2014

Spreadtrum Communications, Inc. Announces First Quarter 2013 Financial Results

SHANGHAI, May 8, 2013 /PRNewswire-FirstCall/ -- Spreadtrum Communications, Inc. (Nasdaq: SPRD; "Spreadtrum" or the "Company"), a leading fabless semiconductor provider in China with advanced technology in 2G, 3G and 4G wireless communications standards, today announced its unaudited financial results for the first quarter ended March 31, 2013.

FIRST QUARTER 2013 FINANCIAL SUMMARY:

  • Total revenue was US$189.0 million, down 6.9% sequentially and up 17.3% year-over-year (y-o-y), exceeding the Company's previously guided range of US$180 - US$186 million.
  • Gross profit was US$70.5 million, down 6.4% sequentially and up 15.0% y-o-y. Gross margin was 37.3% compared to 37.1% in the prior quarter and 38.0% in 1Q12.
  • Cash flow generated from operations was US$17.4 million, compared with cash flow used in operations of US$3.2 million in the prior quarter and cash flow generated from operations of US$21.0 million in 1Q12.
  • GAAP net income was US$20.3 million, down 18.5% sequentially and down 16.5% y-o-y.
  • GAAP net income per basic and diluted ADS was US$0.42 and US$0.38, respectively, a decrease from US$0.52 and US$0.47, respectively, in the prior quarter and a decrease from US$0.53 and US$0.47, respectively, in 1Q12.
  • Non-GAAP net income was US$26.5 million, down 15.0% sequentially and down 9.6% y-o-y. Non-GAAP net income per diluted ADS was US$0.50, a decrease from US$0.59 in the prior quarter and a decrease from US$0.57 in 1Q12.

FIRST QUARTER 2013 BUSINESS HIGHLIGHTS:

  • Grew sequential shipments for single-core TD-SCDMA/EDGE smartphone chipsets, outperforming the typical first quarter seasonality that occurs in China due to the Lunar New Year holiday;
  • Commercially launched our dual-core TD-SCDMA/EDGE smartphone platform, expanding our addressable market;
  • Achieved volume shipments of the SC6531, our 2.5G baseband chipset with integrated FM and Bluetooth;
  • Began shipping 2.5G basebands in a handset distributed by one of the world's largest operators.

Commenting on the first quarter 2013 results, Chairman and CEO Dr. Leo Li said, "Demand for our single-core smartphone chipsets was exceptionally strong throughout the quarter.  Some of our TD-SCDMA customers' smartphones are now retailing for 300RMB, which is approximately US$50.  These handsets, which are the lowest cost 3G smartphones available in China, are helping to speed the transition from feature phones by improving affordability for the first time smartphone buyer.  EDGE smartphone shipments were also very strong, which reflects growing demand for entry-level smartphones in overseas regions as well.

"We have now expanded our smartphone portfolio further with the commercial launch of our dual-core smartphone chipset, which combines exceptional graphics performance with one of the lowest cost dual-core platforms in the TD-SCDMA market. Further, we have started sampling our single-core WCDMA/HSPA+ smartphone chipset as well as our quad-core smartphone chipset.  These products expand our addressable market and will contribute to further growth in the coming quarters.

"Looking ahead to the second quarter 2013, we expect revenue to be in the range of US$220 million to US$228 million, which is an increase of 16.4% to 20.6%, with a slight improvement in gross margin."

Further commenting on the financial results, Spreadtrum CFO Shannon Gao added, "In the first quarter, we achieved a modest improvement in gross margin as our smartphone shipments continued to grow sequentially. We expect to see further improvements in product mix as our dual-core and quad-core smartphone shipments begin to ship in volume. Although operating expenses increased as a percentage of revenue in the first quarter due to market seasonality, we expect to see increased operating leverage during the year as our top line grows."

FIRST QUARTER 2013 FINANCIAL REVIEW:

Revenue

Revenue in 1Q13 totaled US$189.0 million, down 6.9% from US$203.1 million in 4Q12 and up 17.3% from US$161.1 million in 1Q12. In 1Q13, smartphone products accounted for 60% of chipset revenue, and feature phone, modem and other products accounted for 40% of chipset revenue. In 4Q12, smartphone products accounted for 54% of chipset revenue, and feature phone, modem and other products accounted for 46% of chipset revenue.

Gross Profit and Margin

Gross profit for the quarter was US$70.5 million, down 6.4% from US$75.3 million in 4Q12 and up 15.0% from US$61.3 million in 1Q12. Gross margin for the quarter was 37.3%, up from 37.1% in 4Q12 and down from 38.0% in 1Q12. Non-GAAP gross margin, adjusted to exclude share-based compensation expenses, was 37.4%, up from 37.2% in 4Q12 and down from 38.1% in 1Q12.

Cost of revenue in 1Q13 totaled US$118.5 million, a decrease of 7.3% from the previous quarter and an increase of 18.7% from 1Q12.

Operating Expense and Margin

The Company's operating margin for the quarter was 11.9%, down from 13.0% in the previous quarter and 16.1% in 1Q12. The sequential decrease in operating margin was primarily due to higher research and development (R&D) expenses as a percentage of revenue. Non-GAAP operating margin, adjusted to exclude share-based compensation expenses was 15.2% in 1Q13, compared to 16.1% in 4Q12 and 19.2% in 1Q12.

Total operating expenses in 1Q13, including R&D expenses and selling, general and administrative (SG&A) expenses, were US$48.0 million, a decrease from US$48.9 million in 4Q12 and an increase from US$35.4 million in 1Q12.

R&D expenses decreased 4.2% sequentially and increased 39.0% year-over-year to US$39.5 million in 1Q13. The sequential decrease in R&D expenses was primarily due to a decrease in new product development engineering expenses and employee compensation expenses, partially offset by a decrease in recognized R&D subsidies. The year-over-year increase in R&D expenses was primarily due to an increase in new product development engineering expenses, amortization expenses and employee compensation expenses.

SG&A expenses increased 10.4% sequentially and increased 21.4% year-over-year to US$8.4 million in 1Q13. The sequential and year-over-year increase in SG&A expenses was primarily due to increases in legal expenses and employee compensation expenses including share-based compensation.

Non-Operating Income

In 1Q13, the Company recorded interest income of US$1.2 million, down from US$1.3 million in the previous quarter and US$2.2 million in 1Q12. Interest expense in 1Q13 was US$0.9 million, down from US$1.0 million in the previous quarter and from US$1.4 million in 1Q12. Other income (net) in 1Q13 was a loss of US$0.3 million, compared to a gain of US$16 thousand in 4Q12 and a gain of US$0.6 million in 1Q12. Other income (net) mainly represented net foreign exchange gains and losses.

Net Income

The Company's net income totaled US$20.3 million in 1Q13, compared to US$24.9 million in 4Q12 and US$24.3 million in 1Q12. The sequential decrease in net income was primarily due to the decrease in gross profit. Net margin was 10.7%, down from 12.2% in 4Q12 and from 15.1% in 1Q12. Basic and diluted income per ADS were US$0.42 and US$0.38, respectively, in 1Q13, compared to US$0.52 and US$0.47, respectively, in 4Q12, and US$0.53 and US$0.47, respectively, in 1Q12.

Excluding share-based compensation expenses, the Company's non-GAAP net income for 1Q13 was US$26.5 million, down from a non-GAAP net income of US$31.2 million in 4Q12 and down from US$29.3 million in 1Q12. Diluted non-GAAP net income per ADS in 1Q13 was US$0.50, compared with US$0.59 per ADS in the prior quarter and US$0.57 per diluted ADS in 1Q12.

Balance Sheet and Cash Flow

As of March 31, 2013, the total balance of cash and cash equivalents and term deposit with maturity dates over 90 days was US$168.4 million, compared to US$165.2 million as of December 31, 2012. The total balance of short-term and long-term restricted cash pledged to banks for short-term and long-term loans was US$91.9 million, compared with $81.7 million as of December 31, 2012. In 1Q13, the Company generated US$17.4 million in cash from operating activities and used US$11.4 million on intangible assets and US$2.1 million on equity investments.

Accounts receivable increased by US$2.1 million from US$50.3 million as of December 31, 2012 to US$52.4 million as of March 31, 2013. Average accounts receivable days, calculated based on quarterly average accounts receivable divided by quarterly revenue and multiplied by number of days in the quarter, increased sequentially from 16 days to 25 days. The increase in average accounts receivable days was mainly due to increased revenue contribution from certain strategic large customers with longer credit terms. Inventory as of March 31, 2013 was US$149.1 million, an increase of US$20.3 million from December 31, 2012. Inventory days, calculated based on quarterly average inventory (excluding deferred cost) divided by quarterly cost of goods sold and multiplied by number of days in the quarter, increased from 90 days in 4Q12 to 107 days in 1Q13. The increase in inventory is to prepare for the significant increase in demand for our smartphone products that is expected in the second quarter. Deferred cost, which consists of products that have shipped to customer where the rights and obligations of ownership have passed to customers but revenue has not yet been recognized due to pending customer acceptance, decreased from US$16.1 million as of December 31, 2012 to US$15.5 million as of March 31, 2013. Total assets as of March 31, 2013 were US$740.4 million, up US$40.2 million from US$700.2 million as of December 31, 2012. The increase in total assets was primarily attributable to increases of US$20.3 million in inventory and US$13.5 million in cash.

Current liabilities increased from US$234.0 million as of December 31, 2012 to US$251.4 million as of March 31, 2013, primarily due to increase of US$29.0 million in advances from customers and US$10.0 million in short-term bank loans, offset by a US$23.0 million decrease in accounts payable. Long-term liabilities as of March 31, 2013 were US$82.5 million, compared to US$82.4 million as of December 31, 2012.

BUSINESS OUTLOOK:

Looking ahead, Spreadtrum expects revenue for the second quarter of 2013 to be in the range of US$220 millionUS$228 million, with a slight improvement in gross margin relative to the first quarter 2013.

WEBCAST OF CONFERENCE CALL:

The Company's senior management will host a conference call at 9:00 pm (U.S Eastern) / 6:00 pm (U.S Pacific) on Wednesday, May 8, 2013, which is 9:00 am on Thursday, May 9, 2013 in Hong Kong to discuss the financial results and recent business activities. The conference call may be accessed by calling:


Toll

United States/International

+1 718 354 1231

United Kingdom

+44 20 3059 8139

Hong Kong

+852 2475 0994

Singapore

+65 672 39381

China

+86 4006208038 or +86 8008190121

Participant Passcode

"SPRD" or "Spreadtrum"

A telephone replay will be available shortly after the call until May 16, 2013 at (US Toll / International) +1 646 254 3697 or (Hong Kong) +852 3051 2780, passcode: 44497516.

A live webcast of the conference call and replay, along with an accompanying quarterly results presentation, will be available in the investor relations section of the Company's website.

DISCUSSION OF NON-GAAP FINANCIAL MEASURES:

In addition to disclosing financial results prepared in accordance with US GAAP, the Company's earnings release contains non-GAAP financial measures that exclude the effects of share-based compensation and other non-recurring items. The non-GAAP financial measures used by management and disclosed by the Company exclude the income statement effects of all forms of share-based compensation.

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for financial measures prepared in accordance with US GAAP. The financial results reported in accordance with US GAAP and reconciliation of GAAP to non-GAAP results should be carefully evaluated. The non-GAAP financial measures used by the Company may be prepared differently from and, therefore, may not be comparable to similarly titled measures used by other companies.

The Company provides the presentation of non-GAAP gross margin, non- GAAP operating margin, non-GAAP net income, and non-GAAP diluted earnings per ADS, all excluding share-based compensation expenses. The Company believes that these non-GAAP financial measures provide important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. The non-GAAP diluted earnings per ADS are calculated by dividing non-GAAP net income by the US GAAP weighted average diluted shares outstanding.


 

Spreadtrum Communications, Inc.

Condensed Consolidated Income Statements

(in thousands of US dollars, except per share data and percentages)

(unaudited)



Three months ended




 March 31

 December 31

 March 31

change from


2012

2012

2013

4Q12

1Q12







Revenue

161,114

203,129

189,019

-6.9%

17.3%

Cost of revenue

99,821

127,805

118,515

-7.3%

18.7%







Gross profit

61,293

75,324

70,504

-6.4%

15.0%







Operating expenses






Research & development

28,422

41,235

39,508

-4.2%

39.0%

Selling, general and administrative

6,960

7,651

8,446

10.4%

21.4%

Total operating expenses

35,382

48,886

47,954

-1.9%

35.5%







Operating income

25,911

26,438

22,550

-14.7%

-13.0%







Non-operating income (expense)






Interest income

2,230

1,270

1,154

-9.1%

-48.3%

Interest expense

(1,404)

(980)

(930)

-5.1%

-33.8%

Other income (expense), net

636

16

(286)

-1,887.5%

-145.0%

Total non-operating income (loss)

1,462

306

(62)

-120.3%

-104.2%

Income before income tax and equity in loss of

affiliates

27,373

26,744

22,488

-15.9%

-17.8%







Income tax expense

(3,367)

(1,619)

(1,799)

11.1%

-46.6%

Equity in loss of affiliates, net of taxes

(55)

(372)

(434)

16.7%

689.1%







Net income

23,951

24,753

20,255

-18.2%

-15.4%







Net loss attributable to non-controlling interest

305

114

-

-

-

Net income attributable to Spreadtrum

Communications, Inc.

24,256

24,867

20,255

-18.5%

-16.5%

Income per ADS, basic

0.53

0.52

0.42



Income per ADS, diluted

0.47

0.47

0.38









Margin analysis:






Gross margin

38.0%

37.1%

37.3%



Operating margin

16.1%

13.0%

11.9%



Net margin

15.1%

12.2%

10.7%









Weighted average ADS equivalent: [1]






Basic

45,945,184

47,572,178

48,446,586



Diluted

51,108,873

52,682,347

52,948,094



ADS equivalent outstanding at end of period

46,028,101

47,805,783

48,753,586




[1] Assumes all outstanding ordinary shares are represented by ADSs. Each ADS represents three ordinary shares.

 

Spreadtrum Communications, Inc.

Condensed Consolidated Balance Sheets

(in thousands of US dollars)

(unaudited)



As of 


March 31,


December 31,


March 31,


2012


2012


2013

ASSETS






Current assets






Cash and cash equivalents

192,308


132,156


134,834

Restricted cash

70,047


17,969


28,019

Short-term deposit

40,825


32,995


33,596

Accounts receivable, net

7,270


50,313


52,427

Inventories

62,907


128,758


149,081

Deferred cost

55,830


16,112


15,545

Deferred tax assets

2,917


2,450


2,456

Prepaid expenses and other current assets

19,114


27,671


30,234

Total current assets

451,218


408,424


446,192







Property and equipment, net

46,009


51,339


49,468

Acquired intangible assets, net

59,929


73,089


74,619

Equity investment

23,934


52,813


55,645

Deferred tax assets

820


771


771

Goodwill

36,208


38,908


38,908

Long-term restricted cash

-


63,759


63,882

Indemnification assets

5,567


5,567


5,567

Other long-term assets

4,560


5,485


5,346

Total assets

628,245


700,155


740,398







LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities






Short-term loans and current portion of a long-term loan

111,740


14,090


24,078

Accounts payable

57,817


132,684


109,724

Advances from customers

63,047


20,472


49,425

Income tax payable

21,610


13,226


12,738

Accrued expenses and other current liabilities

55,073


53,489


55,478

Total current liabilities

309,287


233,961


251,443

Long-term loan

-


70,000


70,000

Other long-term obligations

5,048


5,223


5,280

Long-term tax liabilities

5,567


5,567


5,567

Deferred tax liabilities

1,612


1,612


1,612

Total long term liabilities

12,227


82,402


82,459

Total liabilities

321,514


316,363


333,902








Non-controlling shareholder interest

1,760


396


396

Shareholders' equity

304,971


383,396


406,100

Total liabilities and shareholders' equity

628,245


700,155


740,398

 

Spreadtrum Communications, Inc.

Reconciliation of GAAP to Non-GAAP Results

(in thousands of US dollars, except per share data and percentages)

(unaudited)




 Three Months ended 


 March 31,

 December 31,

 March 31,


2012

2012

2013





 Cost of revenue

99,821

127,805

118,515

 Adjustment for share-based compensation

(158)

(149)

(174)

 Cost of revenue (non-GAAP)

99,663

127,656

118,341

 Operating income

25,911

26,438

22,550

 Adjustment for share-based compensation within: Cost of revenue

158

149

174

 Research and development

3,519

4,607

4,243

 Selling, general, and administrative

1,345

1,539

1,808

 Operating income  (non-GAAP)

30,933

32,733

28,775

 Net income

24,256

24,867

20,255

 Adjustment for share-based compensation within: Cost of revenue

158

149

174

 Research and development

3,519

4,607

4,243

 Selling, general, and administrative

1,345

1,539

1,808

 Net income (non-GAAP)*

29,278

31,162

26,480

 Net income per ADS, diluted

0.47

0.47

0.38

 Adjustment for share-based compensation

0.10

0.12

0.12

 Net income per ADS, diluted (non-GAAP)*

0.57

0.59

0.50

 Gross margin

38.0%

37.1%

37.3%

 Adjustment for share-based compensation

0.1%

0.1%

0.1%

 Gross margin (non-GAAP) 

38.1%

37.2%

37.4%

 Operating margin

16.1%

13.0%

11.9%

  Adjustment for share-based compensation

3.1%

3.1%

3.3%

 Operating margin (non-GAAP)*

19.2%

16.1%

15.2%

 Net margin 

15.1%

12.2%

10.7%

Adjustment for share-based compensation

3.1%

3.1%

3.3%

 Net margin (non-GAAP)*

18.2%

15.3%

14.0%

 Operating expenses

35,382

48,886

47,954

Adjustment for share-based compensation:




 Research and development

(3,519)

(4,607)

(4,243)

 Selling, general and administrative

(1,345)

(1,539)

(1,808)

 Operating expenses (non-GAAP)

30,518

42,740

41,903





* There is no tax effect resulting from these adjustment items.

 

ABOUT SPREADTRUM COMMUNICATIONS, INC.

Spreadtrum Communications, Inc. (NASDAQ: SPRD; "Spreadtrum") is a fabless semiconductor company that develops mobile chipset platforms for smartphones, feature phones and other consumer electronics products, supporting 2G, 3G and 4G wireless communications standards. Spreadtrum's solutions combine its highly integrated, power-efficient chipsets with customizable software and reference designs in a complete turnkey platform, enabling customers to achieve faster design cycles with a lower development cost. Spreadtrum's customers include global and China-based manufacturers developing mobile products for consumers in China and emerging markets around the world. For more information, visit www.spreadtrum.com.

SAFE HARBOR STATEMENT:

This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements regarding the transition from feature phones to smartphones in China; growing demand for entry-level smartphones in overseas regions; the Company's expectations with respect to its dual-core smartphone chipset, single-core WCDMA/HSPA+ smartphone chipset and quad-core smartphone chipset being contributing to further growth in the coming quarters; the Company's expectations with respect to revenue in the second quarter of 2013 being in the range of US$220 million - US$228 million with a slight improvement in gross margin relative to the first quarter 2013; the Company's expectations with respect to further improvements in product mix as its dual-core and quad-core smartphone shipments begin to ship in volume; and the Company's expectations with respect to increased operating leverage during the year as its top line grows. The Company uses words like "believe," "anticipate," "intend," "estimate," "expect," "project" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These statements are forward-looking in nature and involve risks and uncertainties that may cause actual market trends and the Company's actual results to differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continuing competitive pressure in the semiconductor industry and the effect of such pressure on prices; unpredictable changes in technology and consumer demand for mobile phones; the rate at which the market adoption of TD-SCDMA technology will grow; the Company's ability to sustain recent rates of growth and its dominant market share position in TD-SCDMA market; market acceptance of the Company's smartphone products; the state of and any change in the Company's relationship with its major domestic and international customers and Chinese government agencies; and changes in political, economic, legal and social conditions in China. For additional discussion of these risks and uncertainties and other factors, please consider the information contained in the Company's filings with the U.S. Securities and Exchange Commission (the "SEC") and the annual report on Form 20-F filed on April 26, 2013 especially the section under "Risk Factors" and such other documents that the Company may file with the SEC from time to time, including on Form 6-K. The Company assumes no obligation to update any forward-looking statements, which apply only as of the date of this press release, and does not intend to update any forward-looking statement whether as a result of new information, future events or otherwise except as required by law.

SOURCE Spreadtrum Communications, Inc.



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