SOURCE: China TechFaith

China Techfaith

August 17, 2009 16:00 ET

TechFaith Reports Second Quarter 2009 Financial Results

-- Announces Signing of Non-Binding Letter of Intent to Acquire Branded Mobile Phone Company QiGi

BEIJING--(Marketwire - August 17, 2009) - China Techfaith Wireless Communication Technology Limited (NASDAQ: CNTF) ("TechFaith" or the "Company") today announced its unaudited financial results for the second quarter of 2009 ended June 30, 2009. The Company also announced it has signed a non-binding letter of intent to acquire, with TechFaith stock and cash as consideration, 100% of the Chinese branded mobile phone company QiGi, which is to be valued at US$12.5 million. In addition, the Company announced the resignation of Mr. Wilson Cai from his position as Deputy CEO of TechFaith and from the Company's board of directors citing personal health reasons.

For the second quarter of 2009, TechFaith reported total net revenues of US$49.8 million, a 2.4% increase compared to US$48.7 million in the previous quarter. Gross profit for the second quarter of 2009 was US$9.5 million, a 7.6% increase compared to US$8.8 million in the previous quarter. Gross margin for the second quarter of 2009 was 19.0% compared to 18.1% in the previous quarter. Revenue from product sales remained the same as the previous quarter while revenue from handset design increased about US$1 million from the previous quarter. Operating expense for the quarter was US$7.3 million, a 29.4% increase compared to US$5.7 million in the previous quarter. The operating expenses for the quarter included bad debt provision of US$1.8 million compared to the reversal of bad debt provision of US$0.2 million in the previous quarter.

Net income attributable to Techfaith for the second quarter of 2009 was US$4.5 million, or US$0.10 per weighted average outstanding ADS (basic and diluted), an improvement of 112.4% compared to net income of US$2.1 million, or US$0.05 per weighted average outstanding ADS (basic and diluted) in the previous quarter.

The net income attributable to Techfaith for the second quarter of 2009 included a US$2.1 million gain as a result of change in fair value of the derivatives associated with the convertible debt that was issued to IDGVC Partners in June 2009.

Defu Dong, TechFaith's Chairman and CEO, said, "Results came at the high end of prior guidance in what is not typically a seasonally strong quarter. We continue to gain traction in our core business areas as we further improve and build on our long-term strategy by leveraging our Original Developed Product ("ODP") business. Demand in our core ODP cellphone business is being led by the domestic China 3G market, especially the EVDO and HSDPA data card business, and the WCDMA feature phone sales. While growth in the 3G rollout has been strong for the past few quarters, based on forecasts, we expect an easing in Q3, with a resumption of more stable growth in domestic China 3G market given the considerable pent-up demand in China and expected market growth worldwide."

Mr. Dong continued, "Separately, our design business improved led by the enterprise user's market. We are pleased with the commercialization of several promising products, including our dual-GSM SIM card G6. Our G6 is an exciting device that was designed to serve as a feature-rich mobile phone, and also as both an equally strong mobile gaming platform and a remote control for PC gaming, with advanced motion sensors. We also launched our HSUPA data modem card in the U.S. market in the second half of June. We continue to build up our foundation in the U.S. This is an important market for TechFaith for technology, distribution and network operator relationships. Given the large size and the sophisticated nature of the U.S. market and its demand for high value and performance, we are looking forward to further expanding our product offerings available in the U.S."

"We continue to make progress in developing our gaming business. Our team has completed pre-launch promotions for several of our pending title launches and is working very hard to finalize our initial titles. 16 mobile massive multiplayer online role-playing games (MMORPG) are now available on our Chinese mobile games website www.798uu.com. The MMORPG-"Fairy online" for PC online games is now in open BETA version on our website www.798game.com. We also set up another studio in Shanghai to accelerate development of games. With our successful third party funding a few months ago, we are focused on growing One Net Entertainment as a stand-alone business given its significant potential future upside."

Non-Binding Letter of Intent to Acquire QiGi

TechFaith has signed a non-binding letter of intent to acquire 100% of QiGi in a stock-plus-cash transaction valued at US$12.5 million, comprised of US$0.5 million in cash and 65,934,066 ordinary shares of TechFaith (note: one publicly traded ADS is equal to 15 ordinary shares). The number of ordinary shares to be issued to QiGi's existing shareholders is contingent on QiGi achieving a net income of over US$8.0 million for the fiscal year of 2010 and over US$10.0 million for the fiscal year of 2011 and will be adjusted if the targeted net incomes are not achieved.

Defu Dong, Chairman and CEO of TechFaith, said, "QiGi has grown very quickly to become a leading branded mobile phone company in the China market, especially in smartphones and for enterprise and operator-customized users, and in several important international markets. We believe this transaction will add significant value to TechFaith as we promote and launch TechFaith smartphones in China's domestic market and abroad, especially for enterprise users and operators. With 3G network available in China and future 4G network, there are big business potentials for enterprise solutions that provide smartphones for public security systems, banks, government departments, IT market and home security systems. We are also pleased to have reached agreements with several of QiGi's key managers, including Mr. Enhai Xu, who will continue to serve as President of QiGi, as it will operate largely independently after the acquisition is completed. We are very optimistic about the future of QiGi as an important TechFaith brand."

Management change

The Company announced the resignation of Mr. Wilson Cai from his position as Deputy CEO of TechFaith and from the Company's board of directors effective immediately. Mr. Cai cited personal health concerns for his resignation. Commenting on the resignation, Mr. Dong noted, "We respect his decision and wish Mr. Cai and his family all the best. He has been an active member of our team since 2002 and we will miss him and remember his significant contributions to Techfaith."

Mr. Cai will be replaced on the board of directors by Mr. Dong Deyou, who has served as an executive with TechFaith since 2007 in multiple roles, leveraging his experience in sales, supply chain sourcing and operations.

Third Quarter 2009 Outlook

TechFaith currently expects sequential growth in the second half of 2009 based on improvements in the domestic China and certain international markets. For the third quarter of 2009 the Company expects revenues to be in the range of US$47 million to US$52 million for the third quarter of 2009. The Company expects better performance from its ODP business due to long-term growth in China's 3G market and the recovery already underway in the global cellphone market. TechFaith also expects an acceleration in developing its gaming business in the second half year of 2009.

Conference Call

TechFaith will hold a call on Monday, August 17, 2009 at 7:00 p.m. U.S. Eastern Time (7:00 a.m. August 18, 2009 in Beijing), with dial in phone number +1-617-213-8834 and conference call passcode 95340243. 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 August 24, 2009, U.S. Eastern Time (12:00 a.m., August 25, 2009 in Beijing) by telephone at +1-617-801-6888. To access the replay, use passcode 88857248. 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 cellphone products. TechFaith is also striving to build a leading PC and online gaming business through its wholly-owned subsidiary, One Net Entertainment Limited. One Net Entertainment is leveraging an integrated model that combines self-developed as well as co-developed and licensed content. TechFaith employs approximately 500 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) 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, respectively.
    Three massive multiplayer online role-playing games (MMORPGs) are planned
    to launch in 2009 for online PC users on www.798game.com.  16 titles are
    planned to launch for mobile gamers on the company's Chinese mobile games
    website www.798uu.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," "outlook" and similar statements. Among other things, the business outlook and strategic and operational plans of TechFaith 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               Six Months Ended
           -------------------------------------  ------------------------
                    June 30            March 31            June 30
           ------------------------  -----------  ------------------------
                            2008                                   2008
               2009    (As adjusted)     2009         2009    (As adjusted)
               (1)           (2)          (1)          (1)          (2)
           -----------  -----------  -----------  -----------  -----------
Revenues:
Handset
 design    $     1,657  $     5,617  $       655  $     2,312  $    10,181
Product
 sales          48,036       50,973       48,015       96,051       96,004
Wireless
 software and
 applications      153            -            -          153            -
           -----------  -----------  -----------  -----------  -----------
Total net
 revenues  $    49,846  $    56,590  $    48,670  $    98,516  $   106,185

Cost of
 revenues:
Handset
 design    $     1,082  $     2,657  $       808  $     1,890  $     4,853
Product
 sales          39,284       39,998       39,048       78,332       77,676
Wireless
 software and
 applications        -            -            -            -            -
           -----------  -----------  -----------  -----------  -----------
Total
 cost of
 revenues  $    40,366  $    42,655  $    39,856  $    80,222  $    82,529

Gross
 Profit    $     9,480  $    13,935  $     8,814  $    18,294  $    23,656

Operating
 expenses:
General and
 admini-
  strative $     3,479  $     2,777  $     1,740  $     5,219  $     5,978
Research
 and
 development     3,189        6,625        3,096        6,285       12,121
Selling and
 marketing         624        1,300          802        1,426        2,153
Exchange loss
 (gain)             21          (19)          14           35          515
           -----------  -----------  -----------  -----------  -----------
Total
 operating
 expenses  $     7,313  $    10,683  $     5,652  $    12,965  $    20,767

Government
 subsidy
 income             12           22            5           17        2,563
Other
 operating
 income              -            -            -            -            -

Income
 from
 opera-
  tions    $     2,179  $     3,274  $     3,167  $     5,346  $     5,452

Interest
 expense           (62)          (7)         (30)         (92)         (16)
Interest
 income            156          499          177          333          916
Other income
 (expense),
 net                38          (18)           -           38          (15)
Change in fair
 value of
 derivatives
 associated
 with
 Convertible
 Debt            2,113            -            -        2,113            -
Change in fair
 value of put
 option              -           (6)         (18)         (18)           9
           -----------  -----------  -----------  -----------  -----------
Income before
 income
 taxes     $     4,424  $     3,742  $     3,296  $     7,720  $     6,346
Income tax         106            -       (1,219)      (1,113)           -
           -----------  -----------  -----------  -----------  -----------
Net (loss)
 income    $     4,530  $     3,742  $     2,077  $     6,607  $     6,346
Less: net
 income
 attributable
 to the
 noncontrolling
 interest(2)       (26)         121           44           18          380
           -----------  -----------  -----------  -----------  -----------
Net income
 attributable
 to
 Techfaith $     4,504  $     3,863  $     2,121  $     6,625  $     6,726
           ===========  ===========  ===========  ===========  ===========

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

Net income
 per ADS*
  Basic    $      0.10  $      0.09  $      0.05  $      0.15  $      0.16
           ===========  ===========  ===========  ===========  ===========
  Diluted  $      0.10  $      0.09  $      0.05  $      0.15  $      0.16
           ===========  ===========  ===========  ===========  ===========

Weighted
 average
 ordinary
 shares
 outstanding
  Basic    650,034,590  649,913,136  650,034,590  650,034,590  649,913,136
           ===========  ===========  ===========  ===========  ===========
  Diluted  679,148,185  649,943,575  650,034,590  664,671,776  650,028,578
           ===========  ===========  ===========  ===========  ===========



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

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

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





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

                                                    June 30,
                                       June 30,       2008       March 31,
                                         2009    (As adjusted)     2009
                                         (1)          (2)           (1)
                                     ------------ -----------  ------------
Assets
Current assets:
Cash and cash equivalents            $    111,794 $    72,163  $     97,499
Restricted cash                                81         417            80
Accounts receivable                        24,376      36,996        29,812
Amount due from related parties             7,144       4,842         7,954
Notes receivable                              693       1,706           443
Inventories                                27,642      48,867        30,367
Prepaid expenses and other current
 assets                                    12,745      10,788        11,917
Deferred tax assets-current                    96           -            78
                                     ------------ -----------  ------------
Total current assets                 $    184,571 $   175,779  $    178,150
                                     ------------ -----------  ------------

Deposits for acquisition of plant,
 machinery and equipment, and
 acquisition of intangible assets    $          - $    15,436  $          -
Plant, machinery and equipment, net        22,589      27,309        23,255
Construction in progress                   23,498           -        23,521
Acquired intangible assets, net               758       1,919           838
Deferred tax assets-noncurrent                117           -            29
Goodwill                                      619         606           606
                                     ------------ -----------  ------------
Total assets                         $    232,152 $   221,049  $    226,399
                                     ============ ===========  ============

Liabilities and shareholders' equity
Current liabilities:
Current portion of Long term payable $      1,028 $     1,228  $      1,211
Accounts payable                            6,042      11,224         7,362
Amount due to related parties                 297         224           438
Accrued expenses and other current
 liabilities                               11,726      11,058         9,597
Advance from customers                      6,771       5,804        11,839
Deferred revenue                              773       1,164         1,431
Income tax payable                            149         148         1,343
                                     ------------ -----------  ------------
Total current liabilities            $     26,786 $    30,850  $     33,221

Convertible debt                            7,529           -             -
Long-term payable                               -         125             -
                                     ------------ -----------  ------------

Total liabilities                    $     34,315 $    30,975  $     33,221
                                     ------------ -----------  ------------

Shareholders' equity
Ordinary shares                      $         13 $        13  $         13
Additional paid-in capital                105,848     110,441       105,847
Treasury stock                                  -      (4,628)            -
Accumulated other comprehensive
 income                                    23,838      23,721        23,711
Statutory reserve                           8,542       6,813         8,542
Retained earnings                          58,605      52,434        54,101
                                     ------------ -----------  ------------
Total Techfaith shareholders' equity $    196,846 $   188,794  $    192,214
                                     ------------ -----------  ------------
Noncontrolling interest (2)          $        991 $     1,280  $        964
                                     ------------ -----------  ------------
Total shareholders' equity           $    197,837 $   190,074  $    193,178
                                     ------------ -----------  ------------
Total liabilities and shareholders'
 equity                              $    232,152 $   221,049  $    226,399
                                     ============ ===========  ============


1   Effective January 1, 2009, the Company adopted SFAS 160. SFAS 160,
which was retrospectively applied, requires non-controlling interests to be
separately presented as a component of stockholders’ equity on the
unaudited condensed consolidated financial statements.

2   June 30, 2008 balances were extracted from the form 6-K for the
quarters ended June 30, 2008, as adjusted resulting from the adoption of
Statement of Financial Accounting Standards No. 160.

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