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Qihoo 360 CFO, Alex Xu, Responds to Muddy Waters


Alex Xu, CFO of Qihoo 360 (NYSE: QIHU), responded to Muddy Waters report:

Dear All,

As many of you may notice that Muddy Water, the short-seller, last night put a negative post regarding QIHU on its official Tweeter account. The main point of their post is recycling an old “news” that alleged “QIHU's browser code diverted Taobao sellers' commission to other account and Taobao sellers started to boycott QIHU products…”

The above “news” first appears on local online media in last Nov, when QIHU's competitors put out a widespread smear campaign trying to undercut QIHU's leading position in browser market in China, in turn to prevent QIHU from gaining significant share in Chinese search market. Both QIHU and Taobao officially rejected the above allegation shortly after. There was no widespread boycott among Taobao sellers and we didn't see noticeable abnormal change in our browser users base. Below are a few news links related to this event (in Chinese):

Since QIHU launched its search service in last August, the company has been subjected to an avalanche of negative PR attack by our competitors. Most of those attacks were targeting QIHU's Internet security products and web browsers, the two key product lines that provide foundation of our business model. Our competitors tried to raise various privacy issues to scare users away from QIHU's products. Fortunately for QIHU, Chinese internet users are smart enough to separate truth and lie, and they choose to stay with QIHU. To counter the attack, QIHU voluntarily sent its browser code to two Chinese regulatory agencies for open testing and both agencies returned with certifications of clean and safe. Independent testing agency West Coast Lab also tested and certified QIHU's browser. So far QIHU's browser is the only domestic browser that are tested and certified by both regulator and independent lab. Please see below the related news link (in Chinese):

The above facts are very well documented in public domain. Anyone who wants to have a better understanding of QIHU should fairly easily get access to the information. The short sellers probably believe that truth doesn't matter. Just like those who targeted QIHU in the past, they believe twisting facts and making false allegation is a money making business. Well, if history is something everyone can refer to, we do hope they have paid price and learned the lesson.

Please feel free to pass this message to your clients in case they are interested. If you have any additional questions, please let us know.

Thanks Alex

Dear All

There is another news mentioned that a branch of Beijing business bureau contacted QIHU regarding an unfair competition complain against QIHU. This morning's case is a bit puzzling because we heard the news almost at the same time as the media started to report it. It makes people think the coincidence between this and the muddy water stuff. Probably another example showing how low our competitors may go to stop us.

The timing is also very curious because today is our annual corporate celebration day and the entire company is celebrating the achievement we had in 2012.

We have be subjected to a list of unfair competition cases (disclosed) in the past and normally such cases resulted in no material consequence one way or the other. Since this morning, we are in talk with related government agency to see who is filing the complain. Because we are a such high profile company and our products have been under abnormally high level of scrutiny in the past, we are strictly follow proper regulation in designing our products. We also periodically submit our security software's code to regulators for reviewing. We don't see any impact to our products because of this incidence.

As we mentioned in previous message, we have been subjected to aggressive PR attacks by our foes. It is already a common recurring to QIHU and we nonetheless grow our business, our company, and our shareholders value in challenging environment. We firmly believe that at the end of the day users are the final judges to Internet companies. Our focus on product development and user experience helped us gain users' trust and love over and over again.

Feel free to pass this to your clients.

Thanks Alex

Posted-In: Muddy WatersNews Short Sellers Management Global


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