SOURCE: China TechFaith

China Techfaith

August 17, 2010 16:00 ET

TechFaith Reports Second Quarter 2010 Financial Results

BEIJING--(Marketwire - August 17, 2010) - China Techfaith Wireless Communication Technology Limited (NASDAQ: CNTF) ("TechFaith" or the "Company") today announced its unaudited financial results for the second quarter ended June 30, 2010.

For the second quarter of 2010, TechFaith reported net revenue of US$65.5 million (RMB447.0 million), a 7.6% increase compared to US$60.9 million (RMB415.8 million) in the first quarter of 2010 and a 31.5% increase compared to US$49.8 million (RMB340.1 million) in the second quarter of last year. Gross margin for the second quarter of 2010 improved to 24.2% compared to 22.0% in the previous quarter and 19.0% in the same quarter last year. Income from operations for the second quarter of 2010 was US$8.3 million (RMB56.6 million), a 31.7% increase compared to US$6.3 million (RMB43.0 million) in the previous quarter and a 277.3% increase compared to US$2.2 million (RMB14.9 million) in the same quarter last year. Net income attributable to TechFaith for the second quarter of 2010 was US$7.3 million (RMB49.8 million), a 5.8% increase compared to US$6.9 million (RMB47.1million) in the first quarter of 2010 and a 62.2% increase compared to US$4.5 million (RMB30.7 million) in the same quarter of last year.

Ouyang Yuping, TechFaith's CFO, said, "Results in the second quarter exceeded prior guidance and reached another record level for TechFaith. We continue to successfully execute on our business strategy, as evidenced by the higher revenue, continued improvement in gross margin, and cash flow generation. Our original developed products ('ODP') business revenue also broke our prior company record, reaching US$56.3 million (RMB384.2 million). Revenue from our branding business increased 46.5% from US$5.2million (RMB35.5 million) to US$7.6 million (RMB51.9 million) compared to the first quarter, as we continue to benefit from the successful integration of the business and demand for existing enterprise mobile phone users and enthusiasm for pending launches. Revenue from TechFaith's gaming business increased 22.0% from US$1.3 million (RMB8.9million) to US$1.5 million (RMB10.2 million) compared to the first quarter."

Mr. Deyou Dong, who as COO of TechFaith is in charge of the company's mobile business, said, "We achieved further success in our ODP business, with total sales improving to 691,000 units in the second quarter. The improvement has been driven by strong demand in China, India, South East Asia and Europe. Our branding business has also achieved excellent results, especially with QIGI, which maintained higher gross margins due to its enterprise user targeted products, including smartphones. Both the branding business and the ODP business are now equally important for TechFaith, while we believe the branding business can create more business opportunities longer-term."

Mr. Defu Dong, Chairman and CEO of TechFaith, commented, "We have achieved a return to more reasonable and stable growth in our business, with many promising growth initiatives well underway. And while our ODP business and branding businesses are performing well we want to replicate that success in our gaming business given the large existing opportunities in PC online, mobile and motion games. We have already built a strong platform to grow off with our team working hard to build our catalog of gaming titles. This is central to our efforts to build a larger customer base among loyal game players. Fortunately, TechFaith is in a position of operating strength with continued growth expected in each of our operating units, along with a continued strong balance sheet with US$3.60 per ADS in cash and cash equivalents. Our goal remains to further increase value for our shareholders as we drive our company to achieve the growth and profitability levels each operating unit is capable of."

Third Quarter 2010 Outlook

The below forecast reflects TechFaith's current and preliminary view, which is subject to change.

TechFaith currently expects revenue to be in the range of US$66.0 million to US$68.0 million for the third quarter of 2010, with a gross margin and operating expense levels similar to the second quarter of 2010.

The Company expects its ODP business to grow sequentially and year over year, as it launches three new mobile phones targeting the global market, in addition to the Company's existing product families. Within the Company's branding business, sales are planned in the third quarter for the Barbie and Disney mobile phones through Glomate Mobile (Beijing) Co., Ltd. TechFaith also expects QIGI to achieve growth sequentially and year over year as it provides tailored content for its mobile phones. Additionally, TechFaith plans to launch its first model with outdoor specialized content by the end of 2010. Meanwhile, the Company expects continuing growth in its gaming business above levels achieved in the second quarter 2010.

Investor Conference Call / Webcast Details

TechFaith will hold a conference call on Tuesday, August 17, 2010 at 7:00 p.m. U.S. Eastern Time (7:00 a.m. Wednesday, August 18, 2010 in Beijing). The dial-in phone number is +1-617-614-3670. The conference call passcode is 39014903. A live webcast of the conference call will also be available on TechFaith's website at www.techfaithwireless.com.

A replay of the call will be available approximately 2 hours after the conclusion of the live call through 11:30 p.m. U.S. Eastern Time on August 24, 2010, (11:30 a.m., August 25, 2010 in Beijing) by telephone at +1-617-801-6888. To access the replay, use passcode 88471016. A webcast replay will also be available at www.techfaithwireless.com.

About us

TechFaith (NASDAQ: CNTF) is a China-based original developed product ("ODP") provider focused on the original design and sales of mobile phone products. TechFaith aims to become a branded mobile phone specialist in differentiated market segments in the China market. TechFaith is also striving to build a leading PC and online gaming business through its wholly-owned subsidiary, 798 Entertainment Limited.

--  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) Windows-based
    smartphones and Pocket PC phones; 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.
--  TechFaith is aiming to become a branded mobile phone specialist for
    differentiated market segments in the China market, such as under its
    wholly-owned subsidiary brand name QIGI for smartphone business which
    targets enterprise users and operator tailored market, under Glomate
    brand, selling other brand names for girls and teenagers, under the
    TechFace brand name to target the market of outdoor sports enthusiasts.
--  TechFaith is targeting both the mobile and online PC gaming markets
    through its websites www.798uu.com and www.798game.com with gaming
    content developed internally, co-developed and licensed from third
    parties.

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," "outlook" and similar statements. Among other things, the business outlook and strategic and operational plans of TechFaith and management quotations 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, those 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
               2010         2009         2010         2009         2010

           -----------  -----------  -----------  -----------  -----------

Revenues:
ODP        $    54,438  $    49,846  $    56,336  $    98,516  $   110,774
Brand name
 phone
 sales           5,211            -        7,633            -       12,844

Game             1,257            -        1,534            -        2,791
           -----------  -----------  -----------  -----------  -----------
Total net
 revenues  $    60,906  $    49,846  $    65,503  $    98,516  $   126,409

Cost of
 revenues:
ODP        $    44,259  $    40,366  $    44,859  $    80,222  $    89,118
Brand name
 phone
 sales           3,154            -        4,752            -        7,906
Game                70            -           42            -          112
           -----------  -----------  -----------  -----------  -----------
Total cost
 of
 revenues  $    47,483  $    40,366  $    49,653  $    80,222  $    97,136

Gross
 Profit    $    13,423  $     9,480  $    15,850  $    18,294  $    29,273

Operating
 expenses:
General
 and
 administ-
 rative    $     2,947  $     3,479  $     3,193  $     5,219  $     6,140
Research
 and
 develop-
 ment            2,995        3,189        2,764        6,285        5,759
Selling and
 marketing       1,289          624        1,583        1,426        2,872
Exchange
 loss                -           21           20           35           20
           -----------  -----------  -----------  -----------  -----------
Total
 operating
 expenses  $     7,231  $     7,313  $     7,560  $    12,965  $    14,791

Government
 subsidy
 income            100           12           51           17          151

Income
 from
 operatio-
 ns        $     6,292  $     2,179  $     8,341  $     5,346  $    14,633

Interest
 expenses         (265)         (62)        (265)         (92)        (530)
Interest
 income            184          156          206          333          390
Other
 income, net         5           38          188           38          193
Change in
 fair
 value of
 derivatives
 embedded in
 convertible
 notes           3,343        2,113        1,266        2,113        4,609
Change in
 fair value
 of put
 option            (33)           -          (30)         (18)         (63)
           -----------  -----------  -----------  -----------  -----------
Income
 before
 income
 taxes     $     9,526  $     4,424  $     9,706  $     7,720  $    19,232
Income tax
 benefits
 (expenses)     (1,933)         106       (2,175)      (1,113)      (4,108)
           -----------  -----------  -----------  -----------  -----------
Net income $     7,593  $     4,530  $     7,531  $     6,607  $    15,124
Less: net
 income
 (loss)
 attributable
 to the
 noncontr-
 olling
 interest         (738)         (26)        (249)          18         (987)
           -----------  -----------  -----------  -----------  -----------
Net income
 attribut-
 able to
 TechFaith $     6,855  $     4,504  $     7,282  $     6,625  $    14,137
           ===========  ===========  ===========  ===========  =========== 

Net income
 attribut-
 able to
 TechFaith
 per share
  Basic    $      0.01  $      0.01  $      0.01  $      0.01  $      0.02
           ===========  ===========  ===========  ===========  ===========
  Diluted  $      0.01  $      0.01  $      0.01  $      0.01  $      0.02
           ===========  ===========  ===========  ===========  ===========

Net income
 attribute to
 TechFaith
 per ADS*
  Basic    $      0.15  $      0.10  $      0.15  $      0.15  $      0.30
           ===========  ===========  ===========  ===========  ===========
  Diluted  $      0.13  $      0.10  $      0.13  $      0.15  $      0.27
           ===========  ===========  ===========  ===========  ===========

Weighted
 average
 shares
 outstand-
 ing
  Basic    685,868,082  650,034,590  715,172,111  650,034,590  700,601,047
           ===========  ===========  ===========  ===========  ===========
  Diluted  811,983,427  679,148,185  841,286,432  664,671,776  826,715,923
           ===========  ===========  ===========  ===========  ===========





        CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
              UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In Thousands of U.S. Dollars)



                                           June 30,   March 31,  June 30,
                                             2009       2010       2010

                                           ---------- ---------- ----------
Assets
Current assets:
Cash and cash equivalents                  $  111,794 $  162,421 $  170,879
Restricted cash                                    81          -          -
Accounts receivable                            24,376     17,740     17,613
Notes receivable                                  693          -          -
Amounts due from a related party                7,144      2,622      4,103
Inventories                                    27,642     24,178     22,218
Prepaid expenses and other current assets      12,745     13,666     14,104
Deferred tax assets-current                        96          -          -
                                           ---------- ---------- ----------
Total current assets                       $  184,571 $  220,627 $  228,917
                                           ---------- ---------- ----------

Plant, machinery and equipment, net        $   22,589 $   20,245 $   19,666
Construction in progress                       23,498     23,965     24,195
Acquired intangible assets, net                   758      3,235      3,075
Deferred tax assets-noncurrent                    117          -          -
Goodwill                                          619      1,848      1,848
                                           ---------- ---------- ----------
Total assets                               $  232,152 $  269,920 $  277,701
                                           ========== ========== ==========

Liabilities and equity
Current liabilities:
Current portion of long term payable       $    1,028 $      687 $      687
Accounts payable                                6,042      9,952      9,727
Amounts due to related parties                    297        701         43
Accrued expenses and other current
 liabilities                                   11,726     10,408      9,277
Advance from customers                          6,771      5,494      7,351
Deferred revenue                                  773      1,031        889
Income tax payable                                149      2,221      2,366
                                           ---------- ---------- ----------
Total current liabilities                  $   26,786 $   30,494 $   30,340

Convertible notes and embedded derivatives      7,529     12,363     11,362
Deferred tax liability-noncurrent                   -        170        157
                                           ---------- ---------- ----------

Total liabilities                          $   34,315 $   43,027 $   41,859
                                           ---------- ---------- ----------


Equity
Paid in capital                            $       13 $       14 $       14
Additional paid-in capital                    105,848    126,292    126,292
Accumulated other comprehensive income         23,838     23,801     25,219
Statutory reserve                               8,542     10,993     10,993
Retained earnings                              58,605     62,721     70,003
                                           ---------- ---------- ----------
Total Techfaith shareholders' equity       $  196,846 $  223,821 $  232,521
                                           ---------- ---------- ----------
Noncontrolling interest                    $      991 $    3,072 $    3,321
                                           ---------- ---------- ----------
Total equity                               $  197,837 $  226,893 $  235,842
                                           ---------- ---------- ----------
Total liabilities and equity               $  232,152 $  269,920 $  277,701
                                           ========== ========== ==========

Contact Information

  • CONTACTS:
    In China:
    Jay Ji
    China Techfaith Wireless Communication Technology Limited
    Tel: 86-10-5822-8390
    ir@techfaith.cn

    In the U.S.:
    David Pasquale
    Global IR Partners
    Tel: +1 914-337-8801
    cntf@globalirpartners.com