Profile of Ninetowns

Company background

Founded in 1995 as Beijing Ninetowns Technology Group Limited, Ninetowns' original business was an EDI-based software solution focused on facilitating the exchange of international trade documents between the Chinese government and exporters. The company developed two software packages, iDeclare and iProcess which eventually received critical approval from key government bodies including the Ministry of Science and Technology and the State Administration for Quality Supervision, Inspection and Quarantine (PRC Inspection Administration).

Based on the sales of software licenses and maintenance fees from these products, Ninetowns revenues grew to US$24.4 million in 2004 and net income was US$16.2 million. In December of 2004, Ninetowns listed on NASDAQ and raised US$106 million. In August 2005, the company suffered a huge setback. The PRC Inspection Administration announced that it would commission a scaled-down version of iDeclare and iProcess and give the software to users, primarily Chinese exporters, free of charge.

The shift immediately undermined Ninetowns' core business. The PRC Inspection Administration subsequently awarded Ninetowns a small contract worth US$400,000 to produce the new free version of iDeclare and iProcess. Ninetowns continues to generate some revenues from maintenance fees of this software.

As a result of this government decision, Ninetowns' revenues dropped from US$29.7 million in 2005 to US$19.6 million in 2006. The company's net income plummeted from US$18.8 million in 2005 down to US$5.9 million in 2006. In the first half of 2007, revenues were just US$6.4 million and in the first quarter of 2007, the company recorded a loss of US$801,000. Ninetowns is still in a relatively strong financial position with US$113 million in cash.

Since 2006, the company has attempted to transition from a government software provider to a B2B sourcing platform. In September 2006, Ninetowns paid US$5 million for a 16.25% stake in Guangzhou-based Global Market, a trade media company. Then in April 2007, the company paid US$27 million to acquire a 70% stake in Ample Spring, the operator of Yaphon.com, a vertical search site. One month later, Ninetowns launched Tootoo.com which was combined with Yaphon. An agreement with a Thomas Publishing Company subsidiary in May gave Ninetowns' suppliers access to Thomas' online catalogue tools.