SHENZHEN, CHINA / ACCESSWIRE / November 21, 2016 / China Information Technology, Inc. (CNIT), a growing provider of cloud-app technologies for Internet-of-Things (IoT) platforms, digital advertising delivery and other internet-based information distribution systems throughout China, today announced that, in a letter to shareholders, chairman and CEO Mr. Jianghuai Lin said he expected CNIT to be "moderately profitable" by the second half of next year - and that this profitability should improve steadily as the company's new cloud-based business services gain traction.
The following is the complete text of Mr. Lin's letter.
It is my pleasure to inform you that 2016 has been a year of remarkable progress for CNIT. During these twelve months, we have made great strides in transitioning our company from a provider of low-margin system integration for government IT projects to a respected marketer of high-margin cloud-app terminal technologies for private enterprise. In this letter I will summarize this progress and provide for you, our loyal supporters, a vision of where I believe CNIT can go in the near future.
I'll begin by discussing our cloud-based elevator digital display terminals. Since last August we have signed contracts for the sale of about 50,000 of these terminals. Besides displaying local information such as news and weather, these terminals carry advertising that allows viewers to make purchases or request information about displayed products and services. Many of these terminals also have face recognition technology, enabling them to "remember" the product preferences of viewers and transmit these preferences to other terminals in the same network. So far, most of our terminals have been installed in elevators of commercial office buildings and residential apartment buildings but we are also starting to develop related products - such as a USB dongle used to upgrade existing display terminals - to retail stores, shopping malls, government office buildings, financial institutes, and other high-traffic venues. Through these efforts, we expect to expand our business and become a major "city IoT" product and service provider.
During this year, we have also developed and marketed two new cloud-based business services which integrate with these terminals. The first is a content delivery system called Yunfa Net, which allows advertisers to use a PC or mobile app to design an ad and send it to any digital display terminal anywhere in China. Not only can these advertisers edit the ad and have it update automatically at specific terminals, they can also receive back from the terminal information on how many viewers actually looked at the ad and either requested information or purchased its featured products or services. Although still in its early stages, Yunfa Net was honored earlier this year by being awarded the highly esteemed Golden Peacock Award for the most innovative digital ad system in all of China - an achievement that is helping us to market this system and accelerate its adoption among major advertisers.
The second follow-on service we have marketed this year is our Internet-of-Things (IoT) modules for increasing passenger safety in elevators - something our government has announced is urgently needed in China. These modules collect elevator data and transmit it to our cloud server, which then generates reports that automatically alert building management, elevator manufacturing and maintenance companies and local police in the event of emergency situations. As one of only about four or five companies with such a service, we conservatively estimate we can market it to as many as half of China's 4.26 million elevators and become a leading provider in this field by the year 2020.
Both our Yunfa Net and IoT services yield far higher profit margins - nearly double - than do our sales of terminal equipment alone. These offerings are still new and thus are not expected to contribute more than 10 percent to our cloud-based revenue in 2016. But, by 2020, we are confident that at least half our revenue will come from these two sectors. Our bottom line is also being improved by our continual reduction of expenses. For example, in the first six months of this year, we reduced our interest expense by $1.9 million, our selling expense by $.7 million and our R&D expense by $.5 million, helping us cut our six-month net loss from 22 cents per share to 18 cents per share, and reduce our loss, excluding non-cash items, from 19 cents a share to only 7 cents a share, compared to the first six months of last year.
How far do we think we can expand? Currently, we are selling our cloud-app terminals in 11 cities in China. By 2020, however, we expect to cover another 45 cities, bringing coverage to virtually all major metropolitan centers in China. This expansion, we believe, will also bring a major increase in adoption of our Yunfa Net system and its higher-margin revenue. We have a similar outlook for our IoT services division, which is currently selling in four provinces and municipalities, Guangdong, Tianjin, Shangdong and Jiangsu. But by 2020, we expect to be selling this service in at least 25 provinces.
So, where does that leave us as far as profitability is concerned? We estimate that 2016 will likely produce a moderate net loss. The first half of 2017 will probably be slightly profitable or break even. But the second half of 2017, we estimate, will be moderately profitable - and as we continue our migration away from equipment sales and toward the higher-margin IoT and cloud-based services, this profitability should improve steadily.
As we proceed on this path toward profitability, we are confident that our growth in all three of the company's business segments can be managed through cash-on-hand and cash flow from operations. If required, we also have access to additional capital through favorable loans and other credit facilities.
Of course, every company can go only as far as its management team can take it. And our team, including our chief operating officer, chief technical officer and our many savvy and innovative IT technicians, are, in my opinion, among the most talented in China. Together, we are committed to achieving the many goals that lie ahead - and I offer you my personal assurance that we will devote the full extent of our energies and talents in order to make these objectives a reality.
Again, thank you for your continued support of CNIT. I look forward to sharing positive news with you in the months to come.
Chairman and Chief Executive Officer
About China Information Technology, Inc.
China Information Technology, Inc. (CNIT) is a leading Internet service company that provides integrated cloud-based solutions enabling innovation and smart living in the fields of new media, city safety management, education, etc.
Through continuous innovation, CNIT is aiming to leverage its proprietary Cloud-Application-Terminal technology to level the competitive landscape in the new media industry and deliver value for its shareholders, employees, customers, and the community. To learn more, please visit http://www.chinacnit.com.
Safe Harbor Statement
This press release may contain certain "forward-looking statements" relating to the business of China Information Technology, Inc., and its subsidiaries and other consolidated entities. All statements, other than statements of historical fact included herein, are "forward-looking statements" in nature within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, often identified by the use of forward-looking terminologies such as "believes", "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company and its subsidiaries and other consolidated entities or persons acting on their behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
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SOURCE: China Information Technology, Inc.