Lynn Lin - Investor Relations Robin Li - Chief Executive Officer Shawn Wang - Chief Financial Officer

Jason Brueschke - Citigroup Anthony Noto - Goldman Sachs Robert Peck - Bear Stearns Wallace Cheung - Credit Suisse Gene Munster - Piper Jaffray Richard Ji - Morgan Stanley Ming Zhao - SIG Paul Keung - CIBC World Markets George Chu - UBS James Lee - W.R. Hambrecht James Mitchell - Goldman Sachs Yuzong Zhen - CitiCapital Stephen Ju - RBC Capital Markets

Good evening and thank you for standing by for Baidu’s second quarter 2007 earnings conference call. (Operator Instructions) I would now like to turn the meeting over to your host for today’s call, Lynn Lin, Baidu Investor Relations. Please proceed.

Hello everyone, and welcome to Baidu’s second quarter 2007 earnings conference call. We distributed Baidu’s second quarter 2007 earnings earlier today. You may find a copy of the press release on our company’s website as well as our newswire services. Today you’ll hear from Robin Li, Baidu’s Chief Executive Officer and Shawn Wang, Baidu’s Chief Financial Officer. After their prepared remarks Robin and Shawn will be able to answer your questions. Before we continue, please note that the discussions today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Baidu does not take any obligation to update any forward-looking statements except as required under applicable laws. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu’s corporate website at ir.Baidu.com. I will now turn the call over to Baidu’s CEO, Robin Li.

Hello everyone and thank you for joining us today. We are pleased to report another strong quarter. We grew our revenue by 109% year over year and 46% quarter over quarter. Our net income grew even faster, despite our investment in Japan. Our growth was primarily driven by strong traffic growth and the increase in our customer base. In the second quarter, we continued to enhance our portfolio of community-based products. They continue to be very popular and are important contributors to Baidu’s rapid traffic growth. In fact, Baidu Knows is now the largest online Q&A service in the world, regardless of language and country. It currently has over 17 million answered questions. We are also expanding our online entertainment platforms through collaboration with international record companies working to pioneer online advertising supported by digital music in China. We have confidence in the long-term potential of this model which benefits both Baidu and our partners. These initiatives improve the overall online user experience, increase our brand recognition and help drive user traffic. During the second quarter we continued to see the benefit of our focus on customer service. We added 16,000 active online marketing customers to reach a total of 128,000 in the quarter. These customers increased their average spending from last quarter’s RMB 2,500 RMB to RMB 3,100 this quarter. We believe that customers are happy with the effectiveness of our online marketing platform and we are confident that more and more Chinese businesses will choose Baidu in the future. We continue to develop our sales and distribution networks in the second quarter. Our transition to a direct sales force in Beijing has been a success. We are now expanding our direct sales and customer service in Shenzhen, another high growth region. We’re committed to investing in for long-term growth, making sure we have the best people is an important part of this and we are recruiting the most talented and innovative minds. During the second quarter we were pleased to welcome Mr. Haoyu Shen as Vice President of Business Operations. We also added approximately 100 people to our R&D team and 400 to the sales team. We continue to develop our talent base through internal and external training programs. Of course, we also continue to invest heavily in building our network capacity and infrastructure. Turning to our Japan initiatives, we are pleased with our progress and on schedule to officially launch later this year. The Japanese market is promising and we’re looking forward to providing a quality search alternative there. As we announced recently, we have invited Mr. Nobuyuki Idei, Former Chairman and CEO of Sony Corporation, to join Baidu’s Board as an independent director. We have no doubt that he will be a source of valuable insight. In China, about 162 million people currently use the Internet. While this is a large number, it represents only a small percentage of China’s overall population. More importantly, our search volume grows much faster than the general Internet user base here, so we are very excited about the tremendous opportunities ahead and we are confident that we have the right strategy to drive our growth. With that I’ll now turn the call over to our CFO Shawn Wang to discuss our financials.

Thank you Robin. Hello, everyone. As Robin mentioned, we just had another strong quarter with as more and more Chinese businesses are seeing the benefits of online marketing with Baidu. Total revenues for the quarter were approximately RMB 401 million and that exceeds the top end of our guidance and is up 109% over the year-ago period. Online marketing revenue was slightly over RMB 400 million and that is 112% growth year over year. A number of factors contributed to our growth, including a year-on-year growth in the number of active customers of 42% well as a year-over-year increase in per customer spending of 48%. Traffic acquisition costs as a component of cost of revenues was RMB 45 million. That is 11% of total revenues compared with 9% a year ago, and this increase reflects continued growth of revenue contribution from Baidu union members. Bandwidth costs were RMB 28 million or 7% of total revenues. That compares with 5% a year ago. Depreciation costs were RMB 34 million or 8% of total revenues compared to 6% in the year-ago period. The increase in both bandwidth and depreciation costs was mainly due to the network expansion to support our long-term growth. Share-based compensation expenses decreased to RMB 9 million from RMB 12 million in the year ago period. SG&A expenses were RMB 94 million and that is about a 60% increase from the year-ago period. Research and development expenses were RMB 32 million and that is a 74% increase from the year ago period. In the second quarter, Baidu Japan incurred operating costs and expenses of RMB 17 million in aggregate. The income tax expenses for the past quarter was approximately RMB 1.8 million. Net income was RMB 142 million, representing a 143% increase year over year. Net income excluding share-based compensation expenses, a non-GAAP measure, was RMB 161 million and that is 115% increase from the year-ago period. Basic and diluted EPS were RMB 4.19 and RMB 4.09, translating roughly to $0.55 and $0.64 U.S. respectively. Basic and diluted EPS excluding share-based compensation expenses -- again that’s a non-GAAP measure -- that number were RMB 4.45 and RMB 4.34, translating roughly to $0.58 and $0.67 U.S. respectively. The costs and expenses related to Japan operations impacted our EPS by about $0.07 US. Net margin excluding share-based compensation expenses, again a non-GAAP measure, was 38%, slightly higher than the year ago period. Now moving onto the balance sheet. We ended the second quarter of 2007 with cash, cash equivalents and short-term investments of RMB 1.3 billion or $176 million U.S. dollars. Operating cash inflow was RMB 277 million, representing a year-over-year increase of 114%. Capital expenditures for the second quarter was RMB 99 million, primarily focused on capacity expansion. We expect construction of Baidu Campus to commence in the coming quarter. We have budgeted close to RMB 600 million for the project and we estimate that it will take up to two years to complete. Adjusted EBITDA, again a non-GAAP measure, was RMB 179 billion for the second quarter, representing 111% increase from the year-ago period. Now let me provide you our top line guidance for the third quarter of 2007. We currently expect total revenues to be between RMB 492 million and RMB 506 million which will represent a year-over-year growth of 106% to 111%, and quarter over quarter growth of 23% to 26% respectively. I do wish to emphasize that this forecast reflects Baidu’s current and preliminary view, which is subject to change. I will now turn the call back to Robin for his closing remarks.

Thank you again for joining us today. I will now open the call to questions.

(Operator Instructions) Your first question comes the line of Jason Brueschke - Citigroup. Jason Brueschke - Citigroup: Thank you. Good morning, Robin and Shawn and congratulations on another solid quarter and a very good outlook. I will ask my first question about Google. They appear to be making some progress in China as of late, including signing a deal with Sina. They seem to be out there pursuing some additional deals of that nature. By our estimates however, the progress that Google seems to be making is coming not out of Baidu but from some of the weaker players in the market. Could you tell us whether you think that is consistent with what you guys are seeing internally? Could you also comment on whether Google is making inroads into any of your key Baidu union members? Thanks.

If you look at the third-party research reports you will see that Baidu continued to gain traffic share during the past few quarters. We roughly have two-thirds of the search traffic for Chinese search. The rest of the players combined have about a third of that. We do monitor closely how the players play in this space, but we believe that we are in a very good position to continue to grow our service and continue to benefit from the growth of the Chinese search market. Jason Brueschke - Citigroup: Okay, thanks. I’ll get back in the queue.

Your next question comes from Anthony Noto - Goldman Sachs. Anthony Noto - Goldman Sachs: Thank you. Robin and Shawn, we saw an acceleration in your number of new advertisers in the quarter on par with the year ago period. I was just wondering, do you think this was due to the benefits from your direct sales force? Was it from a new distribution partner? Do you think this type of incremental new partner adds on a quarter-over-quarter basis is on par with a year ago before you saw the slowdown, can be maintained? Thanks.

I think China is a country with a lot of businesses, especially SMEs, small and medium enterprises. We saw reports like numbers beyond 20 million; so at 120,000 it’s still a very small percentage of the total business number because we believe paid search is ideal for almost every business. We see a lot of potential there so how fast we grow our number of active online customers really depends on how good we execute. During the past quarter we were able to hire more sales people and execute our customer service teams and our numbers show the results of that kind of execution. Anthony Noto - Goldman Sachs: Thank you.

Your next question comes in the line of Robert Peck - Bear Stearns. Please proceed. Robert Peck - Bear Stearns: Shawn, I wanted to ask a quick question TAC. We saw it rise to about 11.3%. You made some comments in your introductory remarks; I was curious if you could give us an idea of what’s particularly happening with TAC rate and where you see that trending going forward?

We talked about at the end of last year that we actually signed up a deal with Microsoft in China where some of the Microsoft properties in China are being powered by Baidu, are being monetized by Baidu and that relationship also goes with some of the local telecom features as well. So in the course of the last two quarters we’re in the process of gradually incorporating that traffic. I think the increase in TAC largely is a result of those initiatives.

Your next question comes from Wallace Cheung - Credit Suisse. Wallace Cheung - Credit Suisse: Congratulations on good results. Can you comment a bit more on the operating leverage? We’re seeing that SG&A and R&D expenses are gradually in a downward trend, likely because of the strong growth in revenue. Are we going to see much further driving in the operating margin? Thank you.

Wallace, I think there has been a consistent way, of course, to look at our business and look at the potential of the market and how we manage our investment decisions. I think we’ve been seeing this from the very beginning that there is strong leverage in our business, and the further we’ve seen that leverage and the potential of the market gives us renewed confidence to make additional reinvestment. That has been the trend over the past few quarters. If you look at the pace of investment that we’ve been making, we’ve been adding a significant amount of headcount. And then on top of that, we’re making a very large CapEx investment. I mentioned about our depreciation expenses and our bandwidth expenses, and that’s largely a result of our CapEx expansion. I think in Q1 I mentioned we made over RMB 150 million in CapEx investment in our network capacity, and that was more than the amount we made for the entire year of 2006. Although in second quarter we didn’t make as much, but certainly it’s close to RMB 100 million, so it’s still a very large number. That reflects our confidence of our business model and also how longer term we are looking. So the near-term margin or the short-term margin is not something that is the key driver of how we do it, so I don’t want to let people focus too much on those at this time.

Your next question comes form the line of Gene Munster - Piper Jaffray. Please proceed. Gene Munster – Piper Jaffray: In terms of Sina-Google deal, you guys seem to be backing off of those transactions where you’re trying to buy traffic. Do you think that’s basically going to be the game plan going forward? We shouldn’t expect you to do a deal similar to what Google and Sina did? Is that correct?

I think because we are the market leader we have lots of users. Our marketing can be done by primarily by word of mouth. We do not need to spend advertising dollars. When we talk to the larger potential partners, they usually ask a lot of higher guarantees for their search traffic, and that’s what we don’t want to get into. During the past few years we never tried to compete on that kind of basis, and our results show that we believe we have the right strategy, and our organic traffic grows very, very fast; probably faster than any other competitors in this space. Gene Munster - Piper Jaffray: And I guess with the Sina-Google relationship, I know you talked about it a little bit earlier, but have you seen that having an impact on your business in the 1.5 months that it’s been active?

I believe we have about two-thirds of the traffic share for Chinese search and you can go back to the third-party reports to dig out the traffic share for each of the players. I believe statistically those kind of deals are insignificant.

Your next question comes in the line of Richard Ji - Morgan Stanley. Richard Ji - Morgan Stanley: Robin and Shawn, can you help us understand a little bit about the Japanese initiative? What is the current status and what is your commercial plan going forward? Particularly I’m interested in your CapEx line because for the quarter you probably ended up spending your budget. Thank you.

We are happy about the progress we have made in Japan so far. Japan is a more mature search market so it’s going to probably take a little longer than the China market really for us to take off there. The first step is to hire the right people, assemble the right team, and the second one is to devise the right product for that market. The third is to grow traffic and then we will follow with revenue. I think currently we are on track with that kind of strategy.

Richard, if you look at the CapEx plan and if you look at the historical pattern, we’ve been expending our CapEx infrastructure, networking infrastructure every few quarters so it goes in somewhat of a cycle. I think we made a very significant investment in Q1 and Q2 it was also relatively large, but certainly wasn’t close to the Q1 level. So if history will repeat itself, we would expect to see somewhat of a moderate CapEx compared to Q1 levels, but still, we are at a different operational scale now, with the large increase of Internet users and some of the products that are currently under development, we think these investments are necessary.

Your next question comes from at Ming Zhao - SIG. Please proceed. Ming Zhao - SIG: Shawn, just a follow-up question to the investment in Japan, because I think half a year ago when we talked about this you said that the P&L impact would be about $50 million. Now in the first half you spent roughly 3.8 million so there’s still a lot left. Are we the still budgeting 50 million for the whole year?

We talked about in the past that the investment in Japan and expenses to be incurred in Japan will somewhat accelerate throughout the year. The first quarter we spent a bit over $1 million and the second quarter we spent over $2 million, and I think as we continue to make strong inroads and progress on our Japan initiatives, we’re looking to spend more. There’s no reason for us to change that estimate, but I have to remind you that is an estimate.

Your next question comes line up all with Paul Keung - CIBC World Markets. Paul Keung - CIBC World Markets: Shawn and Robin, good morning. . If you look it your advertisers that have been customers of you guys for more than a year, I was curious how they’re spending has grown? Also give us an update on the churn rate now that you are almost a year beyond where you made those algorithmic changes.

Yes, I think many of the customers are very loyal to us. As our traffic grows they continue to spend more on our platform even if we cut the price to a certain extent, during last year’s algorithm change, we still have a large number of very loyal users or customers. Those customers tend to have a better understanding of the Internet marketing space. There was some churns during the past few quarters, again due to the change on our algorithm for paid search, but I guess that’s largely over. We have signed up a lot of new customers and they are happy with the service right now.

Just to add to that, some of the customers that reduced spending or suspended some of the keywords, many of them have come back after this transition. Paul Keung - CIBC World Markets: Okay, good. So let me see if I got this right. So churn rates are back to normal and the spend for customers that have been around for awhile is still growing faster than the economy, let’s say 20%?

Our business, if you talk about the growth in the economy which is roughly 10% or so and look at our business, there is really no comparison. I think we’re in such an early stage; as Robin mentioned earlier, we at 1% of the addressable market so I think what’s driving growth is still what is inherent.

By definition, paid search is pay for performance. I guess as long as we can deliver the performance or we can deliver better performance than any other alternatives, we will be able to have a very loyal customer base.

Your next question comes from the line of George Chu – UBS. George Chu – UBS: There has been some media reports regarding the restructuring of the Baidu union into different tiers. I would like to know if that is going to have any impact on the percentage of revenue sharing going forward? Thank you.

No. I don’t think that will change the revenue-sharing percentage or the percentage of revenue contributed by the union. We are still the largest union system among Chinese search players and we believe we have a very solid position and that part of the business will continue to grow along with our owned and operated property.

Your next question comes from the line of James Lee - W.R. Hambrecht. James Lee - W.R. Hambrecht: Robin, can you help us understand the activities in third quarter a little bit? Can you maybe talk about what verticals that you think are driving the spending in 3Q and if there are any other seasonal factors that is driving spending for the quarter? I guess lastly, how does the pre-October holiday advertising activity impact the spending in 3Q as well? Thanks.

We have more than 120,000 active customers, so that represents a very diversified industry. There are many verticals that are seasonal overall during Q1 because of Chinese New Year we have the weakest quarter and Q2 because of the relatively small base of Q1, you already have a very big jump quarter on quarter. There are a number of businesses who advertise on us are seasonal. For example, during summer, travel-related business would spend more and right before the summer holidays some of the training and educational businesses would spend more and because we have hundreds or maybe thousands of different verticals I think we have a very healthy mix and this business will continue to grow like we did for the past few years.

Your next question from the line of James Mitchell - Goldman Sachs. James Mitchell - Goldman Sachs: Thank you for taking the question. If I look back over the past couple of years it seems like your average revenue per online customer has climbed about 20% quarter on quarter in the second quarter because of the positive seasonality you just identified. This quarter it looks like the growth is a little stronger. I was wondering if that’s just due to general business trends or whether the Shenzhen integration benefited you or whether more branded advertising benefited you? Thank you.

If you look at our guidance for Q3 I think the quarter-on-quarter growth is similar to the quarter-on-quarter growth last year. We believe that since [inaudible] we did not factor in anything like the Shenzhen integration. Actually, early during the integration process revenue and profits will go down for that particular region. James Mitchell - Goldman Sachs: Actually a little bit more about 2Q than about 3Q? It looked like you had a very strong improvement in average revenue per customer in Q2 even relative to prior year?

Jim, Shawn here. Let me try to address your question. I think if you look at our Q2 we had a fairly strong revenue per customer increase I think it was a combination of a number of factors in play here. But first of all, I think we had a Q1 which is seasonally very slow and that, coupled with the fact, we were reaching out to our customers through better customer services and helping them to understand better the algorithm, et cetera, I think that all played out in the impact was felt in Q2 results. And so I think I agree with what Robin described, our search engine effort is just underway and it hasn’t really affected the ARPU in any significant manner. You asked about our branded advertising, how is that affecting it? Our branded advertising has been very strong, has been going strong, but at the same time it is on the back of the strong growth. So any large impact will somewhat shared by our increase in the number of advertisers.

Another point you might want to take note is that we have been saying that for this year the Chinese New Year is very late so that affected the Q1 numbers negatively. If you compare it to that, you will see a higher growth rate for Q2. James Mitchell - Goldman Sachs: Okay. Great. So it’s really a bounceback from the late Lunar New Year and the effects of the algorithm transition?

Yes.

Your next question comes the line of Yuzong Zhen - CitiCapital. Yuzong Zhen - CitiCapital: I wanted to ask a question about your recent cooperation with [inaudible] and your future plan for the sports-related business?

We have been doing all kinds of experiments with this non-web search property. In fact, we have over 50% of our traffic on non-web search traffic. We generally use that to do two things. One is contextual and the other is the display ads and in some special cases we would do some kind of customized event for our partners or advertisers. Right now all of these areas are growing at a quite high speed, but percentage wise it’s still a small number. With regard to sport, we do not view it as anything special. We treat it like any other verticals. We are studying how we can benefit from the Olympics next year, but there is no concrete plan yet.

Your next question from Stephen Ju - RBC Capital Markets. Stephen Ju - RBC Capital Markets: Good morning, gentlemen. Does your third quarter guidance contemplate growth more from ARPU as a spend per customer or does it contemplate growth more from the volume side? Thank you.

Of course it’s a combination of all. We have to be able to grow our traffic in order to generate the inventory for the customers to use and we also need to develop more new customers and have the existing customers spend more on our platform. In theory, if the customer does not have a budget limit they would spend the bulk of the customer spend would be at the same ratio as the traffic growth, so for the third quarter it’s like any other quarter and will be driven by a number of factors.

Your next question comes from the line of Robert Peck – Bear Stearns. Robert Peck – Bear Stearns: I was wondering if you can give us a little more color around the tax rate? It seems like it came in a little low, around 1.3% and you’ve given guidance historically sort of mid single-digit. How should we think about that going forward?

We have been receiving some additional tax breaks from the government with respect to our product and technology development. I think the Chinese government has had a national plan for promoting technology innovation and they appreciate what we’re doing on our end of the business. So it’s hard to know for certain when some of the tax breaks can be granted, but it looks like we are looking at mid single-digit is probably a fair point. It could even be lower, potentially, but I think there is uncertainty in that regard.

You have a follow-up question from the line of Jason Brueschke. Jason Brueschke - Citigroup: I have two additional questions. First, a quick housekeeping question. Could you tell us how many people you have total now in sales and how many you had last quarter, just to remind us?

Sales people, I would think it was over 3,000 now and we added somewhere around 500 sales people in the past quarter. Jason Brueschke - Citigroup: As a follow-up to this, Shawn, how long does it take when you add a new salesperson for them to really be let’s say 80% effective at contributing revenues? Is that a one quarter process? Does it take six months for people to get to speed? Can you maybe give a little color on that?

It’s a gradual process. It’s not like a black line that you can just switch it. We start to see some productivity maybe a month or two afterwards and I think for the full potential to be raised it does take at least a few months for them to be up to be speed. I think it does take over probably two quarters would be a good example. Jason Brueschke - Citigroup: The second question I had really addresses the state of ecommerce in China. Clearly, it’s very, very early, but there seems to be some beginning of some ecommerce starting. You’ve had tremendous growth in your ARPU really since you guys have gone public and I guess this last quarter you actually outgrew on a year-over-year basis your growth in your number of customers. Could you maybe give us some feel as to when you think ecommerce probably takes off, not fully, but starts to be more meaningful? Is that a year out? Is it two years out? Just maybe qualitatively in China based upon the customers that you have, should we expect really a quantum increase in your ARPU once that happens? Or will it be probably more of a smooth linear type curve? Thanks.

Well I agree that the commerce infrastructure it in China is getting better and better. We did see some of the companies start to think about making a financial update to the ecommerce infrastructure here. But for Baidu’s customer base we still largely depend on offline transactions. What happens is that more and more customers start to realize that the performance cannot only be measured by how may transactions can be done on their website, but more likely how can they get sales fees from their website, how can they get user registration and some other metrics. Again, when we sign up new customers, they don’t have the psychological effect that we were very, very, cheap before. So if they compare with any other alternatives they will see that our service is obviously the best for the money they have spent.

Your have a follow-up question from the line of Ming Zhao with SIG. Ming Zhao - SIG: Also a question related to ecommerce as well. Q3 or Q4 we are going to see Alibaba going public, so I wanted to understand a little bit in terms of how you are going to deal with the competitive landscape. Are you going initiate some products, or do you just focus on the domestic search versus Alibaba, probably 70% of the international business search? That’s my question.

I think the domestic market is a much larger market, and we as a search platform do not distinguishing between the international or more domestic. We can provide sales and in more general terms, performance for all kinds of businesses, and we continue to see that customer who will spend money on us get much better results than any other platform. We’re not short of money, I think we have all the right things to make the company grow at a very healthy pace. Ming Zhao - SIG: Maybe a follow-up question to Shawn. Of the almost RMB 100 million CapEx for the quarter, I guess $2.3 million is for Japan; what’s the remainder of that? Is that office computing or data center?

These are two different things. Our CapEx we spent close to RMB 100 million, that’s a CapEx investment for all the servers and network equipments for the entire corporate operations which influence China and Japan. Now the corporate expenses that we incurred in Japan is our P&L charges which includes the depreciation in the bandwidth, and also the operational costs in [Guam], so these two are different things.

Your have a follow-up question from the line of Wallace Cheung. Please proceed. Wallace Cheung - Credit Suisse: Hi. Recently there’s a media report talking about Baidu is going to launch some new media strategies. Can you elaborate a little bit more on this and would there be any impact on your top line and bottom line? Thank you.

I think it’s more of the market education events. It’s really referring to the events we are going to have on August 9. As I mentioned before, we see huge, huge potential for the Chinese search market and probably including display ads for our non-web search properties, we deliver better performance than anyone else. We’d like to host an event so that we can have a chance to communicate this to potential customers how we can deliver better performance using advertising technology, how our platform is different from the traditional media or any other online media in this country.

You have a follow-up question from the line of Paul Keung. Paul Keung - CIBC World Markets: Shawn, what is your tax rate for third and fourth quarter, as well as calendar ’08? I was looking at the SG&A line I was curious, outside of just hiring more sales people, what are some major investments you’ll have on the G&A lines the rest of this year?

Paul I missed the last bit of your question. Paul Keung - CIBC World Markets: Outside of just hiring more sales, I was curious what other major G&A investments you made, you have planned for the back half of this year.

I see what you’re saying. Well first of all on the tax rate I think I did talk about that. That is something that on one side our technology innovation initiatives are recognized with the governments and we do get breaks once in a while, from time to time. Some of the breaks may have a benefit lasting for a few years. But again, blending and such, it does have some degree of uncertainty in terms of rate, so what we can right now, the only thing I can see right now is mid single-digit is a reasonable estimate. It does have the potential to go lower. Now going back to the other question outside G&A, within G&A what are the investment that we’re thinking? Frankly, the G&A expenses for the most part, they are just expenses; the operation expenses and executive expenses. However, in the past we did incur a pretty significant expenditure in connection with our Sarbanes-Oxley compliance in the 404 exercise and that is the way that Baidu looked at it; we think is a very good long-term investment to build the discipline and controls in place to enhance the effectiveness of our operations. So internally, we actually view that as a part of the investment, the soft dollar investment. We were very pleased that we came to a very good conclusion of that exercise, we filed our annual report in late May and we talked about that the auditors actually certified without any material weakness, and I think what doesn’t show on the report is what the auditor has told us, that Baidu’s 404 exercise, not only that we didn’t have any material weakness, but also don’t have significant deficiencies. These are two accounting terms, auditing terms, but I think it does give us the recognition that our corporate governance in terms of controlling initiatives are at the level that is very strong in this market. So we think that’s an investment. The other, it’s hard for me to classify any of the G&A as an investment. Paul Keung - CIBC World Markets: So it should grow relatively stable at this point?

Well, the actual dollar amount it will go up, there’s no question about that, but I do believe that it is nice and that will be leverageable.

Your next question comes as a follow-up from the line of James Lee. Please proceed. James Lee - W.R. Hambrecht: Hi, Robin. Can you elaborate on your banner program a little bit? It sounds like there’s a lot of potential there. I’m just curious how you plan to grow that program. Can you just give a sense of how the program scales so far, what vertical channels you have here really pushing that banner program, which vertical are you having the most success? I believe last quarter you talked about selling more behavior-based banner as opposed to time-based. I was wondering if that’s still the case. Also, maybe if you can compare your pricing a little bit versus other portals? I guess lastly if I can squeeze in here, what do you need to do to drive adoption? What is the sensitivity from your customer’s point of view? Is it the traffic, is it the brand recognition from the agency community? Or is it really pricing, if you give them a discount people will take the banner ads? Thanks.

We start with the product or service called target type roughly a year ago, that is a behavioral targeting display ad product. Since we started we have seen a very good adoption rates, a lot of high profile advertisers come to us and they are in general very satisfied with the results. Because it’s more targeted, each order is smaller than the untargeted display ads we receive, but we are very optimistic that more and more people and more and more advertisers will realize the benefit of this so we do think that that part of things will grow quite quickly. For the untargeted display ads, we did not really push very hard because we are very careful about the user experience. We don’t want to slow down the download speed for the Baidu services, so non-web search services, so we only provide very small undisturbing display ads on a number of channels like the news channel, Baidu’s MP3 channel. In addition to that, like I mentioned before, we also have the contextual ads from our existing paid search customer base. That part is also growing at roughly the same rate as the web page search. In terms of pricing, I think we are still much, much cheaper than any of the major portals. That is something we need to work on. For one thing, we do not aggressively show ads. For another, I think in terms of brand recognition for display ads, we are not in the top tier yet. James Lee - W.R. Hambrecht: Robin, is it fair to say most of your banner ads are on your MP3 channel, or they are kind of diversified in the various key channels that you have right now?

It’s pretty much diversified in various different channels. We also have a streaming page that we have partnership with companies like Bachman BPMI that we can show relatively larger display ads. We share revenue with them.

We are now approaching the end of this conference call. I would now like to turn the call over to Baidu’s Chief Executive Officer Robin Li for closing remarks.

Once again, thank you for joining us today and please do not hesitate to contact us if you have any further questions.