Hardware revenue in the second quarter 2013 increased 285% year-over-year to RMB12.3 million (US$2.0 million) from RMB3.2 million in the second quarter 2012. The increase was a result of the completion of a few one-off projects for three key customers in Logistics, Department Store and Grocery industries.

Service fee income for the second quarter 2013 decreased 3% year-over-year to RMB19.9 million (US$3.2 million) from RMB20.6 million in the second quarter 2012, which was primarily attributable to project delays, amounting to RMB9.6 million.

Cost of Revenue

Cost of revenue for the second quarter 2013 increased 23% to RMB31.2 million (US$5.1 million) from RMB25.4 million in the second quarter 2012.

Cost of Revenue Breakdown
  2Q12 2Q13
  RMB '000 RMB '000 USD '000 Y-o-Y Change
Cost of software license sales 7,497 3,457 563 -54%
Cost of hardware sales 3,075 10,204 1,663 232%
Cost of service fee 12,563 16,662 2,715 33%
Amortization of acquired technology 1,628 72 12 -96%
Amortization of software costs 620 823 134 33%
Total 25,383 31,218 5,087 23%

Gross Profit and Gross Margin

Gross profit decreased by 1% year-over-year to RMB13.8 million (US$2.3 million) from RMB13.9 million in the second quarter 2012, and consolidated gross margin for the second quarter 2013 was 31%, compared with 35% in the second quarter 2012. The decrease was mainly due to a RMB3.5 million non-cash inventory impairment projection completed for accounting purposes under the Cost of Revenue line in Service Fee Income.

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