SOURCE: China TechFaith

February 15, 2007 16:00 ET

TechFaith Reports Fourth Quarter and Fiscal Year 2006 Results

Company Sees Transition Period Approaching End; Targets Steady Growth in 2007

BEIJING -- (MARKET WIRE) -- February 15, 2007 -- China TechFaith Wireless Communication Technology Limited (NASDAQ: CNTF), a handset application software and handset solution provider based in China, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2006.

Net revenue for the fourth quarter of 2006 was US$29.1 million, as compared to US$24.1 million for the same period in 2005, and a 69.0% sequential growth over Q3 2006. Design fee revenue for the fourth quarter of 2006 was US$4.3 million, as compared to US$14.8 million for the same period in 2005. Royalty income in the fourth quarter of 2006 was US$1.9 million, as compared to US$4.1 million for the same period in 2005. Revenue from products sales was US$23.0 million in the fourth quarter of 2006, as compared to US$5.3 million in the same period in 2005. In the fourth quarter of 2006, approximately 56.8% of revenue from products sales was from sales of smart phones, 17.6% from sales of wireless modules, 14.1% from sales of PCBAs and 11.5% from sales of other component products. Net loss for the fourth quarter of 2006 was US$6.7 million or US$0.15 per weighted average outstanding ADS (basic and diluted), compared to net income of US$10.5 million or US$0.24 per weighted average outstanding ADS (basic and diluted) in the same period in 2005. Results for the fourth quarter include a one-time expense of approximately US$1.4 million related to the write-off of leasehold improvement and an expense of US$1.2 million foreign exchange currency loss due to the appreciation of the RMB against the U.S. dollar.

Net revenue for the fiscal year 2006 was US$80.8 million, as compared to US$90.1 million for the fiscal year 2005. Design fee revenue for the full year 2006 was US$29.9 million, as compared to US$63.0 million for the full year 2005. Royalty income for the full year 2006 was US$7.7 million, as compared to US$15.7 million for the full year 2005. Revenue from products sales was US$43.3 million for the full year 2006, as compared to US$11.4 million for the full year 2005. For the full year 2006, approximately 41.7% of revenue from products sales was from sales of smart phones, 29.9% from sales of wireless modules, 15.1% from sales of PCBAs and 13.3% from sales of other component products. Net loss for the full year 2006 was US$8.8 million or US$0.20 per weighted average outstanding ADS (basic and diluted), compared to net income of US$41.4 million or US$1.03 per basic weighted average outstanding ADS and US$1.00 per diluted weighted average outstanding ADS in 2005.

Defu Dong, TechFaith's Chairman and CEO, said, "In 2006, we expanded internationally, significantly diversified our customer base, enriched our product portfolio by taking advantage of our handset design expertise, and made substantial progress in developing and utilizing our advanced technologies. Quarterly sequential revenue growth has resumed and we expect the growth to continue. Looking into 2007, we expect steady growth on a quarterly basis in our smartphone business now that we have successfully addressed most procurement and logistic problems. Our feature phone solution started to contribute with contracts from regional distributors and the recently announced new international carrier contracts. On the customer diversification front, we successfully expanded globally beyond Japan and the historic base of domestic Chinese companies. We ended the year with 16 international customers compared to 7 in 2005, with 66% of revenue coming from international customers compared to 64% in 2005; revenue from international markets was 38% in 2006 compared to 5% in 2005. In terms of new technology, our TD-SCDMA effort is on track. EDGE, HSDPA and EVDO handsets were launched in the fourth quarter. Importantly, we continue to make inroads with Tier 1 customers and expect to achieve sustained profit and revenue growth in 2007."

Gilbert Lee, President and Chief Operating Officer of TechFaith, said, "While revenue in the quarter came as expected, our costs were significantly higher than expected. We are implementing cost-down measures for all other areas; much of the higher cost was due to non-recurring issues. Based on current customer forecasts and our business momentum, we believe the transition period is approaching an end. We are confident in our outlook and believe the growth trend will continue. We remain very positive on the smartphone, tailor made feature phone solution and global handset OEM opportunity given the increased transactions we have established in these important segments. Our balance sheet remains strong with a balance of US$118.4 million in cash, cash equivalents and restricted cash at the end of the fourth quarter. Challenges clearly remain, but we are very optimistic about our prospects in 2007. We expect the first quarter to be flat with revenue in the range of approximately US$28 million to US$30 million mainly due to a shorter quarter after Christmas season and the traditional Chinese New Year."

China TechFaith's ADSs, each of which represents 15 ordinary shares of China TechFaith, are currently trading on the Nasdaq Global Market under the symbol "CNTF."

Investor Conference Call / Webcast Details

The dial-in number for the live audio call beginning on February 15, 2007 at 7:00 p.m. U.S. Eastern Time (8:00 a.m., February 16, 2007 in Beijing) is 1-800-510-0178 (domestic) or 1-617-614-3450 (international). The passcode is 24967534. 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 on February 15, 2007 at 9:00 p.m., U.S. Eastern Time (10:00 a.m., February 16, 2007 in Beijing) through midnight on February 22, 2007, U.S. Eastern Time (1 p.m., February 23, 2007 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 81859968.

About TechFaith

TechFaith (NASDAQ: CNTF) is one of the largest handset application software and handset solution providers. Based in China, the Company employs approximately 2,400 professionals, of whom 90% are engineers. TechFaith's three business units are handset design, application software, and smartphone and pocket PC. With the capability of developing MMI / UI software on GSM/GPRS, CDMA1X, EVDO, WCDMA/UMTS, HSDPA and TD-SCDMA communication technologies, TechFaith is able to provide MMI/UI software packages that fulfill the specifications of handset brand owners and major global operators. Having a full range of wireless application software including WAP, Java, MMS, WWW browser, SyncML and DRM, TechFaith is also providing total solutions for upper layer software of handsets. In addition, TechFaith is developing smart phone software based on open operating systems including Linux and Windows Mobile, and capable of implementing high-end smart phones integrating Bluetooth, WiFi, high megapixel cameras, etc. based on different communication technologies according to special requirements of customers. TechSoft, the Company's newly established entity with Qualcomm's capital investment, is focusing on the development of application software for wireless devices. 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" 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, mobile handset brand owners' discontinuation or reduction of the use of independent design houses, TechFaith's ability to retain existing or attract additional international customers, TechFaith's earnings or margin declines, failure of competing against new and existing competitors, 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

                CONDENSED CONSOLIDATED STATEMENTS OF INCOME
              (In Thousands of U.S. Dollars, except share and
              per share/ADS data and unless otherwise stated)


                           Three Months Ended       Twelve Months Ended
                              December 31,              December 31,
                            2005         2006         2005         2006
                        -----------  -----------  -----------  -----------
                                                   (audited)
                        (unaudited)  (unaudited)    (note)     (unaudited)

Revenues
Design fees             $    14,777  $     4,293  $    63,020  $    29,864
Royalty income                4,081        1,864       15,651        7,674
Products sales                5,251       22,992       11,439       43,266
                        -----------  -----------  -----------  -----------
Total net revenues      $    24,109  $    29,149  $    90,110  $    80,804

Cost of revenues
Design fees             $     6,135  $     2,890  $    26,258  $    20,090
Royalty income                    -            -            -            -
Products sales                4,009       18,107        8,803       35,107
                        -----------  -----------  -----------  -----------
Total cost of revenues  $    10,144  $    20,997  $    35,061  $    55,197

Gross Profit            $    13,965  $     8,152  $    55,049  $    25,607

Operating expenses:
General and
 administrative         $    (3,249) $    (4,867) $    (9,574) $   (13,923)
Research and
 development                   (896)      (7,825)      (3,447)     (21,970)
Selling and marketing          (372)        (648)      (1,269)      (2,260)
Exchange loss                     -       (1,159)           -       (1,187)
Write off of leasehold
 improvement                      -       (1,388)           -       (1,388)

                        -----------  -----------  -----------  -----------
Total operating
 expenses               $    (4,517) $   (15,887) $   (14,290) $   (40,728)

Income (loss) from
 operation              $     9,448  $    (7,735) $    40,759  $   (15,121)
Interest expenses                            (14)        (583)         (18)
Other income, net             1,031        1,403        4,035        5,300
Change in fair value of
 put and call option                        (273)      (1,303)        (269)
                        -----------  -----------  -----------  -----------
Income before income
 taxes                  $    10,479  $    (6,619) $    42,908  $   (10,108)
Income tax                      (54)         (85)         (54)        (100)
                        -----------  -----------  -----------  -----------
Income before minority
 interests              $    10,425  $    (6,704) $    42,854  $   (10,208)
Minority interest                65          447       (1,469)       1,808
Equity in loss of an
 affiliate                        -         (393)           -         (393)
                        -----------  -----------  -----------  -----------
Net income (loss)       $    10,490  $    (6,650) $    41,385  $    (8,793)
                        ===========  ===========  ===========  ===========

Net income (loss) per
 ordinary share
  Basic                 $      0.02  $     (0.01) $      0.07  $     (0.01)
                        ===========  ===========  ===========  ===========
  Diluted               $      0.02  $     (0.01) $      0.07  $     (0.01)
                        ===========  ===========  ===========  ===========
Net income (loss) per
 ADS*
  Basic                 $      0.24  $     (0.15) $      1.03  $     (0.20)
                        ===========  ===========  ===========  ===========
  Diluted               $      0.24  $     (0.15) $      1.00  $     (0.20)
                        ===========  ===========  ===========  ===========
Weighted average
 ordinary shares
 outstanding
  Basic                 658,183,409  650,484,876  604,011,009  656,255,882
  Diluted               658,183,409  650,484,876  626,626,671  656,255,882
                        ===========  ===========  ===========  ===========


*: Each ADS represents 15 ordinary shares





Revenue Breakout                  1Q05       2Q05       3Q05       4Q05
                                ---------- ---------- ---------- ----------
Design fees
        International customers $   14,062 $   12,203 $   10,238 $    9,166
        Domestic customers      $    2,472 $    2,872 $    6,396 $    5,610

Royalty
        International customers $      181 $      432 $      387 $      349
        Domestic customers      $    2,189 $    3,311 $    2,792 $    2,778
        Component vendors       $      730 $      670 $      878 $      955

Products sales
        Smart Phone                      -          -          -          -
        PCBA                             -          -          -          -

        Wireless module         $       59 $      639 $    1,375 $    3,420
        Other component sales   $    1,787 $    1,086 $    1,242 $    1,831

                                ---------- ---------- ---------- ----------
Total net revenues              $   21,480 $   21,213 $   23,308 $   24,109
                                ========== ========== ========== ==========



Revenue Breakout                  1Q06       2Q06       3Q06       4Q06
                                ---------- ---------- ---------- ----------
Design fees
        International customers $    5,737 $    5,299 $    3,546 $    1,883
        Domestic customers      $    3,253 $    7,151 $      585 $    2,410

Royalty
        International customers $      454 $      918 $      184 $      141
        Domestic customers      $      638 $      885 $    1,285 $    1,723
        Component vendors       $      757 $      394 $      295          -

Products sales
        Smart Phone                      - $    1,906 $    3,074 $   13,055
        PCBA                             - $      271 $    3,016 $    3,243

        Wireless module         $    1,304 $    2,776 $    4,808 $    4,039
        Other component sales   $      689 $    1,970 $      460 $    2,655

                                ---------- ---------- ---------- ----------
Total net revenues              $   12,832 $   21,570 $   17,253 $   29,149
                                ========== ========== ========== ==========







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

                                               December 31,   December 31,
                                                  2005           2006
                                              -------------- -------------
                                                 (audited)    (unaudited)
                                                  (note)

Assets
Current assets
Cash and cash equivalents                     $      137,207 $     113,172
Restricted Cash                                            -         5,205
Account Receivable                                    34,060        37,229
Notes receivable                                       1,070         2,234
Inventories                                            4,974         8,546
Prepaid expenses and other current assets                926         9,120
                                              -------------- -------------
Total current assets                          $      178,237 $     175,506
                                              -------------- -------------

Deposit for acquisition of plant, machine and
 equipment, and acquired intangible assets    $          597 $       5,905
Plant, machinery and equipment, net                   14,483        25,092
Acquired intangible assets, net                          846           355
Goodwill                                                   -             6
Investment in an affiliate                                 -           850
                                              -------------- -------------
Total assets                                  $      194,163 $     207,714
                                              ============== =============

Liabilities and shareholders' Equity
Current liabilities
Account Payable                               $        3,294 $       6,678
Notes Payable                                              -           144
Accrued expenses and other current
 liabilities                                           9,714        19,087
Advance from customers                                 2,273        10,631
Profit tax payable                                        54           140
                                              -------------- -------------
Total current liabilities                     $       15,335 $      36,680
                                              -------------- -------------

Long term payable                             $            - $         841
Minority interests                                     2,975         3,843
Shareholders' equity
Paid in capital                                           13            13
Additional paid in capital                           109,798       105,651
Deferred share based compensation                          -          (243)
Accumulated other comprehensive income                 1,456         5,136
Retained Earnings                                     64,586        55,793
                                              -------------- -------------
Total shareholders equity                     $      175,853 $     166,350
                                              -------------- -------------
Total Liabilities and shareholders' Equity    $      194,163 $     207,714
                                              ============== =============




         CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
         UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                      (In Thousands of U.S. Dollars)


                         For Three Months Ended   For Twelve Months Ended
                              December 31,              December 31,
                            2005         2006         2005         2006
                        -----------  -----------  -----------  -----------
                                                   (audited)
                        (unaudited)  (unaudited)    (note)     (unaudited)

Cash flows from
 operating activities:

Net income              $    10,490  $    (6,650) $    41,385  $    (8,793)

Adjustments to
 reconcile net income
 to net cash (used in)
 provided by operating
 activities                  (6,821)      (3,407)     (24,435)      14,077

                        -----------  -----------  -----------  -----------
Net cash (used in)
 provided by operating
 activities             $     3,669  $   (10,057) $    16,950  $     5,284
                        -----------  -----------  -----------  -----------

Cash flows from
 investing activities:

Deposit paid for
 acquisition of and
 purchase of plant,
 machinery and
 equipment              $      (597) $      (959) $      (597) $    (6,979)

Purchase of plant,
 machinery and
 equipment                   (1,275)      (2,621)      (8,832)     (17,656)

Purchase of acquired
 intangible assets                -            -         (273)           -

Net proceed from sale
 of marketable
 securities                       -            -        4,160            -

Investment in an
 affiliate                        -            -            -       (1,243)

Proceeds on disposal of
 plant, machinery and
 equipment                        8           28           13           29

Increase in restricted
 cash                             -       (2,262)           -       (5,205)

Net cash used in
 investing activities   $    (1,864) $    (5,814) $    (5,529) $   (31,054)
                        -----------  -----------  -----------  -----------

Net cash (used in)
 provided by financing
 activities:            $         -  $    (4,629) $    89,259  $    (1,945)
                        -----------  -----------  -----------  -----------

Effect of exchange rate
 changes                $       203  $     2,337  $     1,441  $     3,680

Net increase (decrease)
 in cash and
 equivalents                  2,008      (18,163)     102,121      (24,035)

Cash and equivalents,
 beginning of the
 period                     135,199      131,335       35,086      137,207

                        -----------  -----------  -----------  -----------
Cash and equivalents,
 end of the period      $   137,207  $   113,172  $   137,207  $   113,172
                        ===========  ===========  ===========  ===========


Note: Information extracted and derived from the audited financial
      information included in the company's annual report 2005.

Contact Information

  • CONTACTS:

    In China:
    Ms. Helen Zhang
    Tel: 86-10-5822-7390
    Email Contact

    In the U.S.:
    David Pasquale
    EVP at The Ruth Group
    Tel:+646-536-7006
    Email Contact