Letter from the CEO
After recent meetings and discussions with existing shareholders and prospective investors, I am writing this note to try to crystallize and clearly illustrate the simplicity of SinoHub’s business model while articulating our growth prospects for 2010 and the next several years.
SinoHub has built a successful business in China based around its proprietary supply chain management (SCM) SaaS software platform that services the electronics market. SinoHub’s SaaS is free to customers, makes their entire electronic component supply chain transparent, substantially decreases production cycles and inventory levels for manufacturers, while improving their working capital position. The company leverages the information gained through its SCM platform to generate sale for its electronic component purchasing (ECP) business unit, which comprises the majority of our current revenue base. As a conduit for future growth, SinoHub has leveraged its industry knowledge and relationships to launch a new virtual contract manufacturing (VCM) business for mobile phone distributors in emerging markets outside of China.
SinoHub is a problem solver.
The Problem: Most of the large electronics companies today matured well before the Internet became the dominant means of communication in the business world. That means these companies have every function (design, purchasing, supply chain management, manufacturing and sales) necessary for their business under one roof.
The problems with this model include:
Lacks flexibility
The system used to manage the supply chain is not open.
It is only as strong as its weakest link.
Makes it difficult to outsource any function because of the limited information flow.
Leads to inventory problems which drain working capital.
The Solution: SinoHub employs its Web-based supply chain management platform for its customers. This means that every function is linked through the platform and a third party supplier can easily be integrated into the business.
Benefits of SinoHub’s platform:
Flexible and open
It reduces time to market.
Enables open and easy access to the best suppliers for any function.
Provides a transparent information source for all involved parties.
Growth opportunities for our VCM business: To most consumers in the developed world, the electronics market – and mobile phones in particular – is dominated by a few large vendors: Nokia, Motorola, Samsung, Sony-Erickson, and RIM in the mobile phone market. What most people don’t know is that these vendors are inconsequential in the developing world. A recent JP Morgan report showed mobile phone sales growing at a double digit clip – but more than 2/3 of the unit sales are in developing countries.
In the US, the average consumer might replace a cell phone once every 2 - 3 years. In China, consumers replace cell phones 3 - 4 times a year.
Consumers in developing regions are very price-sensitive, but demanding with regard to features. In Muslim countries, for example, mobile phones need to alert the owner when it is time to pray. In Indonesia, mobile phones need to carry 2 SIM cards for GSM and CDMA networks – but must cost 1/5th what they costs in the US.
Large mobile phone brands can’t compete effectively in developing markets without creating a grey market for phones in their profitable developed markets. They largely cede the field. In their stead, thousands of smaller companies have thrived – producing mobile phones in smaller quantities for niche markets.
The Problem: Mobile phone distributors and operators from developing countries outside of China – like Vietnam, Indonesia, and Malaysia – can’t commit to the volumes required by large contract manufacturers to produce low-cost but appropriately featured mobile phones for their niche markets. They want to tap into the design houses and manufacturers in China but don’t know how to. Chinese design and manufacturing houses can’t justify the expense of sales forces pursuing these niche markets.
The Solution: SinoHub’s new contract manufacturing line of business allows us to efficiently match the right players to produce exactly what smaller buyers want at reasonable prices. SinoHub serves as a hub by leveraging its proprietary data assets to determine which phone models are selling well and where the components are best sourced. SinoHub, for example, can subcontract design, component purchases, and manufacturing – in many cases to its own customers – to produce mobile phones for a distributor in Indonesia. Our markup on these components and services secures a tidy profit for SinoHub while our subcontracting arrangement avoids the need for large SinoHub-owned manufacturing and design resources, thereby minimizing our capital and labor investments. Our leverage in these contracts is tremendous and we expect what will start out as small production runs for many models will turn out to be much larger thus providing a conduit to meaningful revenue contribution in this new business segment.
We keep a vigilant eye on market trends and believe they continue to be in our favor.
I hope that this email clarifies some points about SinoHub’s future prospects for you and I look forward to any questions that you may have.
Please join us for our earnings conference call covering 2009 financial results. The conference call will take place at 10:00 a.m. EDT on Tuesday, March 30, 2010. Interested participants should call 1-877-941-4774 when calling within the United States or 1-480-629-9764 when calling internationally. If you have questions, please call me at the number below or call Ted Haberfield of Hayden Communications International at 1-760-755-2716.
Best regards,
Harry Cochran
CEO
SinoHub, Inc.
Tel: +86-139-2286-3021
AI
