andrew miller—president, the americas nasdaq: china stanford university us-japan technology...
TRANSCRIPT
Andrew Miller—President, The Americas www.corp.china.com
Nasdaq: CHINA
Stanford University US-Japan Technology Management Center, Palo AltoNov. 30, 2000
China’s Internet Phenomenon China’s Internet Phenomenon
The chinadotcom Experience…The chinadotcom Experience…
China’s Internet Phenomenon China’s Internet Phenomenon
The chinadotcom Experience…The chinadotcom Experience…
Today’s Discussion Points
1. chinadotcom background
2. China’s Internet Phenomenon
3. Realities of Asia’s Internet Lifecycle
4. Discussion
china.com @IPO …
A Greater China Portal Company
A Rapidly Growing Online Advertising Network
e-Business Solutions Company
285 Employees 9 Regional Offices
Taiwan
China
Hong Kong
chinadotcom today…
Asia’s leading Integrated Internet Company
Delivering Results on its Proven Business Model
Supported by a Synergistic Investment Strategy
Operations in 11 Countries A “Bellwether” for the
Internet in Asia
Taiwan
Australia
China
Hong Kong
Singapore
Korea
Japan
Malaysia
Unique Business Model
portals
e-solutions e-marketing
Integrated Internet Operating and Investment Model
portals
e-solutions
e-marketing
Advertising Network
Clear Market Leader
1.5 bn Page Views per Month
380 Advertising Affiliates
1000 Advertisers
300 Staff
ProvenSynergistic
RevenueModel
Portal Network
Rapidly Growing Asian Network
1 Bn+ Page Views per Month
10+ mm Registered Users
Over 400 Staff
e-Business Solutions
Asia’s Leading e-Business Integrator
Blue Chip Corporate Client Base
Operations in 11 Markets
Over 1000 Staff
Investment Strategy
Build on Existing Businesses and Accelerate Growth
Acceleration
Cooperate with Established Internet Players to Accelerate Entry into Asia
Partnership
LEVERAGE
Seed, Incubate and Launch New Internet Start-ups
Incubation
Investment StrategyInvestment Strategy
Continue to integrate investments into core businesses
Invest in enabling and enhancement technologies
Wireless applications developers
Broadband system originators
Suitable portal assets for acquisition
InvestmentsInvestments
Invested US$20M since start of 3Q00
Acquisitions Location Rationale
Venex Japan Deeper local penetration
Revolution UK Beachhead for European expansion; client servicing
Chinaholiday.com China Exclusive online distributor for China Travel Service products
TTG (Miller Freeman) Singapore Leading publications for B2B e-Travel content
9 Months Financial Highlights9 Months Financial HighlightsUS$M
(unaudited)
9 mths 999 mths 99
9 9 mths 00mths 00 % change% change
Revenues 86.8 9.4 828%
E-Bus Solutions 47.5 5.6 748%
Online Advertising 34.8 3.1 1040%
Gross Margins 37% 31% 19%
Net Income 73.4 (5.7)
EPS Basic 0.76 (0.09)
EPS Diluted 0.62 (0.09)
Q3 Financial HighlightsQ3 Financial Highlights
2Q ‘002Q ‘002Q ‘002Q ‘00Q-QQ-Q
% chg% chg
US$ millions
(unaudited)
Revenues 36.5 30.3 20%
E-Bus Solutions 21.5 15.7 37%
Online Advertising 12.2 13.4 -9%
Gross Margins 39% 37% 4%
Cash Operating Loss* (10.2) (10.6) 4%
33Q ‘00Q ‘00
Balance SheetBalance Sheet
Cash& Equivalents 485 516 Other Current Assets 76 62 Other Assets 175 143Total Assets 736 721
Current Liabilities 85 57
Net Assets 612 625
US$ millions(unaudited)
30 Sept 30 Jun
Consistent Revenue GrowthConsistent Revenue Growth
(US$ mm)
2.45.2
10.9
Q2 99Q2 99 Q3 99Q3 99 Q4 99Q4 99
20.0
Q1 00
30.3
Q2 00
Management focus on executing business plan leads to…
Continued revenue growth
20% growthQ2 00 to Q3 00
36.536.5
Q3 00
Consistent Gross Consistent Gross Margin GrowthMargin Growth
Q4 99Q4 99
35%
Q1 00
37%37%
Q2 00 Q3 00
39%39%
33%
20%
35%
40%
Diversified Diversified Revenue - GeographicRevenue - Geographic
KOREA
JAPAN
CHINA
HONG KONG
TAIWAN
AUSTRALIA
SINGAPORE
MALAYSIATHAILAND
52%24%
13%11%
Others
Diversified Diversified Revenue - SectorRevenue - Sector
E-Bus SolutionsE-Bus Solutions
59%59%
Others Others
8%8%
Online Advertising Online Advertising
33%33%
59%59%
33%33%
8%8%
Revenues vs. other listed Revenues vs. other listed
Asian Internet CompaniesAsian Internet Companies
CHINADOTCOM SINA ASIACONTENT NETEASE SOHU
0
10
20
30
40
50
60
FIRST HALF FIRST HALF REVENUEREVENUE
20002000
RevenuesUS$ millions
0
20
40
60
80
100
120
140
LQALQA
CHINADOTCOM ALL OTHERSCOMBINED
2Q00
SGA Expense
Gross Margin
Path To ProfitabilityPath To Profitability
3Q001Q004Q99
% o
f R
eve n
ue
Break even
67%72%
80%105%
39%37%
35%
33%
Today’s Discussion Points
1. chinadotcom background
2. China’s Internet Phenomenon
3. Realities of Asia’s Internet Lifecycle
4. Discussion
China circa 1981…
Information?
Business appliances a state asset?
Three International Circuits
Teledensity @ 1 / 10,000, maybe…
China @ The Millennium
17 Million Registered Internet Accounts (7/00) 65 Million Email Accounts 65 Million Mobile Phones (GSM/WAP) 120 Million Fixed Line Subscribers 200 Million Debit Cards 50 Million Credit Cards 300 Million TVs (30% cabled) 15 Terabytes of bandwidth being installed 18 Million PCs
Source: China Online, CNNIC, Merrill LynchSource: China Online, CNNIC, Merrill Lynch
Source: IDC
China Logs On
1.22.1
4
8.9
18
0
2
4
6
8
10
12
14
16
18
20
1H 98 2H 98 1H 99 2H 99 1H 00
Internet Users (inMillions)
Source: CNNIC
Registered Internet Users(In Millions)
January 2000
2.62.5
11.8
Leased LineDial-UpBoth 2.6
7
0
2
4
6
8
December 2000
Leased Line
Source: CNNICSource: CNNICSource: CNNICSource: CNNIC
TOTAL CHINA MARKET = 270m? TOTAL CHINA MARKET = 270m?
Compared with the US Growth Model…
PC Penetration Internet Penetration Internet Penetration/PC
US 43 50 48
China <1 <2 20
Source: Various Industry Estimates (IDC,Virtual China, Goldman sachs)Source: Various Industry Estimates (IDC,Virtual China, Goldman sachs)
BEIJING
TIANJIN
SHANDONG
ZHEJIANG
SHANGHAI
JIANGSU
ZHEJIANG
FUJIAN
GUANGDONG
==350 m 350 m
poppopOROR
80 m 80 m Internet Internet
SubsSubs
Eastern Promise???
China’s Businesses Get Wired
27%
9%
64%
Dial-Up Leased Line Broadband
546,000+ Chinese Businesses Online546,000+ Chinese Businesses Online
Source: Bizipoint.com & ChinaDNS.comSource: Bizipoint.com & ChinaDNS.com
Domain Registrations @ Local LevelsDomain Registrations @ Local LevelsGuangdong…20%Guangdong…20%
Shanghai…13%Shanghai…13%Beijing…13%Beijing…13%
Domain Registrations @ Local LevelsDomain Registrations @ Local LevelsGuangdong…20%Guangdong…20%
Shanghai…13%Shanghai…13%Beijing…13%Beijing…13%
The Basic Infrastructure
China Netcom implemented the first phase of its broadband data network – CNCnet – connecting some 17 cities with 8,500 kilometers of 40gps fiber-optic cable
China currently ranks 8th in the world in terms of computer usage…15.9 million computers or 88 machines per 10,000 inhabitants
CNNIC received over 540,000 applications for Chinese-language domain names within days of making them available
80% of families in major cities watch cable-TV, while 90% of Shanghai, Guangzhou, Hangzhou and Nanjing do so
Source: CNNIC & IDCSource: CNNIC & IDC
The three Criticals
Costs falling PC penetration rising
Connectivity - improved fixed line access potential for WAP phones
Content building online Chinese language community
China’s Wireless Market
Source: Industry research & Virtual ChinaSource: Industry research & Virtual China
China - Wireless Subscribers China - Wireless Subscribers (millions)(millions)
China - Wireless Subscribers China - Wireless Subscribers (millions)(millions)
1997199719971997 1998199819981998 1999199919991999 2000200020002000 2001200120012001 2002200220022002 2003200320032003
13.713.713.713.7
54.954.954.954.9
Wireless market has taken off in China
Rapid penetration especially in metropolitan markets
China 1999 ARPU US$35-45
U.S. 1999 ARPU US$30-55
CAGR: 26%CAGR: 26%
Consumption Levels are Globally Comparable
China Market Factors
Source: IDC, March 1999Source: IDC, March 1999(a)(a) Calculated by dividing the number of PCs installed by country population.Calculated by dividing the number of PCs installed by country population.
Market with relatively low PC Installed base
High growth expected; CAGR of 29% from 1998 -2003
9.99.9
19981998 19991999 20002000 20012001 20022002 20032003
PCs (millions)PCs (millions)PCs (millions)PCs (millions)
35.135.135.135.1CAGR: 29%CAGR: 29%CAGR: 29%CAGR: 29% High PC growth, rapid development of
telecom infrastructure and broad use of traditional media means to drive Internet growth
“E-Commerce” in China
Online spending @ $26 million in 2001… $111 million in 2005.
US = $5.3 Billion in Q1 alone! Online ad spend @ $15 Million, $250 Million by
2004 March 2000= 1,100 e-commerce sites in China
(800 shopping, 100 auction, 180 online education, 20 health care) (27,289 total sites)
30% are traditional retailers offering e-tailing as optional distribution channel; 70% are pure online e-tailers. (Europe: 70% are traditional retailers going online)
Source: CNNIC, Salomon Smith Barney, China Online, IDCSource: CNNIC, Salomon Smith Barney, China Online, IDC
Unique Physical Challenges
Orders on-line…settlements offline 24/7 customer service non-existent Working hour orders Less price advantage Payment & Authentication Ample Backbone, Limited Competition
Unique Domain Challenges
Tactile Society Reliability of Source Culture & Behavior No catalog culture
China- Our Approach
Continue to forge relationships with powerful Ministries / Gov. Departments• Xinhua – long-standing strategic shareholder• Ministry Of Information Industry• China Travel Service• Chinese Academy Of Science
Share the risks / benefits with Government – the safe approach
First Chinese company to publish an independent page-view audit
Invest for China’s Digital Future…
Beijing Digital Ark
leading IT consulting and development group
co-developing wireless platform
e-Direct
largest e-direct marketing firm in Taiwan
Integral part of taiwan.com strategy
Infoislive
Leading Greater China Wireless Application Developer
Broad cooperation in wireless solution development and marketing
Today’s Discussion Points
1. chinadotcom background
2. China’s Internet Phenomenon
3. Realities of Asia’s Internet Lifecycle
4. Discussion
Compression in the Internet Lifecycle in Asia
Standard Business Lifecycle
Experimentation Take-up MaturityConsolidation
The Internet Lifecycle
Phase 194-95
Phase 296-97
Phase 499-1Q 00
Phase 398
Phase 52Q 00-
Phase 6 Phase 7
CORRECTION
First Movers(Denial)
Take-upIrrational
ExuberanceFast
FollowersRealityCheck
Re-surgence
Businessas Usual
Phase 1
94-95
Phase 1
94-95
Phase 2
96-97
Phase 2
96-97
Phase 3
98
Phase 3
98
Phase 4
99-1Q 00
Phase 4
99-1Q 00
Phase 5
2Q 00-
Phase 5
2Q 00-
Phase 6Phase 6 Phase 7Phase 7
The Internet Lifecycle in ASIAFirst
Movers(Denial)
Take-upIrrational
ExuberanceFast
FollowersRealityCheck
Re-surgence
Phase 194-95
Phase 296-97
Phase 499-1Q 00
Phase 398
Phase 52Q 00-
Phase 6
Businessas Usual
Phase 7
CORRECTION
96-97 98 4Q 99 -1Q 001-3Q 99
Phase 1
94-95
Phase 1
94-95
Phase 2
96-97
Phase 2
96-97
Phase 3
98
Phase 3
98
Phase 4
99-1Q 00
Phase 4
99-1Q 00
Phase 5
2Q 00-
Phase 5
2Q 00-
Phase 6Phase 6 Phase 7Phase 7
Implications & Conclusions
Radical global economic shift continues
Two key phases of competition: dot-coms vs. incumbents incumbents vs. incumbents
The Internet may be the perfect catalyst for Asia
Fewer dot-com survivors in Asia -- dot-coms that survive will be those that work with the incumbents
Asia’s winners are embracing the Internet
“…some companies will take the end of the dot-com era as a sign
that the Internet isn’t as significant as we believe it is…”
chinadotcom won’t.chinadotcom won’t.
(ModifiedModified from Jack Welsh quote) from Jack Welsh quote)(ModifiedModified from Jack Welsh quote) from Jack Welsh quote)
