SOURCE: China TechFaith

China Techfaith

March 15, 2010 16:00 ET

TechFaith Reports Fourth Quarter and Full Year 2009 Financial Results

BEIJING--(Marketwire - March 15, 2010) - China Techfaith Wireless Communication Technology Limited (NASDAQ: CNTF)

Highlights:

--  Fourth quarter revenues increased by 13.3% from the third quarter of
    2009 and by 15.2% year-over-year to US$59.8 million.
--  Fourth quarter net income increased to US$3.1 million from a net loss
    US$3.4 million in the third quarter of 2009.
--  Full year 2009 revenue increased by 1.1% year-over-year to US$211.1
    million.
--  Full year 2009 operating expense reduced by 37.9% year-over-year to
    US$24.9 million.

China Techfaith Wireless Communication Technology Limited (NASDAQ: CNTF) ("TechFaith" or the "Company") today announced its unaudited financial results for the fourth quarter and the full year ended December 31, 2009.

For the fourth quarter of 2009, TechFaith reported net revenue of US$59.8 million, a 13.3% increase compared to US$52.8 million in the third quarter of 2009 and a 15.2% increase compared to US$51.9 million in the same period of last year. Gross profit for the fourth quarter of 2009 was US$9.6 million, a 6.8% decrease compared to US$10.3 million in the previous quarter, a 14.3% increase compared to US$8.4 million in the same period last year. Gross margin for the fourth quarter of 2009 was 16.1% compared to 19.5% in the previous quarter and 16.2% in the same quarter last year. The decline in gross profit and gross margin was primarily due to the change in our product mix in the fourth quarter of 2009, as a result of which we generated a higher percentage of sales from feature phone products with lower average selling prices and lower margins compared with our other products. Operating expense for the fourth quarter was US$7.0 million, compared to US$5.0 million in the third quarter of 2009 and US$8.2 million in the same quarter last year. We recorded a US$0.6 million allowance for bad debt in the fourth quarter of 2009, while we did not incur such allowance in the third quarter of 2009 and recorded an allowance at the amount of US$1.0 million in the fourth quarter of 2008. Operating income for the fourth quarter of 2009 was US$2.9 million compared to US$5.6 million in the third quarter of 2009 and US$1.0 million in the fourth quarter of last year. Net income for the fourth quarter of 2009 was US$3.1 million compared to net loss US$3.4 million in the third quarter of 2009 and net income US$0.8 million in the fourth quarter of last year. The net income for the fourth quarter of 2009 included a US$1.8 million non-cash gain as a result of change in fair value of the derivatives associated with a convertible debt issued in 2009.

For the full year ended December 31, 2009, TechFaith reported total revenue of US$211.1 million, a 1.1% increase compared to US$208.9 million for the full year 2008. Operating expense for the full year 2009 was US$24.9 million, a 37.9% decrease compared to US$40.1 million for the full year 2008. Income from operations for the full year 2009 was US$13.8 million, a 109.1% increase compared to US$6.6 million for the full year 2008. Net income for the full year 2009 was US$6.3 million, or US$0.15 and US$0.14 per basic and diluted weighted average outstanding ADS, compared to a net income of US$8.0 million, or US$0.18 per weighted average outstanding ADS (basic and diluted) for the full year 2008. The decline in net income reflects a non-cash charge of US$5.3 million as a result of change in fair value of the derivatives associated with a convertible debt issued in 2009.

Defu Dong, TechFaith's Chairman and CEO, said, "In 2009, we made considerable progress in our efforts to stabilize our core business, to establish our new mobile and online gaming businesses and to streamline our operating expenses. As a result of our efforts, revenues were stable in our original developed products ("ODP") business, with 6.5% growth in the Smartphone sales year over year and high sales of feature phones in the Latin American and European markets year over year. We gained traction with our differentiated ODP business model by promoting middle to high-end products at more competitive pricing. In addition, we had improved sales of 3G products in China and improved sales of GSM products in Latin America and Southeast Asia in 2009. We are effectively controlling our operating expenses through improved R&D efficiency and human resources management. We will continue to work on margin improvement in our core business and initiate new marketing initiatives to develop local brands and to provide customized product offerings for distributors and operators."

"We are pleased with the company's significant progress in our gaming business throughout 2009. The Company recognized revenue in mobile build-in game service and mobile game development contract of $0.5 million in the fourth quarter of 2009. In our PC online gaming business, we now have three games close to completion as most of the development work has been finalized. We currently expect to launch all three games in the first half year of 2010. This follows the official launch of our first MMORPG PC online game, Fairy Online, into open beta version at the end of January, which received a positive response from game players. We are also encouraged by the progress our team is making in implementing new technologies, such as motion sensor games. We expect to continue to make progress as we move from an entrepreneurial start-up to an established gaming company with a strong title catalog and new title development pipeline."

Mr. Dong further commented, "We will continue our focus on the ODP, branding and gaming businesses in 2010. In the ODP business, we will continue to provide middle to high-end product to our ODP business partners in China and overseas markets. For the branding business, we will use the QIGI brand to promote our smartphone brand in China and to promote fashionable mobile phone products under the Barbie brand name and potentially other brands. For our gaming business, we are targeting at total launching seven PC online games in 2010. We expect continuing progress and success in our mobile gaming business, and are optimistic given the positive potential impact on the company's profitability."

First Quarter 2010 Outlook

TechFaith currently expects revenue to be in the range of US$60 million to US$62 million for the first quarter of 2010. This forecast reflects TechFaith's current and preliminary view, which is subject to change.

Investor Conference Call / Webcast Details

TechFaith will hold a conference call on Monday, March 15, 2010 at 7:00 p.m. U.S. Eastern Time (7:00 a.m. March 16, 2010 in Beijing), is +1-617-786-2964. The conference call passcode is 76367891. 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 March 22, 2010, (11:30 a.m., March 23, 2010 in Beijing) by telephone at +1-617-801-6888. To access the replay, use passcode 93952015. 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            Twelve Months Ended
                  December 31       September 30        December 31
           ------------------------  -----------  ------------------------
               2009        2008         2009         2009         2008
                            (As                                    (As
                         adjusted)                              adjusted)
                            (1)                                    (1)
           -----------  -----------  -----------  -----------  ------------
Revenues:
Handset
 design    $     1,019  $     7,168  $       998  $     4,482  $    19,123
Product
 sales          58,254       44,687       51,801      206,106      189,727
Gaming             488            -            -          488            -
           -----------  -----------  -----------  -----------  -----------
Total net
 revenues  $    59,761  $    51,855  $    52,799  $   211,076  $   208,850

Cost of
 revenues:
Handset
 design    $     1,593  $     3,347  $       942  $     4,425  $    10,308
Product
 sales          48,467       40,125       41,577      168,376      157,377
Gaming              64            -            -           64            -
           -----------  -----------  -----------  -----------  -----------
Total cost
 of
 revenues  $    50,124  $    43,472  $    42,519  $   172,865  $   167,685

Gross
 profit    $     9,637  $     8,383  $    10,280  $    38,211  $    41,165

Operating
 expenses:
General
 and
 adminis-
 trative   $     2,947  $     2,977  $     1,459  $     9,625  $    15,098
Research
 and
 develop-
 ment            3,199        2,612        2,556       12,040       18,195
Selling
 and
 marketing         828        1,668          987        3,241        5,497
Impairment
 of
 long-lived
 assets              -          880            -            -          880
Exchange
 loss (gain)        (8)          40          (52)         (25)         455
           -----------  -----------  -----------  -----------  -----------
Total
 operating
 expenses  $     6,966  $     8,177  $     4,950  $    24,881  $    40,125

Government
 subsidy
 income            207            -          257          481        3,081
Other
 operating
 income              -          825            -            -        2,443

Income
 from
 opera-
 tions     $     2,878  $     1,031  $     5,587  $    13,811  $     6,564

Interest
 expense          (366)         (26)        (165)        (623)         (47)
Interest
 income            169          295          165          667        1,616
Other
 income
 (expenses),
 net               171          (11)         (94)         115          (22)
Change in
 fair
 value of
 derivatives
 associated
 with
 convertible
 debt            1,831            -       (9,214)      (5,270)           -
Change in
 fair
 value of
 put
 option            (27)        (663)         (39)         (84)        (855)
           -----------  -----------  -----------  -----------  -----------
Income
 (loss)
 before
 income
 taxes     $     4,656  $       626  $    (3,760) $     8,616  $     7,256
Income tax
 benefits
 (expenses)     (1,215)         114       (1,314)      (3,642)          93
           -----------  -----------  -----------  -----------  -----------
Net (loss)
 income    $     3,441  $       740  $    (5,074) $     4,974  $     7,349
Less: net
 income
 (loss)
 attribu-
 table to
 the
 noncon-
 trolling
 interest         (329)          84        1,674        1,363          652
           -----------  -----------  -----------  -----------  -----------
Net income
 (loss)
 attribu-
 table to
 TechFaith $     3,112  $       824  $    (3,400) $     6,337  $     8,001
           ===========  ===========  ===========  ===========  ===========

Net income
 (loss)
 attribu-
 table to
 TechFaith
 per share
Basic      $      0.00  $      0.00  $     (0.01) $      0.01  $      0.01
           ===========  ===========  ===========  ===========  ===========
Diluted    $      0.00  $      0.00  $     (0.01) $      0.01  $      0.01
           ===========  ===========  ===========  ===========  ===========

Net income
 (loss)
 attribu-
 table to
 TechFaith
 per ADS*
Basic      $      0.07  $      0.02  $     (0.08) $      0.15  $      0.18
           ===========  ===========  ===========  ===========  ===========
Diluted    $      0.07  $      0.02  $     (0.08) $      0.14  $      0.18
           ===========  ===========  ===========  ===========  ===========

Weighted
 average
 shares
 outstan-
 ding
Basic      650,043,806  650,034,590  650,116,398  650,057,866  649,972,306
           ===========  ===========  ===========  ===========  ===========
Diluted    776,158,621  650,097,813  650,116,398  720,889,120  650,062,312
           ===========  ===========  ===========  ===========  ===========


Revenue Breakdown                         1Q08     2Q08     3Q08     4Q08
                                        -------- -------- -------- --------
Handset design
  Design fees                           $  3,264 $  4,656 $  1,051 $  6,517
  Royalty                               $    534 $    277 $    166 $    181
  Components sales related to design    $    731 $    520 $    544 $    465
  Service income                        $     35 $    164 $     13 $      5
  Wireless software and applications    $      - $      - $      - $      -

Product sales
  Smart Phone                           $ 18,123 $ 26,979 $ 29,367 $ 25,483
  Feature phone                         $ 23,156 $ 22,774 $ 18,525 $ 17,880
  Wireless module                       $  3,752 $  1,220 $  1,035 $  1,324
  Other components                      $      - $      - $    109 $      -

Gaming                                  $      - $      - $      - $      -
                                        -------- -------- -------- --------
Total net revenues                      $ 49,595 $ 56,590 $ 50,810 $ 51,855
                                        ======== ======== ======== ========



Revenue Breakdown                         1Q09     2Q09     3Q09     4Q09
                                        -------- -------- -------- --------
Handset design
  Design fees                           $    186 $    645 $    449 $    397
  Royalty                               $      - $    245 $    102 $     66
  Components sales related to design    $    469 $    745 $    446 $    487
  Service income                        $      - $     22 $      1 $     69
  Wireless software and applications    $      - $    153 $      - $      -

Product sales
  Smart Phone                           $ 27,186 $ 23,061 $ 23,750 $ 32,416
  Feature phone                         $ 20,190 $ 16,038 $ 22,442 $ 20,897
  Wireless module                       $    639 $  8,937 $  5,497 $  4,879
  Other components                      $      - $      - $    112 $     62

Gaming                                  $      - $      - $      - $    488
                                        -------- -------- -------- --------
Total net revenues                      $ 48,670 $ 49,846 $ 52,799 $ 59,761
                                        ======== ======== ======== ========



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


                                    December 31, December 31, September 30,
                                        2009         2008         2009
                                                     (As
                                                  adjusted)
                                                     (1)
                                    ------------ ------------ -------------
Assets
Current assets:
Cash and cash equivalents           $    130,544 $     78,926 $     128,937

Restricted cash                                -          162            81
Accounts receivable                       28,992       37,804        24,175
Notes receivable                               -           85             -
Amounts due from related parties           9,941        5,537         7,041
Inventories                               22,937       37,763        26,192
Prepaid expenses and other current
 assets                                   12,420       10,003        15,292

Deferred tax assets-current                    -           83           127
                                    ------------ ------------ -------------
Total current assets                $    204,834 $    170,363 $     201,845
                                    ------------ ------------ -------------

Plant, machinery and equipment, net $     20,902 $     24,667 $      21,616
Construction in progress                  23,680       23,458        23,548
Acquired intangible assets, net              632          921           665
Deferred tax assets-noncurrent                 -           49            75
Goodwill                                     619          606           619
                                    ------------ ------------ -------------
Total assets                        $    250,667 $    220,064 $     248,368
                                    ============ ============ =============

Liabilities and shareholders' equity
Current liabilities:
Current portion of long term
 payable                            $        799 $      1,211 $         916
Accounts payable                          10,514        9,214         5,817
Amounts due to related parties               266          419           153
Accrued expenses and other current
 liabilities                              10,484       10,247         9,409
Advance from customers                     4,720        5,260         9,977
Deferred revenue                             755        1,748           945
Income tax payable                         1,162          149         1,453
                                    ------------ ------------ -------------
Total current liabilities           $     28,700 $     28,248 $      28,670

Convertible debt                          15,441            -        16,907

Total liabilities                   $     44,141 $     28,248 $      45,577
                                    ------------ ------------ -------------

Shareholders' equity
Ordinary shares                     $         13 $         13 $          13
Additional paid-in capital               113,458      105,846       114,275
Accumulated other comprehensive
 income                                   23,863       24,427        23,881
Statutory reserve                         10,993        8,542         8,542
Retained earnings                         55,866       51,980        55,205
                                    ------------ ------------ -------------
Total TechFaith shareholders'
 equity                             $    204,193 $    190,808 $     201,916
                                    ------------ ------------ -------------
Noncontrolling interest             $      2,333 $      1,008 $         875
                                    ------------ ------------ -------------
Total shareholders' equity          $    206,526 $    191,816 $     202,791
                                    ------------ ------------ -------------
Total liabilities and shareholders'
 equity                             $    250,667 $    220,064 $     248,368
                                    ============ ============ =============

1.  Amount in relation to noncontrolling interest, formerly named minority
    interest, as of December 31, 2008 is reclassified in accordance with
    ASC 810 (formerly FASB Statement No. 160, Noncontrolling Interest),
    which was adopted by the Company on January 1, 2009.

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