SOURCE: China TechFaith

November 17, 2008 16:01 ET

TechFaith Reports Third Quarter 2008 Financial Results

Highlights: Cooperation Agreement Signed With 'aigo' for China Operator Tailored Market; Cooperation Agreement Signed With QIGI for Chinese Smartphone Business; Developed First CDMA Touch Screen Smartphone for Latin America; Net Revenue Increased 32.2% Year-Over-Year; Gross Profit Increased 1.7% Year-Over-Year

BEIJING--(Marketwire - November 17, 2008) - China TechFaith Wireless Communication Technology Limited (NASDAQ: CNTF), an Original Developed Product (ODP) company focused on research and development of Mobile phone solutions, today announced its unaudited financial results for the third quarter ended September 30, 2008.

For the third quarter of 2008, TechFaith reported net revenue of US$50.8 million representing a 32.2% increase over US$38.4 million for the third quarter of 2007 and a 10.2% decrease from US$56.6 million for the second quarter of 2008. Net revenue for the quarter was driven by increased demand in the Chinese and South East Asian markets.

Gross profit for the third quarter of 2008 was US$9.3 million, representing a 1.7% increase over US$9.2 million for the same period last year. The increase was attributed to the strong performance of the domestic Smartphone business during the quarter. Gross margin for the third quarter of 2008 was 18%, down from 24% in the third quarter of 2007. Gross margin was impacted by the weak international demand for the feature phones and one-stop sell out of the CDMA1X data cards.

Total operating expenses were US$11.2 million for the third quarter of 2008 compared to US$10.7 million in previous quarter. The increase in operating expenses is due to a US$2.3 million severance cost as a result of the corporate restructuring.

Net income for the third quarter of 2008 was US$0.45 million, or US$0.01 per weighted average outstanding ADS (basic and diluted), compared to net income of US$1.6 million, or US$0.04 per weighted average outstanding ADS (basic and diluted), for the same period in 2007. The income tax provision in the third quarter of 2008 was US$0.02 million.

Mr. Defu Dong, Chairman and Chief Executive Officer of TechFaith, said, "The third quarter results demonstrate our effort to continue to improve our organizational efficiency, promptly react to the market environment, and maintain our strong market position. We are proud to announce year-over-year revenue growth of over 30%, which further validates our strategy to focus on middle to high-end product offerings during this tough competitive environment and weak economy. Also, we signed a cooperation agreement with both 'aigo' and QIGI in order to strengthen our market position in China and we were approved as the first CDMA Smartphone with touch screen function by a carrier in Latin American."

Mr. Xiaonong Cai, the Deputy CEO of TechFaith, said, "Looking to the fourth quarter, we expect operating costs to fall significantly due to the completion of our corporate restructuring and we will focus on the development of the Google Android phone. The test products of the Android phone will be available in the fourth quarter and we target a commercial launch by the end of the first quarter of 2009."

Recent Developments

In an effort to avoid the effects of the global financial crisis and weakening economic conditions, TechFaith strengthens its position in the Chinese market through cooperation agreements with 'aigo' for China operator tailored market, and QIGI for the Chinese Smartphone business. Under the strategic cooperation agreement with 'aigo', TechFaith will provide total solutions products, including CDMA1X/EVDO and UMTS/HSDPA, under the 'aigo' brand name and through 'aigo's' sales channels for operator tailored market in China. Under the cooperation agreement with QIGI, TechFaith will be the sole provider of Smartphone solution products to QIGI and the Smartphone will be sold under QIGI's brand name and through its sales channels in China. These strategic collaborations will help promote TechFaith products in China and swiftly bring them to market.

TechFaith also made advances in the international market through the development of the first CDMA Smartphone with a touch screen function in Latin American, which is expected to launch before year-end. This achievement is an enormous milestone for TechFaith and the company's Smartphone growth in the international market. In addition, TechFaith continues to receive 3G Smartphone orders from the European and South East Asian markets.

TechFaith Interactive made further progress and it will be renamed One Net entertainment Ltd. Radiation studio, Star studio and Mythos studio have been set up and are developing games. MMORPG games (massively multiplayer online role-playing games) "Seven Swords" and "Liao Zhai" are expected to complete beta versions by the second quarter of 2009. Mobile online gaming platform www.798uu.com is under testing now and will launch a beta version by the end of November 2008. Wireless online game "Hero Times" is expected to launch in the first quarter of 2009. The publisher system has been set up and is expected to be in operation by April 2009. One Net entertainment Ltd. is expected to be profitable in the second quarter of 2009.

On September 29, Techfaith announced that its Board of Directors approved a share repurchase program pursuant to authorization previously obtained from its shareholders. Under the program, TechFaith is authorized, but not obligated, to repurchase up to $10 million worth of its outstanding American Depository Shares. The company will begin the ADS repurchases in an organized manner after the financial stock market stabilizes.

Financial Guidance

The Company expects revenues in the fourth quarter of 2008 to be in the range of US$43 million to US$48 million. The Smartphone products in China are the major revenue drivers for the fourth quarter and the overseas markets including South East Asian, European Union and Latin America will continue to drive revenue. TechFaith expects operating costs to be significantly lower in the fourth quarter due to cost saving measures and the completion of the corporate restructuring.

Conference Call

TechFaith will hold a conference call on Monday, November 17, 2008 at 7:00 p.m. U.S. Eastern Time (8:00 a.m., November 18, 2008 in Beijing) to discuss the results. The dial-in numbers are +1-866-713-8395 (U.S.) or +1-617-597-5309 (international). The passcode for both is 91884175. 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 from Monday, November 17, 2008 at 9 p.m., U.S. Eastern Time (9 a.m., November 18, 2008 in Beijing) through midnight on Monday, November 24, 2008, U.S. Eastern Time (12 p.m., November 26, 2008 in Beijing) on the Company's website at www.techfaithwireless.com and by telephone at +1-888-286-8010 (U.S.) or +1-617-801-6888 (international). The passcode to access the replay is 66896525.

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 700 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, disruptions in the financial markets and other macro-economic challenges currently affecting the economy of the United States and other parts of the world, TechFaith's limited operating history, TechFaith's ability to effectively manage its rapid expansion, loss of TechFaith's customers and claims against TechFaith due to defects in its designs or other reasons, TechFaith's limited insurance coverage and its exposure to product liability and product recall, 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         Nine Months Ended
             June 30          September 30              September 30
              2008         2007         2008         2007         2008
           -----------  -----------  -----------  -----------  -----------
Revenues:
Design
 fees      $     4,656  $     5,425  $     1,051  $    20,728  $     8,971
Royalty
 income            277        1,280          166        6,713          977
Component
 sales             520        1,682          544        7,289        1,795
Product
 sales          50,973       30,041       49,036       63,005      145,040
Service
 income            164           18           13           18          212
           -----------  -----------  -----------  -----------  -----------
Total net
 revenues  $    56,590  $    38,446  $    50,810  $    97,753  $   156,995

Cost of
 revenues:
Design
 fees      $     2,340  $     2,177  $     1,447  $    13,828  $     5,405
Component
 sales             306        2,055          451        7,221        1,313
Product
 sales          39,998       25,041       39,576       52,362      117,252
Service
 Cost               11            4           10            4           43
           -----------  -----------  -----------  -----------  -----------
Total cost
 of
 revenues  $    42,655  $    29,277  $    41,484  $    73,415  $   124,013

Gross
 Profit    $    13,935  $     9,169  $     9,326  $    24,338  $    32,982

Operating
 expenses:
General and
 administ-
 rative    $     2,777  $     1,839  $     6,143  $     8,162  $    12,121
Research
 and
 development     6,625        6,524        3,462       23,068       15,583
Selling
 and
 marketing       1,300          794        1,676        2,554        3,829
Exchange
 loss
 (gain)            (19)         357         (100)       1,338          415
           -----------  -----------  -----------  -----------  -----------
Total
 operating
 expenses  $    10,683  $     9,514  $    11,181  $    35,122  $    31,948

Other
 operating
 income             22          864        2,136        1,653        4,699

(Loss)
 income from
 operat-
 ions      $     3,274  $       519  $       281  ($    9,131) $     5,733

Interest
 expense            (7)         (89)          (5)        (140)         (21)
Interest
 income            499          911          405        3,022        1,321
Other
 income
 (expense),
  net              (18)          (6)        (196)        (341)        (211)
Change in
 fair
 value of
 put option         (6)          24         (201)         (31)        (192)
           -----------  -----------  -----------  -----------  -----------
Income
 before
 income
 taxes     $     3,742  $     1,359  $       284  ($    6,621) $     6,630
Income tax           -            -          (21)          (3)         (21)
           -----------  -----------  -----------  -----------  -----------
Income
 before
 minority
 interests $     3,742  $     1,359  $       263  ($    6,624) $     6,609
Minority
 interests         121          226          188          977          568
Equity in
 loss of an
 affiliate           -            -            -         (851)           -
           -----------  -----------  -----------  -----------  -----------
Net (loss)
 income    $     3,863  $     1,585  $       451  ($    6,498) $     7,177
           ===========  ===========  ===========  ===========  ===========

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

Net income
 per ADS*
  Basic    $      0.09  $      0.04  $      0.01  ($     0.15) $      0.17
           ===========  ===========  ===========  ===========  ===========
  Diluted  $      0.09  $      0.04  $      0.01  ($     0.15) $      0.17
           ===========  ===========  ===========  ===========  ===========

Weighted
 average
 ordinary
 shares
 outstanding
  Basic    649,913,136  649,863,772  650,027,078  649,794,157  649,951,394
           ===========  ===========  ===========  ===========  ===========
  Diluted  649,943,575  649,863,772  650,055,184  649,794,157  650,037,724
           ===========  ===========  ===========  ===========  ===========



Revenue Breakout     1Q07    2Q07    3Q07    4Q07    1Q08    2Q08    3Q08
                    ======= ======= ======= ======= ======= ======= =======
Design fees
     International
      customers     $ 9,463 $ 4,811 $ 2,687 $ 2,415 $   625 $   271 $   138
     Domestic
      customers     $   655 $   374 $ 2,738 $ 2,899 $ 2,639 $ 4,385 $   913

Royalty
     International
      customers     $   300 $   461 $   194 $   287 $    10 $     - $    17
     Domestic
      customers     $ 1,851 $ 1,427 $   925 $   483 $   524 $   277 $   149
     Component
      vendors       $   644 $   750 $   161 $   289 $     - $     - $     -

Component and
 products
     Smart Phone    $ 4,014 $ 6,557 $ 8,688 $17,185 $18,123 $26,979 $29,367
     PCBA           $ 2,149 $ 2,454 $   717 $    22 $     - $     - $   109
     Wireless
      module        $ 1,452 $ 7,202 $ 2,483 $ 1,377 $ 3,752 $ 1,220 $ 1,035
     Feature phone  $ 3,787 $ 5,349 $18,153 $20,134 $23,156 $22,774 $18,525
     Other
      component
      sales         $ 2,965 $ 2,642 $ 1,682 $   565 $   731 $   520 $   544

Service income      $     - $     - $    18 $    35 $    35 $   164 $    13

                    ------- ------- ------- ------- ------- ------- -------
Total net revenues  $27,280 $32,027 $38,446 $45,691 $49,595 $56,590 $50,810
                    ======= ======= ======= ======= ======= ======= =======



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


                               September 30,    June 30,     September 30,
                                   2007           2008           2008
                               -------------  -------------  -------------
Assets
Current assets:
Cash and cash equivalents      $      84,914  $      72,163  $     103,578
Restricted cash                        5,228            417             80
Accounts receivable                   45,617         36,996         40,447
Amount due from related
 parties                                   -          4,842          5,609
Notes receivable                       1,992          1,706            101
Inventories                           34,442         48,867         43,022
Prepaid expenses and other
 current assets                        8,558         10,788         12,804
                               -------------  -------------  -------------
Total current assets           $     180,751  $     175,779  $     205,641
                               -------------  -------------  -------------

Deposits for acquisition of
 plant, machinery and
 equipment, and acquisition of
 intangible assets             $       8,713  $      15,436  $      15,655
Plant, machinery and
 equipment, net                       27,639         27,309         26,345
Acquired intangible assets,
 net                                     320          1,919          1,747
Goodwill                                 606            606            606
Total assets                   $     218,029  $     221,049  $     249,994
                               =============  =============  =============

Liabilities and shareholders'
 equity
Current liabilities:
Current portion of Long term
 payable                       $         599  $       1,228  $       1,185
Short term loan                            -              -              -
Accounts payable                      31,825         11,224         40,569
Amount due to related parties              -            224            475
Accrued expenses and other
 current liabilities                  10,943         11,058          8,874
Advance from customers                 5,473          5,804          5,941
Deferred revenue                       2,284          1,164          1,372
Income tax payable                       139            148            171
                               -------------  -------------  -------------
Total current liabilities      $      51,263  $      30,850  $      58,587

Long-term payable              $           -  $         125  $           -
                               -------------  -------------  -------------

Total liabilities              $      51,263  $      30,975  $      58,587
                               -------------  -------------  -------------

Minority interests             $       1,883  $       1,280  $       1,092
Shareholders' equity
Ordinary shares                $          13  $          13  $          13
Additional paid-in capital           110,312        110,441        110,513
Treasury stock                        (4,628)        (4,628)        (4,628)
Accumulated other
 comprehensive income                  9,891         23,721         24,719
Statutory reserve                      6,093          6,813          6,813
Retained earnings                     43,202         52,434         52,885
                               -------------  -------------  -------------
Total shareholders’ equity     $     164,883  $     188,794  $     190,315
                               -------------  -------------  -------------
Total liabilities and
 shareholders' equity          $     218,029  $     221,049  $     249,994
                               =============  =============  =============


Contact Information

  • CONTACTS:

    In China:
    Jay Ji
    China TechFaith Wireless
    Tel: 86-10-5822-7390
    Email Contact

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