Wangsu Technology Alert:Read through from ChinaCache 4Q16result

ChinaCache expects revenue growth to return in 2H17.

    ChinaCache reported 0% QoQ growth in its 4Q16 revenue vs Wangsu’s 5%. Itsmanagement indicated that they also experienced irrational price competitionin the video streaming parts of its business but believed that their morecomprehensive service offerings will win out. Furthermore they indicated thattheir operations are starting to turn around: the cloud CDN platform (“HPCC”)will complete its upgrade by 2Q17 which will boost its capacity by 50% andimprove its product offerings on security, mobile caching and large scale cloudcaching. On the back of the platform upgrade, management guided to revenuegrowth of 12-18% in 2017 with a recovery expected in 2H17 (vs revenuedecline of 22% in FY16).

    Implications for Wangsu: not overly concerned at this stage.

    An improved ChinaCache may pose a more direct long term threat to Wangsugiven the similarity of their business models. That said, it appears that thefunctional improvements for the HPCC platform will only bring its capabilitiesinline with Wangsu and the sub-par financial performance may hinder itsability to attract the top R&D talent. It remains to be seen whether ChinaCachecan turn around its revenue performance given we are yet to see anyimprovement so far, however it is an area we will continue to monitor closely.