SOURCE:
China TechFaith
2008-08-18 15:01:00
BEIJING–(EMWNews – August 18, 2008) – China TechFaith Wireless Communication Technology
Limited (
-- Net revenue increases 76.7% year-over-year and 14.1% sequentially
-- Gross profit increases 82.8% from last year
-- Net profit of US$3.9 million compared to net loss of US$4.7 million same
period last year
-- Company restructures GSM R&D team and appoints new deputy CEO, President
and CFO
China TechFaith Wireless Communication Technology Limited (
an Original Developed Product (ODP) company focused on research and
development of cell phone solutions, today announced its unaudited
financial results for the second quarter ended June 30, 2008.
Net revenue for the second quarter of 2008 was US$56.6 million, a 76.7%
increase from US$32.0 million for the same period in 2007 and a 14.1%
increase from US$49.6 million for the first quarter of 2008. Net revenue
for the quarter exceeded guidance due to the better-than-expected
performance of the 3G and Smartphone products.
Gross profit for the second quarter of 2008 was US$13.9 million, an 82.8%
increase from US$7.6 million for the same period last year. The increase
was attributed to the stronger contribution from our ODP business during
the quarter. Gross margin for the second quarter of 2008 increased to
24.6%, compared to 23.8% for the same period in 2007.
Total operating expenses were US$10.7 million for the second quarter in
2008, a decrease of US$3.3 million, or 23.8%, compared to US$14.0 million
for the same period last year. The decrease in operating expenses reflected
the Company’s continued cost-cutting efforts.
Net income for the second quarter of 2008 was US$3.9 million, or US$0.09
per weighted average outstanding ADS (basic and diluted), compared to net
loss of US$4.7 million, or (US$0.11) per weighted average outstanding ADS
(basic and diluted), for the same period in 2007. The income tax provision
in the second quarter of 2008 was zero because the Company’s main operating
entities either were unprofitable or benefited from tax holidays.
Mr. Defu Dong, the Chairman and CEO of the Company, said, “We are glad to
announce the fourth consecutive quarter of revenue growth. During the
second quarter, Smartphone sales increased and profit margins returned to
healthy levels. Sales of Feature phones decreased slightly while profit
margin increased considerably. 3G product models’ total revenue and profit
margin increased, while sales volume was slightly lower than in previous
quarters. The spending on the Module and Data card business was reduced,
specifically 2.5/2.75G technology products, due to elevated competition and
low profit margin of the products. The Company will continue to focus on
the UMTS/HSDPA/EVDO data card and mobile phone business.
“Our revenue growth was also due to stronger-than-expected performance of
our 3G and Smartphone products. We will make further progress in the
development and production of middle to high-end, tailor-made handsets and
expand the flexible order quantity strategy in the global market.
Furthermore, we will continue to keep our low cost competitive advantage to
build up our long-term profitability.
“However, we foresee a highly competitive environment and challenging
economic conditions in the coming quarters. In order to compete in an
industry with relatively low profit margins, we are utilizing our
engineering knowledge and experience to focus on offering middle to
high-end mobile phone products to our customers. In July, we decided to
strategically restructure the GSM R&D team by reducing our work force to
700 by the third quarter. This optimization will allow us to focus on our
mobile phone products offering, which is our core business, and improve our
R&D efficiency. We estimate that the severance cost resulting from such
restructuring will be approximately US$2 million and will be incurred in
the third quarter of 2008, while the operating costs saved will be
approximately US$3 million starting from the fourth quarter of 2008. We are
confident of our long-term profitability.”
As part of the restructuring, the Company also announced the appointment of
Mr. Xiaonong Cai as Deputy CEO and member of the Board of Directors, Mr.
Shugang Li as President, and Ms. Yuping Ouyang as CFO, effective August 15,
2008. Mr. Xiaonong Cai will replace Mr. Bob Huo, who has resigned from the
Company to pursue his personal interests. Mr. Bob Huo was also a member of
the Company’s Board of Directors before his resignation. Mr. Shugang Li
will replace Dr. Gilbert Lee as the Company’s President. Dr. Gilbert Lee
has resigned as the Company’s COO and President but will remain with the
Company as a member of its Board of Directors. Ms. Yuping Ouyang will
replace Mr. Christopher Patrick Holbert as the Company’s CFO. Mr.
Christopher Patrick Holbert has resigned as the CFO and will assume the
position of advisor to the CFO and Audit Committee.
Mr. Defu Dong stated, “We respect the decision of Bob to leave TechFaith.
We will certainly miss him and we thank him for his valuable contribution
and dedication to the Company over the years. We look forward to working
with Gilbert and Chris in their new capacity, and to continuing to benefit
from their expertise, experience and knowledge. We are excited to add
Xiaonong, Shugang, and Yuping to our executive team. Xiaonong and Shugang
have been with the Company since it was founded and I believe that this new
team has the required experience and is well prepared to help the Company
successfully weather the challenging global economic environment ahead and
we look forward to their continued contribution to TechFaith’s growth and
success in the future.”
Mr. Xiaonong Cai, the new Deputy CEO of the Company, said, “Regarding the
market, we foresee the immense potential for EVDO and UMTS/HSDPA products
in the China market, particularly after China’s telecom industry reforms.
With our strategic partners, we will carry on promoting our middle to high
end products to the China market. For the overseas market, we will
strengthen our relationships with local and operator’s brand companies. The
3G products will be our main product offerings for these markets to ensure
that we can generate higher profit margins going forward.”
With regard to the near-term outlook, due to seasonality and a weak
economic environment, the Company expects revenues in the third quarter of
2008 to be in the range of US$30 million to US$35 million.
New Management Brief
From 2002 to present, Mr. Xiaonong Cai has served in various management
positions at TechFaith, including senior vice president for sales and
marketing, and president of TechFaith Software (China) Holding Limited, our
joint venture with Qualcomm. Prior to joining TechFaith, he served as a
regional sales manager at Motorola China. Mr. Cai received his MBA from
Peking University and his bachelor’s degree in management from Tsinghua
University.
From 2002 to present, Mr. Shugang Li has served in several positions at
TechFaith, including vice president in charge of production support,
sourcing, project management and quality assurance and as president of Step
Technologies (Beijing) Co., Ltd., a subsidiary of TechFaith. Most
recently, Mr. Li served as president of TechFaith Electronics. Prior to
joining TechFaith, Mr. Li served as an engineering department manager at
Motorola China for seven years. He received his bachelor’s degree in
electronic engineering from Tianjin University.
From September 2004 to present, Ms. Yuping Ouyang also has served in
various financial positions at TechFaith, including US GAAP reporting
manager and chief accounting officer. Prior to joining Techfaith, she
served as an accounting manager at Guangzhou Metro Corporation. Ms. Ouyang
received her MBA from the Sun Yat-sen University and her bachelor’s degree
in management from the Guangdong University of Foreign Studies. Ms. Ouyang
is also a member of the Association of Chartered Certified Accountants.
Conference Call
TechFaith will hold a conference call on Monday, August 18, 2008 at 7:00
p.m. U.S. Eastern Time (7:00 a.m., August 19, 2008 in Beijing) to discuss
the results. The dial-in numbers are +1-866-713-8395 (U.S.) or
+1-617-597-5309 (international). The passcode for both is 91884175. A
live webcast of the conference call will be available on China TechFaith’s
website at www.techfaithwireless.com.
A replay of the call will be available from Monday, August 18, 2008 at 9
p.m., U.S. Eastern Time (9 a.m., August 19, 2008 in Beijing) through
midnight on Monday, August 25, 2008, U.S. Eastern Time (12 p.m., August 26,
2008 in Beijing) on the Company’s website at www.techfaithwireless.com and
by telephone at +1-888-286-8010 (U.S.) or +1-617-801-6888 (international).
The passcode to access the replay is 66896525.
About TechFaith
TechFaith (
on research and development of cell phone solutions. Based in China,
TechFaith employs approximately 700 professionals, of whom approximately
90% are engineers. TechFaith engages in the development and production of
middle to high end handsets and tailor made handsets. TechFaith’s original
developed products include: (1) multimedia phones and dual mode dual card
handsets of multiple wireless technology combination such as GSM/GSM,
GSM/CDMA, GSM/WCDMA, GSM/TD-SCDMA and UMTS/CDMA; (2) Window based
smartphone and Pocket PC phone; and (3) handsets with interactive online
gaming and professional game terminals with phone functionality.
With the capability of developing Middleware Application MMI/UI software on
2G/2.5G(GSM/GPRS, CDMA1X), 3G(EV-DO, WCDMA/UMTS, TD-SCDMA) and 3.5G(HSDPA)
communication technologies, TechFaith is able to provide Middleware
Application MMI/UI software packages that fulfill the specifications of
handset brand owners and carriers in the global market. For more
information, please visit www.techfaithwireless.com
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are
made under the “safe harbor” provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These forward-looking statements can be
identified by terminology such as “will,” “expects,” “anticipates,”
“future,” “intends,” “plans,” “believes,” “estimates,” “confident” and
similar statements. Among other things, the business outlook and quotations
from management in this announcement, as well as TechFaith’s strategic and
operational plans, contain forward-looking statements. TechFaith may also
make written or oral forward-looking statements in its periodic reports to
the U.S. Securities and Exchange Commission on Forms 20-F and 6-K, etc., in
its annual report to shareholders, in press releases and other written
materials and in oral statements made by its officers, directors or
employees to third parties. Statements that are not historical facts,
including statements about TechFaith’s beliefs and expectations, are
forward-looking statements. Forward-looking statements involve inherent
risks and uncertainties. A number of important factors could cause actual
results to differ materially from those contained in any forward-looking
statement. Potential risks and uncertainties include, but are not limited
to, TechFaith’s limited operating history, TechFaith’s ability to
effectively manage its rapid expansion, loss of TechFaith’s customers and
claims against TechFaith due to defects in its designs or other reasons,
TechFaith’s limited insurance coverage and its exposure to product
liability and product recall, TechFaith’s ability to retain existing or
attract additional domestic and international customers, TechFaith’s
earnings or margin declines, failure to compete against new and existing
competitors, mobile handset brand owners’ discontinuation or reduction of
the use of independent design houses, and other risks outlined in
TechFaith’s filings with the U.S. Securities and Exchange Commission,
including its annual report on Form 20-F. TechFaith does not undertake any
obligation to update any forward-looking statement, except as required
under applicable law.
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars, except share and per share/ADS data and
unless otherwise stated)
Three
Months
Ended Three Months Ended Six Months Ended
March 31 June 30 June 30
2008 2007 2008 2007 2008
----------- ----------- ----------- ----------- -----------
Revenues:
Design
fees $ 3,264 $ 5,185 $ 4,656 $ 15,303 $ 7,920
Royalty
income 534 2,638 277 5,433 811
Component
sales 731 2,642 520 5,607 1,251
Product
sales 45,031 21,562 50,973 32,964 96,004
Service
income 35 - 164 - 199
----------- ----------- ----------- ----------- -----------
Total net
revenues $ 49,595 $ 32,027 $ 56,590 $ 59,307 $ 106,185
Cost of
revenues:
Design
fees $ 1,618 $ 3,906 $ 2,340 $ 11,651 $ 3,958
Component
sales 556 2,518 306 5,166 862
Product
sales 37,678 17,981 39,998 27,321 77,676
Service
Cost 22 - 11 - 33
----------- ----------- ----------- ----------- -----------
Total cost
of
revenues $ 39,874 $ 24,405 $ 42,655 $ 44,138 $ 82,529
Gross
Profit $ 9,721 $ 7,622 $ 13,935 $ 15,169 $ 23,656
Operating
expenses:
General
and
administ-
rative $ 3,201 $ 4,187 $ 2,777 $ 6,323 $ 5,978
Research
and
developm-
ent 5,496 8,549 6,625 16,544 12,121
Selling
and
marketing 853 844 1,300 1,760 2,153
Exchange
loss
(gain) 534 439 (19) 981 515
----------- ----------- ----------- ----------- -----------
Total
operating
expenses $ 10,084 $ 14,019 $ 10,683 $ 25,608 $ 20,767
Other
operating
income 2,541 789 22 789 2,563
(Loss)
income
from
operatio-
ns $ 2,178 $ (5,608) $ 3,274 $ (9,650) $ 5,452
Interest
expense (9) (38) (7) (51) (16)
Interest
income 417 1,009 499 2,111 916
Other
income
(expense),
net 3 (183) (18) (335) (15)
Change in
fair
value of
put
option 15 (72) (6) (55) 9
----------- ----------- ----------- ----------- -----------
Income
before
income
taxes $ 2,604 $ (4,892) $ 3,742 $ (7,980) $ 6,346
Income tax - (3) - (3) -
----------- ----------- ----------- ----------- -----------
Income
before
minority
interests $ 2,604 $ (4,895) $ 3,742 $ (7,983) $ 6,346
Minority
interests 259 245 121 751 380
Equity in
loss of an
affiliate - - - (851) -
----------- ----------- ----------- ----------- -----------
Net (loss)
income $ 2,863 $ (4,650) $ 3,863 $ (8,083) $ 6,726
=========== =========== =========== =========== ===========
Net income
per
ordinary
share
Basic $ - $ (0.01) $ 0.01 $ (0.01) $ 0.01
=========== =========== =========== =========== ===========
Diluted $ - $ (0.01) $ 0.01 $ (0.01) $ 0.01
=========== =========== =========== =========== ===========
Net income
per ADS*
Basic $ 0.07 $ (0.11) $ 0.09 $ (0.19) $ 0.16
=========== =========== =========== =========== ===========
Diluted $ 0.07 $ (0.11) $ 0.09 $ (0.19) $ 0.16
=========== =========== =========== =========== ===========
Weighted
average
ordinary
shares
outstand-
ing
Basic 649,913,136 649,758,772 649,913,136 649,758,772 649,913,136
=========== =========== =========== =========== ===========
Diluted 650,113,581 649,758,772 649,943,575 649,758,772 650,028,578
=========== =========== =========== =========== ===========
Revenue Breakout 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08
======== ======== ======== ======== ======== ========
Design fees
======== ======== ======== ======== ======== ========
International
customers $ 9,463 $ 4,811 $ 2,687 $ 2,415 $ 625 $ 271
Domestic
customers $ 655 $ 374 $ 2,738 $ 2,899 $ 2,639 $ 4,385
Royalty
International
customers $ 300 $ 461 $ 194 $ 287 $ 10 $ -
Domestic
customers $ 1,851 $ 1,427 $ 925 $ 483 $ 524 $ 277
Component
vendors $ 644 $ 750 $ 161 $ 289 $ - $ -
Component and
products
Smart Phone $ 4,014 $ 6,557 $ 8,688 $ 17,185 $ 18,123 $ 26,979
PCBA $ 2,149 $ 2,454 $ 717 $ 22 $ - $ -
Wireless module $ 1,452 $ 7,202 $ 2,483 $ 1,377 $ 3,752 $ 1,220
Feature phone $ 3,787 $ 5,349 $ 18,153 $ 20,134 $ 23,156 $ 22,774
Other component
sales $ 2,965 $ 2,642 $ 1,682 $ 565 $ 731 $ 520
Service income $ - $ - $ 18 $ 35 $ 35 $ 164
-------- -------- -------- -------- -------- --------
Total net revenues $ 27,280 $ 32,027 $ 38,446 $ 45,691 $ 49,595 $ 56,590
======== ======== ======== ======== ======== ========
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars)
June 30, March 31, June 30,
2007 2008 2008
--------- --------- ---------
Assets
Current assets:
Cash and cash equivalents $ 90,184 $ 76,295 $ 72,163
Restricted cash 17,160 119 417
Accounts receivable 45,828 47,315 36,996
Amount due from related parties - 3,708 4,842
Notes receivable 6,403 2,310 1,706
Inventories 19,715 49,028 48,867
Prepaid expenses and other current assets 7,790 10,070 10,788
--------- --------- ---------
Total current assets $ 187,080 $ 188,845 $ 175,779
--------- --------- ---------
Deposits for acquisition of plant,
machinery and equipment, and acquisition
of intangible assets $ 8,570 $ 11,131 $ 15,436
Plant, machinery and equipment, net 28,832 27,969 27,309
Acquired intangible assets, net 264 1,591 1,919
Goodwill 606 606 606
Total assets $ 225,352 $ 230,142 $ 221,049
========= ========= =========
Liabilities and shareholders' equity
Current liabilities:
Current portion of Long term payable $ 479 $ 1,208 $ 1,228
Short term loan 10,505 - -
Accounts payable 28,669 25,108 11,224
Amount due to related parties - 74 224
Accrued expenses and other current
liabilities 13,246 10,979 11,058
Advance from customers 5,460 7,820 5,804
Deferred revenue 2,693 1,824 1,164
Income tax payable 139 146 148
--------- --------- ---------
Total current liabilities $ 61,191 $ 47,159 $ 30,850
Long-term payable $ 409 $ 297 $ 125
--------- --------- ---------
Total liabilities $ 61,600 $ 47,456 $ 30,975
--------- --------- ---------
Minority interests $ 2,109 $ 1,401 $ 1,280
Shareholders' equity
Ordinary shares $ 13 $ 13 $ 13
Additional paid-in capital 110,273 110,351 110,441
Treasury stock (4,628) (4,628) (4,628)
Accumulated other comprehensive income 8,275 20,165 23,721
Statutory reserve 6,093 6,813 6,813
Retained earnings 41,617 48,571 52,434
--------- --------- ---------
Total shareholdersÂ’ equity $ 161,643 $ 181,285 $ 188,794
--------- --------- ---------
Total liabilities and shareholders' equity $ 225,352 $ 230,142 $ 221,049
========= ========= =========
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