CEO Charles Zhang said his company had inked advertising and marketing deals worth a total of US$670,000 with two major Chinese firms £º consumer electronics manufacturer TCL International Holdings Ltd and China Kejian Co Ltd, the mainland's first manufacturer of mobile phones using the GSM standard popular in Europe and Asia.

"We're getting a strong take-off from domestic companies," he said. "We're confident about the online advertising market in 2001 in China, which is decoupled from the global advertising downturn."

Sohu.com is also close to signing a third deal with an unnamed company for US$500,000, said Zhang.

Zhang attributed the growth to the belated interest of Chinese companies, who at its fourth-quarter earnings announcement, made up 37 percent of revenues, while advertising from multinational firms still dominatedat 44 percent of revenues.

Instead of "blindly" spending their advertising budget on established media like television, Chinese companies are now "caring more about cost-effectiveness" which Zhang said Internet advertising could deliver.

BULLISH FORECAST AMID BEARISH CHINA INTERNET MARKET

Zhang's positive comments stand in stark contrast to those made by financial analysts and executives from rival Chinese Internet portals, most of whom are predicting a tough year.

Salomon Smith Barney is predicting that online advertising spending will total just US$26 million in 2001. Rival portal Sina.com said last month it expected its advertising revenues to shrink over the next half year.

Sohu which peaked at US$13-3/4 just after its IPO last July, has seen its stock battered along with most other Chinese Internet portals. It was at US$1-3/32 after regular trading Wednesday, off nearly 94 percent from its 52-week high.

Zhang said that Sohu is expecting sequential revenue growth throughout the year as it increasingly de-emphasizes dotcom companies which made up 19 percent of sales in its most recent quarter, down from 28 percent in the prior third quarter and targets large mainland firms.

Zhang said Sohu inked its US$250,000 deal with TCL shortly after Chinese New Year. It also recently signed a US$420,000 deal with China Kejian. For both, Sohu will book the revenue over the terms of the deals, which will last close to a year, Zhang said.

For its most recent fourth quarter, Sohu reported revenues of US$2.2 million, tripling its revenue from the same quarter a year ago, though its net loss also tripled to US$4.7 million, primarily due to its US$16 million acquisition of popular youth portal, ChinaRen.

Analysts questioned the stock-based merger, which propelled Sohu to the top of the most recent Chinese portal rankings for registered users and page views, but did not significantly boost revenues. As a result of the merger, Sohu said in two separate announcements that it would ax a total of nearly 30 percent of its workforce to keep the company on track for profitability in 2003.

Victor Koo, vice president of business development at Sohu, defended the ChinaRen acquisition, saying that the merger had brought key "products and technology, and the management team."

"We knew there would be short-term pain in terms of increased burn rate," he said. "But by the end of the first quarter, the integration will be complete."

While Sohu is slowly moving into e-commerce which currently make up less than 5 percent of its total revenues it is aggressively embracing deals with mobile phone operators whereby Sohu would provide content and services to subscribers, Zhang said.

Sohu has already garnered 150,000 registered users of whom about half are paying an average of USUS$1.20 per month to have services such as breaking news and stock quotes delivered in text form to users' handset through its alliance with China's leading mobile phone operator, China Mobile£¨Hong Kong£© Ltd, Zhang said.