SOURCE: China TechFaith

May 19, 2008 16:00 ET

TechFaith Reports First Quarter 2008 Results

BEIJING--(Marketwire - May 19, 2008) - China TechFaith Wireless Communication Technology Limited (NASDAQ: CNTF), an ODP (Original Developed Product) focused on research and development of cell phone solutions, today announced its unaudited financial results for the first quarter ended March 31, 2008.

Net revenues for the first quarter of 2008 were US$49.6 million, representing an 81.8% increase from US$27.3 million for the same period in 2007. Net revenues for the quarter rose by 8.5% sequentially, from US$45.7 million in the fourth quarter of 2007. Net revenues for the quarter exceeded prior guidance for net revenues, which was in the range of US$48 million to US$49 million, due to stronger than expected performance of the ODP business. Gross profit was US$9.7 million for the quarter, an increase of US$2.2 million, or 28.8%, compared to US$7.5 million for the same period last year. This was attributed to the stronger contribution from our ODP business during the quarter. Gross margin for the quarter decreased to 19.6%, compared to 27.7% during the year ago period. The decrease in gross margin was a result of the reduction of design revenue as a portion of total revenue and management's decision to proactively reduce inventory levels. Management believes that gross margins will improve in subsequent quarters. Operating expense was US$10.1 million for the quarter, a decrease of US$1.5 million, or 13.0%, compared to US$11.6 million for the same period last year. This decrease in operating expense was mainly attributed to continued cost cutting efforts and reduction of R&D costs. Net Income for the first quarter of 2008 was US$2.9 million or US$0.07 per weighted average outstanding ADS (basic and diluted), compared to net loss of US$3.4 million or (US$0.08) per weighted average outstanding ADS (basic and diluted) in the same period of 2007. The company was granted a government concession totaling US$2.4 million which was booked as other operating income. The income tax provision in the first quarter of 2008 was zero because the company's main operating entities were either not profitable or enjoying tax holidays.

Bob Huo, Deputy CEO of TechFaith, said, "We achieved revenue growth for the third consecutive quarter and are beginning to reap the rewards of our transition to an ODP provider model. We especially continue to make progress in the development and production of middle to high-end, tailor-made handsets with flexible order quantity for the global market. Further, we have taken steps to implement our PCS (Patent application and protection, Content, and Software solution) strategy, which helps us create higher entry barriers for our potential competitors, increase the average sales prices of our mobile products, and maintain our competitive edge in a rapidly developing industry."

Mr. Huo continued, "We grew revenues in our Smartphone, Feature phone, and Modules and Data Card segments by 5%, 15%, and 172%, respectively. Our 3G product sales increased and accounted for 30% of total revenues, with customers in the European market showing the most strength. We continue to grow in high-potential markets such as Europe, North America, Latin America, South East Asia, Africa, and the Middle East. To date, we have successfully launched six models of 3G phones and expect shipments to increase throughout the year. We received approval for an EVDO phone by an African operator through our customer, which will be the first EVDO product available to the African market. During the quarter, we also completed the TD-SCDMA China Test Approval, and our products will be shipped to the Chinese market in Q2 through our key customers. Additionally, our 5 million pixels camera phone and our TD-SCDMA smartphone working samples will be ready in Q2. We expect TechFaith will benefit from continued strong global ODP demand over the coming quarters, and at the same time, we expect to maintain our strict operating cost controls. Our goal is to further strengthen our supply chain management as we optimize our cost structure."

Mr. Defu Dong, TechFaith's Chairman and CEO, said, "In the content area, we are excited to have signed an agreement in March of this year with Epic Games China for the development of massive multiplayer online games. This agreement serves as an important milestone for our TechFaith Interactive business unit. Under this agreement two games are ready for demo and testing in Q2. The wireless gaming mobile demo will be ready in the third quarter and has the potential to generate significant revenues by the end of 2008."

We foresee an increase in growth and profitability for the remainder of 2008 as we execute on our business model with an emphasis on operational and cost efficiencies, continuing order amount, and healthy level of gross margin. As a result, we expect revenues in the second quarter of 2008 to be in the range of US$52 million to US$54 million.

Investor Conference Call / Webcast Details

The dial-in number for the live audio call beginning on May 19, 2008 at 7:00 p.m. U.S. Eastern Time (7:00 a.m., May 20, 2008 in Beijing) is +1-866-713-8564 (domestic) or +1-617-597-5312 (international). The passcode is 84465812. A live webcast of the conference call will be available on TechFaith's website at www.techfaithwireless.com.

A replay of the call will be available on May 19, 2008 at 9:00 p.m., U.S. Eastern Time (9:00 a.m., May 20, 2008 in Beijing) through midnight on May 26, 2008, U.S. Eastern Time (noon, May 27, 2008 in Beijing) at www.techfaithwireless.com and by telephone at +1-888-286-8010 (domestic) or +1-617-801-6888 (international). The passcode to access the replay is 65665802.

About TechFaith

TechFaith (NASDAQ: CNTF) is an original developed product provider focused on research and development of cell phone solutions. Based in China, TechFaith employs approximately 1,300 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 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
                                     December 31          March 31
                                         2007         2007         2008
                                     -----------  -----------  -----------
Revenues:
Design fees                          $     5,314  $    10,118  $     3,264
Royalty income                             1,059        2,795          534
Component sales                              586        2,965          731
Product sales                             38,697       11,402       45,031
Service income                                35            -           35
                                     -----------  -----------  -----------
Total net revenues                   $    45,691  $    27,280  $    49,595

Cost of revenues:
Design fees                          $     3,054  $     7,745  $     1,618
Component sales                            1,107        2,647          556
Product sales                             27,194        9,341       37,678
Service Cost                                  25            -           22
                                     -----------  -----------  -----------
Total cost of revenues               $    31,380  $    19,733  $    39,874

Gross Profit                         $    14,311  $     7,547  $     9,721

Operating expenses:
General and administrative           $     2,852  $     2,136  $     3,201
Research and development                   7,808        7,995        5,496
Selling and marketing                        868          916          853
Exchange loss                                790          542          534
                                     -----------  -----------  -----------
Total operating expenses             $    12,318  $    11,589  $    10,084

Other operating income               $        81  $         -  $     2,541

(Loss) income from operations        $     2,074 ($     4,042) $     2,178

Interest expense                             (26)         (13)          (9)
Interest income                              849        1,102          417
Other income, net                            121         (152)           3
Change in fair value of put option           (12)          17           15
                                     -----------  -----------  -----------
Income before income taxes           $     3,006 ($     3,088) $     2,604

Income tax                                    (3)           -            -
                                     -----------  -----------  -----------
Income before minority interests     $     3,003 ($     3,088) $     2,604
Minority interests                           223          506          259
Equity in loss of an affiliate                 -         (851)           -
                                     -----------  -----------  -----------
Net (loss) income                    $     3,226 ($     3,433) $     2,863
                                     ===========  ===========  ===========

Net income per ordinary share
  Basic                              $         - ($      0.01) $         -
                                     ===========  ===========  ===========
  Diluted                            $         - ($      0.01) $         -
                                     ===========  ===========  ===========

Net income per ADS*
  Basic                              $      0.07 ($      0.08) $      0.07
                                     ===========  ===========  ===========
  Diluted                            $      0.07 ($      0.08) $      0.07
                                     ===========  ===========  ===========

Weighted average ordinary shares
 outstanding
  Basic                              649,902,047  649,692,954  649,913,136
                                     ===========  ===========  ===========
  Diluted                            650,161,411  649,692,954  650,172,500
                                     ===========  ===========  ===========



Revenue Breakout                 1Q07     2Q07     3Q07     4Q07     1Q08
                               -------- -------- -------- -------- --------
Design fees
     International customers   $  9,463 $  4,811 $  2,687 $  2,415 $    625
     Domestic customers        $    655 $    374 $  2,738 $  2,899 $  2,639

Royalty
     International customers   $    300 $    461 $    194 $    287 $     10
     Domestic customers        $  1,851 $  1,427 $    925 $    483 $    524
     Component vendors         $    644 $    750 $    161 $    289 $      0

Component and products
     Smart Phone               $  4,014 $  6,557 $  8,688 $ 17,185 $ 18,123
     PCBA                      $  2,149 $  2,454 $    717 $     22 $      0
     Wireless module           $  1,452 $  7,202 $  2,483 $  1,377 $  3,752
     Feature phone             $  3,787 $  5,349 $ 18,153 $ 20,134 $ 23,156
     Other component sales     $  2,965 $  2,642 $  1,682 $    565 $    731

Service income                 $      - $      - $     18 $     35 $     35

                               -------- -------- -------- -------- --------
Total net revenues             $ 27,280 $ 32,027 $ 38,446 $ 45,691 $ 49,595
                               ======== ======== ======== ======== ========




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

                                      March 31,   December 31,  March 31,
                                         2007         2007         2008

                                     -----------  -----------  -----------
Assets
Current assets:
Cash and cash equivalents            $   104,174  $    84,754  $    76,295
Restricted cash                            5,120        3,389          119
Accounts receivable                       39,348       40,014       47,315
Amount due from related parties                -        1,101        3,708
Notes receivable                           1,932        4,020        2,310
Inventories                               13,624       50,763       49,028
Prepaid expenses and other current
 assets                                    6,029       10,116       10,070
                                     -----------  -----------  -----------
Total current assets                 $   170,227  $   194,157  $   188,845
                                     -----------  -----------  -----------

Deposits for acquisition of plant,
 machinery and equipment, and
 acquisition of intangible assets    $     5,413  $    10,177  $    11,131
Plant, machinery and equipment, net       30,202       28,275       27,969
Acquired intangible assets, net              302        1,646        1,591
Goodwill                                     606          606          606
Total assets                         $   206,750  $   234,861  $   230,142
                                     ===========  ===========  ===========

Liabilities and shareholders' equity
Current liabilities:
Current portion of Long term payable $       460  $     1,358  $     1,208
Accounts payable                           9,520       35,416       25,108
Amount due to related parties                  -          201           74
Accrued expenses and other current
 liabilities                              20,950       14,569       10,979
Advance from customers                     4,723        7,512        7,820
Deferred revenue                           3,517        1,541        1,824
Income tax payable                           137          142          146
                                     -----------  -----------  -----------
Total current liabilities            $    39,307  $    60,739  $    47,159

Long-term payable                    $       403  $       453  $       297
                                     -----------  -----------  -----------

Total liabilities                    $    39,710  $    61,192  $    47,456
                                     -----------  -----------  -----------

Minority interests                   $     2,354  $     1,660  $     1,401
Shareholders' equity
Ordinary shares                      $        13  $        13  $        13
Additional paid-in capital               110,233      110,327      110,351
Treasury stock                            (4,628)      (4,628)      (4,628)
Accumulated other comprehensive
 income                                    6,708       13,776       20,165
Statutory reserve                          6,093        6,813        6,813
Retained earnings                         46,267       45,708       48,571
                                     -----------  -----------  -----------
Total shareholders' equity           $   164,686  $   172,009  $   181,285
                                     -----------  -----------  -----------
Total liabilities and shareholders'
 equity                              $   206,750  $   234,861  $   230,142
                                     ===========  ===========  ===========

Contact Information

  • CONTACTS:
    In China:
    Mr. Jay Ji
    Tel: 86-10-5822-7390
    Email Contact

    In the U.S.:
    Joseph Villalta at The Ruth Group
    Tel:+646-536-7003
    Email Contact