Hardware revenue in the first quarter 2013 increased 88% year-over-year to RMB4.2 million (US$0.7 million) from RMB2.2 million in the first quarter 2012. The increase was a result of the completion of some large contracts from grocery industry in the first quarter 2013.

Service fee income for the first quarter 2013 decreased 7% year-over-year to RMB11.7 million (US$1.9 million) from RMB12.6 million in the first quarter 2012, which was primarily attributable to decreased revenue recognized in customization services in the grocery industry, which was partially offset by an increase in sales of maintenance and consulting services.

Cost of Revenue

Cost of revenue for the first quarter 2013 decreased 4% to RMB13.8 million (US$2.2 million) from RMB14.3 million in the first quarter 2012.

Cost of Revenue Breakdown
     
  1Q12 1Q13
  RMB '000 RMB '000 USD '000 Y-o-Y  Change
Cost of software license sales 1,815 387 62 -79%
Cost of hardware sales 1,771 3,722 599 110%
Cost of service fee 8,370 8,611 1,387 3%
Amortization of acquired technology 1,729 215 35 -88%
Amortization of software costs 618 865 139 40%
Total 14,303 13,800 2,222 -4%

Gross Profit and Gross Margin

Gross profit decreased 3%year-over-year to RMB8.7 million (US$1.4 million) from RMB8.9 million in the first quarter 2012, and consolidated gross margin for the first quarter 2013 was 39%, compared with 38% in the first quarter 2012. The improvement in gross margin was mainly due to the decreased amortization cost of self-developed software and acquired software, which comprises part of the cost of revenue, as some of the software had been fully-amortized after the first quarter 2012.

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