iSoftstone – outsourcing

Recently, there are many Chinese tech IPO, and some of them are pretty famous, such as Dangdang and Youku. There is one company that most people have not heard of, but I believe it is a good one.

The company is Beijing based iSoftstone (www.isoftstone.com). It is the last the last Chinese company to debut in the U.S. for 2010. Found in October 2001, it provides outsourced IT services to clients in China and around the world, with about 56% of its revenue derived from China and the remainder from the U.S.(28%), Europe(6%) and Japan (10%).

In the last three years, the company’s revenue grew 3.6 times and it turned profitable last year with US$9 million net profit, compared with a loss of US$10 million in 2007.

The trend continued this year. Net revenue rose 50% to $135 million in the first nine months of 2010. Net income during that period decreased from $5.7 million to $300,000 primarily due to share-based compensation charges linked to employee and director options. (This is probably one time only, due to IPO.)

In fact, iSoftstone is not alone. In the recent years, the whole outsourcing sector in China is blooming. The overseas market is growing strong, and so is China domestic market. The Chinese government changed labour law and required employers to pay substantial compensation if they want to layoff their employees. (N+1 months of salary. N is the number of servicing years.)

So, many of the major technology companies, such as Huawei, outsource their work. I believe the trends will continue for a couple years. And companies, such as iSoftstone, Hisoft, Vanceinfo, etc., will enjoy a few high-growth years. If you have not noticed these companies yet, maybe you should check them out. They all grew over 50% a year.