SOURCE: China TechFaith

China Techfaith

November 23, 2009 16:00 ET

TechFaith Reports Third Quarter 2009 Financial Results

BEIJING--(Marketwire - November 23, 2009) -


    Revenue Beats Prior Guidance; Gross Margin Improves to 19.5%
    Operating Profit Increases by 156.4% Compared with the Previous Quarter
    Company Expects Continued Sequential Growth in the Fourth Quarter Led by
    Robust Feature Phone, Smartphone and Wireless Data Card Sales
    

China Techfaith Wireless Communication Technology Limited (NASDAQ: CNTF) ("TechFaith" or the "Company") today announced its unaudited financial results for the third quarter ended September 30, 2009.

For the third quarter of 2009, TechFaith reported net revenues of US$52.8 million, a 5.9% increase compared to US$49.8 million in the previous quarter. This is above the high end of the Company's prior guidance for third quarter of 2009 revenues, which was in the range of US$47 million to US$52 million. Gross profit for the third quarter of 2009 was US$10.3 million, an 8.4% increase compared to US$9.5 million in the previous quarter. Gross margin for the third quarter of 2009 was 19.5% compared to 19.0% in the previous quarter.

Operating expense for the quarter was US$5.0 million, a 32.3% decrease compared to US$7.3 million in the previous quarter and a 55.7% decrease compared to US$11.2 million in the third quarter of 2008.

Operating income for the third quarter of 2009 was US$5.6 million, a 156.4% increase compared to US$2.2 million in the second quarter of 2009 and an even larger increase over US$0.28 million in the third quarter of 2008.

Net loss attributable to TechFaith for the third quarter of 2009 was US$3.4 million. This compares to net income of US$4.5 million attributable to Techfaith in the second quarter of 2009, and compares to net income of US$0.45 million in the third quarter of 2008. The net loss attributable to TechFaith for the third quarter of 2009 included a US$9.2 million non-cash charge as a result of change in fair value of the derivatives associated with a convertible debt.

Defu Dong, TechFaith's Chairman and CEO, said, "In the third quarter we achieved better than expected results due to our team's execution on opportunities in our core original developed product business. Revenue growth in our smartphone business was led by our high-end models, which carry a higher average selling price in the domestic China market. Feature phone sales increased significantly due to the increased sales of our high-end GSM phones and dual mode WCDMA plus GSM phones and the continued sales of our 3G data cards in China. In the international market, we made further progress in selling our high-end GSM phones into Latin America and South East Asia, selling our dual-mode phones into Europe, and selling our 3G phones and data cards into South East Asia. We continue to expect even better performance from our original developed product business moving forward based on anticipated longer-term growth in China's 3G market and certain international markets, combined with the recovery already underway in the global mobile phone market."

"We continue to make considerable progress in our branded phone strategy, under which we will launch tailored models into specific market segments using our subsidiary's brand or a relevant licensed brand name. In line with our strategy, we announced at the end of Q3 2009 that TechFaith would set up a new company to license well-known international brands for high-end, brand-name mobile phones that target fashion-conscious and high-end mobile phone users, teenagers and sports fans. TechFaith also expects to close its acquisition of QiGi by early 2010. This is an important transaction for us in our efforts to target enterprise users and operator tailored customers. We believe the branding business will lead to other business opportunities for TechFaith over the long term with higher gross margins."

"TechFaith continues to make significant progress in its mobile and PC online gaming business. We continue to develop our own proprietary content for both mobile and PC online gamers, while also working with third party developers. Our approach has led to some very encouraging initial achievements, from securing investment backing earlier this year to the recently announced agreement with several Chinese mobile phone companies to build in our games with the service fee payments for the mobile phone games. As a result, we expect our mobile phone gaming business to realize initial revenues in the fourth quarter this year."

Fourth Quarter 2009 Outlook

TechFaith currently expects revenues to be in the range of US$52 million to US$55 million for the fourth quarter of 2009, including incremental revenues from the Company's mobile gaming business. The Company is targeting initial profitability of its mobile gaming business in the fourth quarter of 2009. This forecast reflects TechFaith's current and preliminary view, which is subject to change.

Conference Call

TechFaith will hold a call on Monday, November 23, 2009 at 7:00 p.m. U.S. Eastern Time (8:00 a.m. November 24, 2009 in Beijing), with dial in phone number +1-617-213-3523 and conference call passcode 97135492. 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 one hour after the conclusion of the live call through 12:00 p.m. on November 30, 2009, U.S. Eastern Time (1:00 a.m. December 1, 2009 in Beijing) by telephone at +1-617-801-6888. To access the replay, use passcode 76917985. A webcast replay will also be available at www.techfaithwireless.com.

About TechFaith

TechFaith (NASDAQ: CNTF) is a China-based original developed product provider focused on the original design and sales of mobile phone products. TechFaith is also striving to build a leading PC and online gaming business through its wholly-owned subsidiary, 798 Entertainment Limited. 798 Entertainment Limited currently engages in providing self-developed as well as co-developed and licensed cell phone contents.

    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 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               Nine Months Ended
                 September 30          June 30          September 30
           ------------------------  -----------  ------------------------
               2009        2008         2009         2009         2008
                            (As                                   (As
               (1)      adjusted)(2)     (1)          (1)      adjusted)(2)
           -----------  -----------  -----------  -----------  -----------
Revenues:
Handset
 design    $       998  $     1,774  $     1,657  $     3,310  $    11,955
Product
 sales          51,801       49,036       48,036      147,852      145,040
Wireless
 software and
 applications        -            -          153          153            -
           -----------  -----------  -----------  -----------  -----------
Total net
 revenues  $    52,799  $    50,810  $    49,846  $   151,315  $   156,995

Cost of
 revenues:
Handset
 design    $       942  $     1,908  $     1,082  $     2,832  $     6,761
Product
 sales          41,577       39,576       39,284      119,909      117,252
Total cost of
 revenues  $    42,519  $    41,484  $    40,366  $   122,741  $   124,013

Gross
 Profit    $    10,280  $     9,326  $     9,480  $    28,574  $    32,982

Operating
 expenses:
General and
 administ-
 rative    $     1,459  $     6,143  $     3,479  $     6,678  $    12,121
Research and
 development     2,556        3,462        3,189        8,841       15,583
Selling and
 marketing         987        1,676          624        2,413        3,829
Exchange
 loss (gain)       (52)        (100)          21          (17)         415
           -----------  -----------  -----------  -----------  -----------
Total
 operating
 expenses  $     4,950  $    11,181  $     7,313  $    17,915  $    31,948

Government
 subsidy
 income            257        2,136           12          274        4,699

Income from
operations $     5,587  $       281  $     2,179  $    10,933  $     5,733

Interest
 expense          (165)          (5)         (62)        (257)         (21)
Interest
 income            165          405          156          498        1,321
Other income
 (expense), net    (94)        (196)          38          (56)        (211)
Change in
 fair
 value of
 derivatives
 associated with
 Convertible
 Debt           (9,214)           -        2,113       (7,101)           -
Change in
 fair
 value of
 put option        (39)        (201)           -          (57)        (192)
           -----------  -----------  -----------  -----------  -----------
Income
 (Loss)
 before
 income
 taxes     $    (3,760) $       284  $     4,424  $     3,960  $     6,630
Income tax
 benefit
 (expenses)     (1,314)         (21)         106       (2,427)         (21)
           -----------  -----------  -----------  -----------  -----------
Net (loss)
 income    $    (5,074) $       263  $     4,530  $     1,533  $     6,609
Less: net
 income
 (loss)
 attributable
 to the
 noncontrolling
 interest(2)     1,674          188          (26)       1,692          568
           -----------  -----------  -----------  -----------  -----------
Net income
 (loss)
 attributable
 to
 Techfaith $    (3,400) $       451  $     4,504  $     3,225  $     7,177
           ===========  ===========  ===========  ===========  ===========

Net income
 (loss)
 attributable to
 Techfaith
 per share
  Basic   $      (0.01) $      0.00  $      0.01  $      0.01  $      0.01
           ===========  ===========  ===========  ===========  ===========
  Diluted $      (0.01) $      0.00  $      0.01  $      0.01  $      0.01
           ===========  ===========  ===========  ===========  ===========

Net income
 (loss)
 attributable to
 Techfaith
 per ADS*
  Basic    $     (0.08) $      0.01  $      0.10  $      0.07  $      0.17
           ===========  ===========  ===========  ===========  ===========
  Diluted  $     (0.08) $      0.01  $      0.10  $      0.07  $      0.17
           ===========  ===========  ===========  ===========  ===========

Weighted
 average
 shares
 outstanding
  Basic    650,116,398  650,027,078  650,034,590  650,062,159  649,951,394
           ===========  ===========  ===========  ===========  ===========
  Diluted  650,116,398  650,055,184  679,148,185  650,066,429  650,037,724
           ===========  ===========  ===========  ===========  ===========



Revenue Breakout     1Q08    2Q08    3Q08    4Q08    1Q09    2Q09    3Q09
                    ------- ------- ------- ------- ------- ------- -------
Handset design
     Design fees    $ 3,264 $ 4,656 $ 1,051 $ 6,517 $   186 $   645 $   449
     Royalty        $   534 $   277 $   166 $   181 $     - $   245 $   102
     Components
      sales related
      to design     $   731 $   520 $   544 $   465 $   469 $   745 $   446
     Service income $    35 $   164 $    13 $     5 $     - $    22 $     1

Product sales
     Smart Phone    $18,123 $26,979 $29,367 $25,483 $27,186 $23,061 $23,750
     Feature phone  $23,156 $22,774 $18,525 $17,880 $20,190 $16,038 $22,442
     Wireless
      module        $ 3,752 $ 1,220 $ 1,035 $ 1,324 $   639 $ 8,937 $ 5,497
     Other
      components    $     - $     - $   109 $     - $     - $     - $   112

Wireless software
 and applications   $     - $     - $     - $     - $     - $   153 $     -
                    ------- ------- ------- ------- ------- ------- -------
Total net revenues  $49,595 $56,590 $50,810 $51,855 $48,670 $49,846 $52,799
                    ======= ======= ======= ======= ======= ======= =======


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

                                  September 30, September 30,
                                      2009          2008     June 30, 2009
                                                    (As
                                      (1)       adjusted)(2)      (1)
                                  ------------- ------------  -------------
Assets
Current assets:
Cash and cash equivalents         $     128,937 $    103,578  $     111,794
Restricted cash                              81           80             81
Accounts receivable                      24,175       40,447         24,376
Amount due from related parties           7,041        5,609          7,144
Notes receivable                              -          101            693
Inventories                              26,192       43,022         27,642
Prepaid expenses and other
 current assets                          15,292       12,804         12,745
Deferred tax assets-current                 127            -             96
                                  ------------- ------------  -------------
Total current assets              $     201,845 $    205,641  $     184,571
                                  ------------- ------------  -------------

Plant, machinery and equipment,
 net                              $      21,616 $     26,345  $      22,589
Construction in progress                 23,548       15,655         23,498
Acquired intangible assets, net             665        1,747            758
Deferred tax assets-noncurrent               75            -            117
Goodwill                                    619          606            619
                                  ------------- ------------  -------------
Total assets                      $     248,368 $    249,994  $     232,152
                                  ============= ============  =============

Liabilities and shareholders'
 equity
Current liabilities:
Current portion of Long term
 payable                          $         916 $      1,185  $       1,028
Accounts payable                          5,817       40,569          6,042
Amount due to related parties               153          475            297
Accrued expenses and other
 current liabilities                      9,409        8,874         11,726
Advance from customers                    9,977        5,941          6,771
Deferred revenue                            945        1,372            773
Income tax payable                        1,453          171            149
                                  ------------- ------------  -------------
Total current liabilities         $      28,670 $     58,587  $      26,786

Convertible debt                         16,907            -          7,529

Total liabilities                 $      45,577 $     58,587  $      34,315
                                  ------------- ------------  -------------

Shareholders' equity
Ordinary shares                   $          13 $         13  $          13
Additional paid-in capital              114,275      110,513        105,848
Treasury stock                                -       (4,628)             -
Accumulated other comprehensive
 income                                  23,881       24,719         23,838
Statutory reserve                         8,542        6,813          8,542
Retained earnings                        55,205       52,885         58,605
                                  ------------- ------------  -------------
Total CNTF shareholders' equity   $     201,916 $    190,315  $     196,846
                                  ------------- ------------  -------------
Noncontrolling interest (2)       $         875 $      1,092  $         991
                                  ------------- ------------  -------------
Total shareholders' equity        $     202,791 $    191,407  $     197,837
                                  ------------- ------------  -------------
Total liabilities and
 shareholders' equity             $     248,368 $    249,994  $     232,152
                                  ============= ============  =============


(1) Effective January 1, 2009, the Company adopted the authoritative
    guidance issued by the FASB that changes the accounting and reporting
    for non-controlling interests, which was retrospectively applied. This
    guidance requires non-controlling interests to be separately presented
    as a component of stockholders' equity on the unaudited condensed
    consolidated financial statements

(2) September 30, 2008 balances were extracted from the form 6-K for the
    quarters ended September 30, 2008, as adjusted resulting from the
    adoption of the authoritative guidance issued by the FASB that changes
    the accounting and reporting for non-controlling interests.

*   ADS: American depositary shares. 1 ADS is equal to 15 ordinary shares.

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