41% Year-Over-Year and 9% Sequentially

-- Lenovo-AsiaInfo Fourth Quarter Net Revenue Grows 28% Sequentially

BEIJING and SANTA CLARA, Calif., Jan. 25 /Xinhua-PRNewswire/ -- AsiaInfo Holdings, Inc. (Nasdaq: ASIA), (''AsiaInfo'') a leading provider of

telecom software solutions and IT security products and services in China,

today announced fourth quarter and full year results for the period ended

December 31, 2006.

(Logo: http://www.prnasia.com/sa/200611101947.jpg )

''We're pleased to report that our strategy of focusing on our core

telecom and IT security businesses helped to drive encouraging business

results for the fourth quarter and full year 2006,'' said Steve Zhang,

AsiaInfo's President and Chief Executive Officer. ''Our telecom software

solutions gained market share and customer recognition as we worked to

innovate and drive value for China's telecom carriers.''

During the fourth quarter, AsiaInfo developed software solutions that

helped carriers expand capacity, provide new value-added services to users,

analyze user data, and increase overall operational efficiency. Contracts

signed during the quarter included agreements to upgrade China Telecom's

business support systems, expand Beijing Mobile's business intelligence and

operational CRM systems, and enhance China Mobile's content billing system.

''We are optimistic about the year ahead,'' continued Mr. Zhang. ''Our

focus on R&D and anticipating customer needs well positions us to take

advantage of opportunities created by increasing competition between the

telecom carriers and the growing overall demand for new value-added telecom

services. We will also continue to consider attractive acquisitions in the

telecom software space that allow us to expand market share at a reasonable

cost.''

Fourth Quarter 2006 Results

Exceeding guidance, net revenue (total revenues net of third party

hardware cost) for the fourth quarter was US$25.4 million, an increase of 58%

year-over-year, and an increase of 8% sequentially. Earnings per basic share

for the quarter was US$0.05.

AsiaInfo's core telecom software solutions business continued to perform

well, posting net revenue growth of 32% year-over-year and 5% sequentially.

The Company's Lenovo-AsiaInfo business unit had a strong quarter, with net

revenue up 876% year-over-year, and up 28% sequentially. The large

year-over-year increase in net revenue was primarily due to significantly lower than expected shipment volume for the Lenovo-AsiaInfo business unit in the year ago period. Please refer to the end of the press release for condensed segmented financial results for AsiaInfo's two business units.

During the fourth quarter, the Lenovo-AsiaInfo business unit contributed

approximately 14% to net revenue, including a 16% contribution to software

products and solutions revenue and a 4% contribution to service revenue.

Lenovo-AsiaInfo contributed 12% to net revenue in the previous quarter.

Gross revenue for the fourth quarter was US$32.1 million, an increase of

66% from the year ago period and up 16% sequentially. Gross margins were 42%

in the fourth quarter compared to 25% in the year-ago period and 43% in the

previous quarter.

Revenue from software products and solutions for the fourth quarter was

US$21.6 million, an increase of 73% from the year-ago period and an increase

of 13% sequentially. Service revenue was US$3.5 million, a 1% increase year-

over-year and a 15% sequential decrease. Third-party hardware revenue for

the quarter was US$7.1 million, a 102% increase over the year ago period and an increase of 57% sequentially.

Total operating expenses for the quarter were US$12.2 million, a decrease

of 64% year-over-year and an 11% increase sequentially. The year-over-year

decrease was primarily due to a US$21.2 million non-cash charge for

impairment of goodwill and acquired intangible assets related to the Lenovo-AsiaInfo business unit in the year-ago period. Lenovo-AsiaInfo contributed 20% to total operating expenses before corporate general and administrative charges for the fourth quarter of 2006.

Net income from continuing operations for the fourth quarter was US$1.9

million, or US$0.05 per basic share. Net loss from continuing operations in

the year-ago period was US$27.9 million or US$0.60 per basic share, and net

income from continuing operations in the previous quarter was US$1.8 million

or US$0.04 per basic share.

As announced in early December 2006, AsiaInfo has entered into an

agreement to sell its financial services IT solutions business. The sale of

this business will allow AsiaInfo to concentrate on delivering leading

telecom software solutions and IT security products and services to a growing client base. The transaction is expected to close in the first quarter of 2007.

The Company recorded net income from discontinued operations for the

fourth quarter of US$0.2 million. This compares to a net loss from

discontinued operations of US$11.9 million in the year-ago period, and net

income from discontinued operations of US$0.2 million in the previous quarter.

In the fourth quarter, AsiaInfo recorded total net income of US$2.1

million. This is compared to a net loss of US$39.8 million in the year-ago

period and net income of US$2.0 million in the previous quarter, inclusive of

the impact of discontinued operations during those periods.

Net income excluding share-based compensation expenses, amortization and

impairment charges(1)(Non-GAAP net income) was US$3.1 million in the fourth

quarter of 2006 or US$0.07 per basic share. Non-GAAP net loss in the

year-ago period was US$18.3 million or US$0.40 per basic share. Non-GAAP net income in the previous quarter was US$2.7 million or US$0.06 per basic share.

Operating cash flow for the fourth quarter of 2006 was US$27.6 million.

(1) Non-GAAP net income and Non-GAAP EPS measures exclude share-based

compensation expenses, amortization expenses of acquired intangible

assets and impairment of goodwill and acquired intangible assets.

For further details on non-GAAP measures, please refer to the

reconciliation table and a detailed discussion of management's

use of non-GAAP information below.

2006 Full Year Financial Results

For the full year 2006, the company reported net revenue of US$86.7

million, representing a 16% increase over 2005 net revenue of US$75.0

million. Gross revenue for the full year 2006 was US$109.6 million, up by 21% from US$90.3 million in 2005. Gross margin for the full year 2006 was 40% compared to 41% for the full year 2005.

Full year 2006 revenue from telecom software products and solutions grew

by 32% compared to 2005, leading to an 18% increase in telecom net revenue

for the year.

The Lenovo-AsiaInfo business unit's full year 2006 results contributed 8%

and 8% to the full year gross revenue and gross profit, respectively, and 10%

to 2006 net revenue.

Reflecting AsiaInfo's strategic focus on software products and solutions,

revenue from this area grew 28% for the year to US$72.1 million from US$56.3

million in 2005. Service revenue fell 25% to US$13.4 million from US$17.8

million in 2005, and third party hardware revenue grew 49% to US$24.1 million

from US$16.1 million in 2005. Third party hardware has been generally

decreasing in the past years as we focus on our core software solution

business; however, from time to time we offer hardware for some projects in

response to customer requests.

Net income from continued operations for 2006 was US$5.0 million, or

US$0.11 per basic share compared to a net loss of US$23.8 million, or US$0.53

per basic share, for 2005. Net income from discontinued operations for 2006

was US$0.8 million, or US$0.02 per basic share while net loss from

discontinued operations for 2005 was US$13.4 million, or US$0.30 per basic

share in 2005.

AsiaInfo recorded a total net income of US$5.8 million for the year,

compared to a net loss of US$37.2 million in 2005.

Non-GAAP net income was US$8.1 million for the full year 2006 or US$0.19

per basic share. Non-GAAP net loss in 2005 was US$14.4 million or US$0.32

per basic share.

AsiaInfo's full year net operating cash flow was US$35.8 million.

First Quarter 2007 Guidance

AsiaInfo expects first quarter 2007 net revenue to be US$23 million to

US$24 million, representing 22% to 28% year-over-year growth. Earnings per

basic share from continuing operations for the first quarter of 2007 is

expected to be US$0.03 to US$0.04. This is compared to earnings per basic

share of US$0.01 in the first quarter of 2006.

The Company anticipates that the Lenovo-AsiaInfo business unit will post

a loss of US$0.6 million to US$0.8 million in the first quarter due to

seasonality in the business relating to the long Chinese New Year holiday.

ASIAINFO HOLDINGS, INC.

CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (2)

(Amounts in thousands of US$, except share and per share amounts)

Three Months Year

Ended Dec 31 Ended Dec 31

2006 2005 2006 2005

Revenues:

Software products and

solutions 21,565 12,433 72,098 56,343

Service 3,491 3,455 13,432 17,816

Third party hardware 7,055 3,500 24,053 16,125

Total revenues 32,111 19,388 109,583 90,284

Cost of revenues:

Software products and

solutions 9,477 8,339 33,736 27,928

Service 2,336 2,878 8,801 10,460

Third party hardware 6,701 3,325 22,850 15,317

Total cost of revenues 18,514 14,542 65,387 53,705

Gross profit 13,597 4,846 44,196 36,579

Operating expenses:

Sales and marketing 6,464 5,278 20,137 18,473

General and administrative 2,003 3,768 7,960 11,288

Research and development 3,712 3,886 14,230 12,762

Impairment of goodwill

and acquired intangible

assets -- 21,197 -- 21,197

Total operating expenses 12,179 34,129 42,327 63,720

Income (loss) from

operations 1,418 (29,283) 1,869 (27,141)

Other income (expenses):

Interest income 1,097 958 4,246 3,323

Gain (loss) on investments (196) 137 (196) 134

Other income (expense),

net (79) (24) (155) 23

Total other income, net 822 1,071 3,895 3,480

Income (loss) before

income taxes and equity

in loss of an affiliate 2,240 (28,212) 5,764 (23,661)

Income tax (benefit)

expense 304 (318) 768 145

Net income (loss) from

continuing operations 1,936 (27,894) 4,996 (23,806)

Discontinued operations

Gain (loss) from

operations of

discontinued operations 183 (977) 695 (2,439)

Gain (loss) on disposal of

discontinued operations -- (11,163) 140 (11,163)

Income tax benefit -- 239 -- 239

Net income (loss) from

discontinued operations 183 (11,901) 835 (13,363)

Net income (loss) 2,119 (39,795) 5,831 (37,169)

Net income (loss) from

continued operations:

Basic 0.05 (0.60) 0.11 (0.53)

Diluted 0.04 (0.60) 0.11 (0.53)

Net income (loss) from

discontinued operations:

Basic 0.00 (0.26) 0.02 (0.30)

Diluted 0.00 (0.26) 0.02 (0.30)

Shares used in

computation:

Basic 42,838,394 46,144,356 43,630,365 44,983,877

Diluted 43,735,011 46,144,356 44,452,024 44,983,877

Non-GAAP disclosure:

Total revenues net of

third party hardware cost 25,410 16,063 86,733 74,967

Total cost of revenues net

of third party hardware

cost 11,813 11,217 42,537 38,388

(2) Certain comparative figures have been reclassified to conform to

current period's discontinued operation presentation.

ASIAINFO HOLDINGS, INC.

CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of US$, except share and per share amounts)

As at

Dec 31, Sept 30, Dec 31,

2006 2006 2005(3)

ASSETS:

Current Assets:

Cash and cash equivalents 104,575 72,095 92,176

Restricted cash 12,645 12,728 13,369

Short term investments 45,882 47,460 43,181

Notes receivable 848 954 3,551

Accounts receivable, trade (net of

allowances of 3,311 and 4,663 at Dec

31, 2006 and 2005, respectively) 35,234 46,859 40,727

Inventories 6,518 5,236 5,211

Current assets held-for-sale 857 -- --

Other current assets 10,026 11,462 9,595

Total current assets 216,585 196,794 207,810

Property, plant and equipment, net 1,857 1,911 2,374

Long term investment 1,787 1,765 1,729

Other assets 23,933 23,830 16,313

Total Assets 244,162 224,300 228,226

LIABILITY AND STOCKHOLDERS EQUITY

Current Liabilities:

Notes payable 4,045 4,608 1,807

Accounts payable 15,537 12,187 9,421

Accrued employee benefit 18,376 13,700 11,849

Deferred revenue 23,169 16,747 18,685

Income taxes payable 927 417 444

Other taxes payable 3,232 2,771 2,415

Current liabilities held-for-sale 227 -- --

Other current liabilities 16,188 17,381 15,981

Total current liabilities 81,701 67,811 60,602

Stockholders' equity:

Common stock, 100,000,000 shares

authorized; 0.01 par value, shares

issued: 43,076,034 and 46,920,714

as at Dec 31, 2006 and 2005

respectively; shares issued and

outstanding: 43,076,034 and

46,144,613 shares as at Dec 31, 2006

and 2005 respectively 431 428 469

Additional paid-in capital 195,881 194,791 215,201

Treasury stock, at cost: Dec 31,

2006: nil; Dec 31, 2005: 776,101 -- -- (4,027)

Accumulated deficit (40,556) (42,675) (46,387)

Accumulated other comprehensive

income 6,705 3,945 2,368

Total stockholders' equity 162,461 156,489 167,624

Total Liabilities and Stockholders'

Equity 244,162 224,300 228,226

(3) December 31, 2005 balances were extracted from audited financial

statements.

ASIAINFO HOLDINGS, INC.

CONDENSED UNAUDITED STATEMENTS OF OPERATIONS AND TOTAL ASSETS FOR

REPORTABLE SEGMENTS

(Amounts in thousands of US$)

Three Months Ended

Dec 31, 2006

AsiaInfo Lenovo-

Technologies AsiaInfo Total

Revenues:

Software products and solutions 18,064 3,501 21,565

Service 3,354 137 3,491

Third party hardware 7,048 7 7,055

Total revenues 28,466 3,645 32,111

Cost of revenues:

Software products and solutions 8,188 1,289 9,477

Service 1,890 446 2,336

Third party hardware 6,695 6 6,701

Total cost of revenues 16,773 1,741 18,514

Gross profit 11,693 1,904 13,597

Business unit expenses:

Sales and marketing 4,637 1,827 6,464

General and administrative (4) 304 (212) 92

Research and development 3,281 431 3,712

Impairment of goodwill and acquired

intangible assets -- -- --

Total business unit expenses 8,222 2,046 10,268

Contribution profit (loss) 3,471 (142) 3,329

Corporate general and administrative 1,911

Income (loss) from operations 1,418

(4) General and administrative expenses reported reflect only the direct

controllable expenses of each business unit and do not include

allocation of corporate general and administrative expenses.

ASIAINFO HOLDINGS, INC.

CONDENSED UNAUDITED STATEMENTS OF OPERATIONS AND TOTAL ASSETS FOR

REPORTABLE SEGMENTS

(Amounts in thousands of US$)

Three Months Ended

Dec 31, 2005

AsiaInfo Lenovo-

Technologies AsiaInfo Total

Revenues:

Software products and solutions 12,824 (391) 12,433

Service 3,551 (96) 3,455

Third party hardware 3,154 346 3,500

Total revenues 19,529 (141) 19,388

Cost of revenues:

Software products and solutions 6,368 1,971 8,339

Service 2,549 329 2,878

Third party hardware 2,997 328 3,325

Total cost of revenues 11,914 2,628 14,542

Gross profit 7,615 (2,769) 4,846

Business unit expenses:

Sales and marketing 3,639 1,639 5,278

General and administrative (4) (149) 1,672 1,523

Research and development 3,074 812 3,886

Impairment of goodwill and acquired

intangible assets -- 21,197 21,197

Total business unit expenses 6,564 25,320 31,884

Contribution profit (loss) 1,051 (28,089) (27,038)

Corporate general and administrative 2,245

Income (loss) from operations (29,283)

(4) General and administrative expenses reported reflect only the direct

controllable expenses of each business unit and do not include

allocation of corporate general and administrative expenses.

ASIAINFO HOLDINGS, INC.

CONDENSED UNAUDITED STATEMENTS OF OPERATIONS AND TOTAL ASSETS FOR

REPORTABLE SEGMENTS

(Amounts in thousands of US$)

Three Months Ended

Sept 30, 2006

AsiaInfo Lenovo-

Technologies AsiaInfo Total

Revenues:

Software products and solutions 16,577 2,588 19,165

Service 3,855 251 4,106

Third party hardware 4,481 22 4,503

Total revenues 24,913 2,861 27,774

Cost of revenues:

Software products and solutions 7,812 1,231 9,043

Service 2,228 314 2,542

Third party hardware 4,257 21 4,278

Total cost of revenues 14,297 1,566 15,863

Gross profit 10,616 1,295 11,911

Business unit expenses:

Sales and marketing 4,035 1,548 5,583

General and administrative (4) -- (266) (266)

Research and development 3,317 499 3,816

Impairment of goodwill and acquired

intangible assets -- -- --

Total business unit expenses 7,352 1,781 9,133

Contribution profit (loss) 3,264 (486) 2,778

Corporate general and administrative 1,792

Income (loss) from operations 986

(4) General and administrative expenses reported reflect only the direct

controllable expenses of each business unit and do not include

allocation of corporate general and administrative expenses.

Fourth Quarter and Year End 2006 Conference Call

The earnings announcement conference call will take place at 4:00pm

Pacific Time/ 7:00pm Eastern Time (Beijing/Hong Kong Time: January 25, 2007

at 8:00am). The management team will be on the call to discuss results and

highlights of the quarter, and answer questions. The dial-in number for U.S.

callers is +1 866-549-1292, and +852 3005-2050 for Hong Kong and

international callers. The passcode for the call is 620250.

A replay will be available from 7:00pm Pacific Time on January 24, 2007

until 7:00pm Pacific Time on February 3, 2007 by dialing +1 866-753-0743 for

U.S. callers, or +852 3005-2020 for Hong Kong and international callers. The

passcode for the replay is 130358.

Additionally, a live and archived web cast of this call will be available

on the Investor Relations section of the AsiaInfo web site at

http://www.asiainfo.com .

Reconciliation of Non-GAAP Measures

This earnings release contains presentations of the following ''Non-GAAP

financial measures'' as defined by the applicable U.S. securities regulations

. The presentation of these non-GAAP financial measures is not meant to be

considered in isolation or as a substitute for our financial results prepared

in accordance with GAAP. The Non-GAAP financial measures are provided as

additional information to help both management and investors compare business

trends among different reporting periods on a consistent and more meaningful

basis and enhance investors' overall understanding of the Company's current

financial performance and prospects for the future. Pursuant to relevant

regulatory requirements, we are providing the following reconciliations of

the Non-GAAP financial measures to the nearest comparable GAAP measures.

(1) AsiaInfo's net revenue represents total revenue net of hardware costs

that are passed through to our customers. We believe total revenues net of

hardware costs more accurately reflects our core business, which is the

provision of software solutions and services, and provides transparency to

our investors. It is also the same measure used by our management to evaluate the competitiveness and development of our business.

Reconciliation of net revenue to the nearest GAAP financial measure

(total revenue):

2006 Q4 2006 Q3 2005 Q4

(in thousands of US dollars)

Net Revenue 25,410 23,496 16,063

Third Party Hardware Costs 6,701 4,278 3,325

Total Revenues 32,111 27,774 19,388

FY 2006 FY 2005

(in thousands of US dollars)

Net Revenue 86,733 74,967

Third Party Hardware Costs 22,850 15,317

Total Revenues 109,583 90,284

(2) Non-GAAP net income and Non-GAAP basic EPS excludes certain non-cash

expenses, including share-based compensation, amortization of acquired

intangible assets and impairment of goodwill and acquired intangible assets.

We believe that these non-GAAP financial measures provide meaningful

supplemental information regarding our performance and liquidity by excluding

certain non-cash expenses that may not be indicative of our operating

performance from a cash perspective. We believe that both management and

investors benefit from referring to this additional information in assessing

our performance and when planning and forecasting future periods. These non-

GAAP financial measures also facilitate management's internal comparisons to

AsiaInfo's historical performance and liquidity.

Reconciliation of Non-GAAP net income to the nearest GAAP financial

measure (GAAP net income):

2006 Q4 2006 Q3 2005 Q4

(in thousands of US dollars)

GAAP net income 2,119 2,005 (39,795)

Adjustments:

- share-based compensation 393 138 45

- amortization of acquired intangible

assets 575 561 285

- impairment of goodwill and acquired

intangible assets -- -- 21,197

Non-GAAP net income 3,087 2,704 (18,268)

Non-GAAP basic EPS 0.07 0.06 (0.40)

FY 2006 FY 2005

(in thousands of US dollars)

GAAP net income 5,831 (37,169)

Adjustments:

- share-based compensation 803 48

- amortization of acquired intangible

assets 1,506 1,541

- impairment of goodwill and acquired

intangible assets -- 21,197

Non-GAAP net income 8,140 (14,383)

Non-GAAP basic EPS 0.19 (0.32)

About AsiaInfo Holdings, Inc.

AsiaInfo Holdings, Inc. (Nasdaq: ASIA) is a leading provider of high-

quality software and customer solutions to many of China's largest enterprises. In addition to providing software and customer solutions to China's telecom carriers, the Company also offers a wide range of IT security products and services to small, medium and large sized Chinese enterprises across multiple vertical industries.

Organized as a Delaware corporation, AsiaInfo began operations in the

United States in 1993. The Company moved its major operations to China in

1995 and played a significant role in the construction of the national

Internet backbones and provincial access networks for all of China's major

national telecom carriers, including China Telecom, China Mobile, China

Unicom and China Netcom. Since 1998, AsiaInfo has continued to diversify its product offerings and is now a major provider of enterprise software solutions in China.

For more information about AsiaInfo, please visit http://www.asiainfo.com .

The information contained in this document is as of January 24, 2007.

AsiaInfo assumes no obligation to update any forward-looking statements

contained in this document as a result of new information or future events or

developments.

This document contains forward-looking information about AsiaInfo's

operating results and business prospects that involve substantial risks and

uncertainties. You can identify these statements by the fact that they use

words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe,

" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are the following: government telecommunications infrastructure and budgetary policy in China; our ability to maintain our concentrated customer base; the long and variable billing cycles for our products and services that can cause our revenues and operating results to vary significantly from period to period; our ability to meet our working capital requirements; our ability to retain our executive officers; our ability to attract and retain skilled personnel; potential liabilities we are exposed to because we extend warranties to our customers; risks associated with cost overruns and delays; our ability to develop or acquire new products or enhancements to our software products that are marketable on a timely and cost-effective basis; our ability to adequately protect our proprietary rights; the competitive nature of the markets we operate in; political and economic policies of the Chinese government. A further list and description of these risks, uncertainties, and other matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and in our periodic reports on Forms 10-Q and 8-K filed with the United States Securities and Exchange Commission and available at http://www.sec.gov .

Source: AsiaInfo Holdings, Inc.

Related stocks: NASDAQ:ASIA