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SCMP Reporter

Mainboard-listed IT products distributor Artel Solutions Group Holdings is hoping a new contract with a Taiwan-based company will make it US$30 million next year.

Taiwan-backed Artel, which makes more than 90 per cent of its earnings through selling Intel Corp's chipsets, signed a deal with D-Link in July to distribute D-Link's high-end networking solutions on the mainland. It follows D-Link ending its joint-venture partnership with Digital China Holdings.

Artel executive director Frederick Yu Chi-ming said the distribution of D-Link's products was gradually picking-up, and he expected to generate US$10 million in sales in the second half of the year.

With the help of adding D-Link's products, Artel is aiming for a turnover in the year to March 31 next year of HK$2 billion.

It also expected to maintain a 20 per cent to 30 per cent annual growth in revenue for the next two to three years.

Artel is one of Intel's four principal authorised distributors for its products on the mainland and Hong Kong.

Artel saw its revenue grow by 35.5 per cent year-on-year to HK$787.78 million in the six months until September, while net profit remained flat at HK$34.7 million.

Mr Yu blamed a fall in half-year profits on Intel cutting rebates to distributors after earnings dropped.

He said the company's gross profit margins dipped from 12.2 per cent last year to 7.5 per cent in the first half but he expected the figure to climb back to above 10 per cent for the full year. He said that was partly due to the higher margins from distributing D-Link products.

Artel is aiming to achieve an annual revenue growth of 20 per cent to 30 per cent for the next two to three years.

Meanwhile, Mr Yu said Artel was in advanced talks with Intel's solutions and consultancy unit, a Guangzhou-based educational software developer and domestic computer makers, to forge an alliance to provide computer solutions to primary and high schools building information technology infrastructure.

Under a nationwide campaign named Xiao Xiao Tong  or Every School Connected, the Ministry of Education has ordered all of the country's 680,000 schools to be connected by 2010 to the China Education and Research Network, a national academic network.

Mr Yu said agreement had been reached to supply education software for up to 40,000 schools.

Artel is planning to leverage the education software house's connections to line-up with Intel's consultancy service unit Intel solutions as well as mainland PC-makers and system integrators to provide complete solutions for schools on the mainland.

Mr Yu estimated the project would cost about 4.5 billion yuan (about HK$4.2 billion) to six billion yuan, assuming each school spent 150,000 yuan on classroom computers.

But the company expected to handle 3,000 to 4,000 schools in the first year of operation, which was estimated to cost 400 million yuan.

Artel said it was also in talks with Intel's solutions and consultancy services unit to provide consultancy and training to the end users.

Artel would act as project co-ordinator to bundle the software with hardware and to provide marketing and post-sale services, said Mr Yu.

By doing that, margins would certainly be higher than simply selling Intel's chipsets to PC houses, he said.

Artel is planning to complete the terms of the alliance this month and start operating by the second quarter of next year.



Artel hopes deal will bring in US$30m