2014

TechFaith 3Q11 Revenue Exceeds High-End of Prior Guidance

BEIJING, Nov. 21, 2011 /PRNewswire-Asia/ -- China TechFaith Wireless Communication Technology Limited (NASDAQ: CNTF) ("TechFaith" or the "Company") today announced unaudited financial results for the third quarter ended September 30, 2011.

For the third quarter of 2011, TechFaith reported net revenue of US$80.6 million, a 17% increase compared to US$68.6 million in the third quarter of 2010, and a 3% decrease compared to US$82.8 million in the second quarter of 2011. Gross margin for the third quarter of 2011 was 24%, which remained the same as in the third quarter of 2010, as compared to 26% in the second quarter of 2011.  The decrease in the gross margin from the second quarter of 2011 is attributed to a change in TechFaith's product mix, as the Company had lower sales of GSM feature phones from its ODP business during the third quarter of 2011.  

Net income attributed to TechFaith for the third quarter of 2011 was US$3.3 million or US$0.06 per basic and diluted weighted average outstanding ADS, compared to US$4.5 million or US$0.09 per basic and diluted weighted average outstanding ADS in the third quarter of 2010, compared to US$7.3 million or US$0.14 per basic and diluted weighted average outstanding ADS in the second quarter of 2011. The decrease in net income from the second quarter is the result of lower gross margins (as discussed above) and higher income tax expense attributed to the change in the Company's estimated annual effective tax rate.

Ms. Ouyang Yuping, TechFaith's CFO, said, "We were able to achieve revenue above the high-end of our prior guidance in a weaker global economic environment and under the increased pricing pressure in several of the markets we serve.  Higher demand levels for Android-based mobile phones and continued developments in our branded mobile phone business and motion gaming business helped us to partially offset the market pressure.  We are pleased that we were able to keep our gross margin relatively stable at 24% despite such uncertain market conditions. This performance reflects the success of our higher margin branded mobile phone and motion gaming businesses.  In addition, we remained focused on cost control and operating efficiencies, which helped us to further strengthen our balance sheet due to the continued healthy cash flow from our operations. We ended the third quarter of 2011 with US$4.46 per ADS in cash and cash equivalents compared to US$4.17 per ADS at the end of the second quarter of 2011."

Mr. Deyou Dong, President and COO of TechFaith, said, "We are pleased with the continued success we are having in various markets worldwide.  Our ability to tailor mobile solutions in the enterprise and branded market is a competitive advantage for TechFaith, which led to additional orders for our leading Android-based smartphone models in South East Asia, Latin America, Japan and domestic China market. We further strengthened our product line-up with the launching of several innovative new models, including Titan, Tracker, PAD, Qphone and Eagle, in the third quarter of 2011. All are Android-based 3G smartphones. Additionally, we have leveraged the success of our TecFace-branded mobile phone business beyond China and extended into the international market with the well-received launching of new products and stronger marketing support.  Our efforts have positioned TechFaith for long-term business success."

Fourth Quarter of 2011 Outlook

The fourth quarter 2011 outlook reflects TechFaith's current and preliminary view, which is subject to change. Based on current market conditions, the Company expects its revenue for the fourth quarter of 2011 to be in the range of US$78 million to US$81 million, with gross margin levels similar to those for the third quarter of 2011.  

Mr. Defu Dong, Chairman and CEO of TechFaith, added, "We entered the fourth quarter in a very solid financial position which can help us navigate our course among continued market volatility. We continue to build momentum with customers in our mobile solutions business, branded mobile phone business and motion gaming business.  We believe that our efforts would more readily translate to growth in our financial results when the broader market environment improves.  We will remain conservative in our outlook and approach and maintain strict cost controls in light of the uncertain global economic environment.   At the same time, we will continue to invest in the research and development and sales and marketing efforts that are critical to the support of our customers and brands while focusing on profitability.  Strategic investments made in our business today will, we expect, fuel our growth when the market situation improves, as has happened in previous market cycles."

Investor Conference Call / Webcast Details

TechFaith will hold a conference call on Monday, November 21, 2011 at 8:00 a.m. U.S. Eastern Time (9:00 p.m. Monday, November 21, 2011 in Beijing).  The dial-in phone number is +1-617-786-2960 or +1-800-884-5695, with conference passcode 77232985.  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 by telephone at +1-617-801-6888, with passcode 15800415.  A webcast replay will also be available at www.techfaithwireless.com.

About TechFaith

TechFaith (NASDAQ: CNTF) has three primary businesses. The Company is a leading global mobile solutions provider for global mobile handsets market (Which previous called ODP (Original Developed Product) business)). Under its TecFace brand, the Company is a leading developer of specialized mobile phones for differentiated market segments, including the rapidly growing Smartphone market targeting users and Operators through its TecFace brand; Outdoor and Sports enthusiasts through its Jungle brand; and the Teen market through licensed brands. Under the Company's 17Vee brand, the Company has built a leading, intellectual property based motion gaming business ranging from Bluetooth enabled motion gaming controllers and software. For more information, please visit www.techfaithwireless.com, www.tecface.com and www.17vee.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 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.

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




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


2011


2011

2010


2011

2010





(As adjusted)(1)



(As adjusted)(1)

Revenues:








ODP

$55,917


$52,348

$55,793


$162,073

$166,567

Brand name phone sales

16,179


17,168

11,252


48,261

24,096

Game

10,690


11,131

1,548


31,779

4,339

Total net revenues

$82,786


$80,647

$68,593


$242,113

$195,002









Cost of revenues:








ODP

$45,141


$44,423

$45,753


$129,929

$134,871

Brand name phone sales

10,086


10,379

6,454


29,364

14,360

Game

5,811


6,731

23


16,663

135

Total cost of revenues

$61,038


$61,533

$52,230


$175,956

$149,366









Gross Profit

$21,748


$19,114

$16,363


$66,157

$45,636









Operating expenses:








General and administrative

$6,964


$3,233

$2,980


$14,636

$9,120

Research and development

2,755


3,687

3,001


9,721

8,760

Selling and marketing

2,767


4,425

1,441


9,544

4,313

Impairment of goodwill

-


606

-


606

-

Exchange gain

(69)


(107)

(40)


(172)

(20)

Total operating expenses

$12,417


$11,844

$7,382


$34,335

$22,173









Government subsidy income

77


111

-


188

151

Other operating income

545


175

168


1,258

342









Income from operations

$9,953


$7,556

$9,149


$33,268

$23,956









Interest expense

-


-

(1)


-

(1)

Interest income

338


362

240


977

630

Investment income

-


-

-


883

-

Other income

-


3

-


4

19

Change in fair value of derivatives
embedded in Convertible notes

-


-

(3,329)


-

1,280

Change in fair value of put option

-


-

(30)


-

(93)

Income before income taxes

$10,291


$7,921

$6,029


$35,132

$25,791

Income tax expenses

(2,367)


(4,249)

(2,538)


(8,783)

(6,646)

Net income

$7,924


$3,672

$3,491


$26,349

$19,145

Less: net (income) loss attributable to the noncontrolling interest

(586)


(395)

964


(1,907)

(159)

Net income attributable to TechFaith

$7,338


$3,277

$4,455


$24,442

$18,986









Net income

attributable to TechFaith per share








 Basic

$0.01


$0.00

$0.01


$0.03

$0.03

 Diluted

$0.01


$0.00

$0.01


$0.03

$0.02





 




Net income attribute to TechFaith per ADS








 Basic

$0.14


$0.06

$0.09


$0.46

$0.40

 Diluted

$0.14


$0.06

$0.09


$0.46

$0.34









Weighted average shares
outstanding








 Basic

794,003,193


794,003,193

734,884,532


794,003,193

712,154,456

 Diluted

794,003,193


794,003,193

734,889,995


794,003,193

784,340,131




CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands of U.S. Dollars)








September 30, 2011


June 30, 2011


December 31, 2010






(As adjusted)(1)

Assets






Current assets:






Cash and cash equivalents

$236,297


$220,546


$198,536

Accounts receivable

9,070


12,028


19,241

Amounts due from a related party

4,960


3,345


8,061

Inventories

12,466


16,211


17,745

Prepaid expenses and other current assets

9,864


10,336


7,997

Deferred tax assets-current

179


165


163

Total current assets

$272,836


$262,631


$251,743







Plant, machinery and equipment, net

$48,130


$48,303


$41,832

Land use right

8,304


8,236


-

Construction in progress

15,679


15,471


2,576

Acquired intangible assets, net

2,493


2,591


2,799

Goodwill

1,242


1,848


1,848

Other Assets

-


-


3,155

Total assets

$348,684


$339,080


$303,953







Liabilities and shareholders' equity






Current liabilities:












Accounts payable (including accounts payable of the consolidated variable interest entities without recourse to China TechFaith Wireless Communication Technology Limited, $nil, $nil and $nil as of  December 31, 2010, June 30, 2011 and September 30, 2011 respectively)

7,520


9,020


7,819

Amounts due to related parties

48


47


46

Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated variable interest entities without recourse to China TechFaith Wireless Communication Technology Limited, $1,272, $832 and $841 as of  December 31, 2010, June 30, 2011 and September 30, 2011 respectively)

17,958


18,825


15,195

Advance from customers (including advance from customers of the consolidated variable interest entities without recourse to China TechFaith Wireless Communication Technology Limited, $339, $199 and $208 as of  December 31, 2010, June 30, 2011 and September 30, 2011 respectively)

8,390


8,895


7,450

Deferred revenue

307


307


291

Income tax payable (including income tax payable of consolidated variable interest entities without recourse to China TechFaith Wireless Communication Technology Limited, $1,282, $22 and $19 as of  December 31, 2010, June 30, 2011 and September 30, 2011 respectively)

4,094


2,519


3,175

Total current liabilities

$38,317


$39,613


$33,976







Long-term loan

290


290


290

Deferred tax liability-noncurrent

114


123


140







Total liabilities

$38,721


$40,026


$34,406







Shareholders' equity






Paid in capital

$16


$16


$16

Additional paid-in capital

141,236


140,893


139,495

Accumulated other comprehensive income

40,164


36,530


31,098

Statutory reserve

16,679


16,679


16,679

Retained earnings

100,539


97,262


76,097

Total TechFaith shareholders' equity

$298,634


$291,380


$263,385

Noncontrolling interest

$11,329


$7,674


$6,162

Total shareholders' equity

$309,963


$299,054


$269,547

Total liabilities and shareholders' equity

$348,684


$339,080


$303,953




(1) The Company subsequently reconsidered the accounting of the issuance of the Notes in 2009 and decided to restate its 2009 financial statement to reflect a more proper accounting treatment. Previously, we first allocated a portion of the proceeds to the embedded derivatives at fair value, and then allocated the remaining proceeds to the debt host. Since the fair value of embedded derivatives exceeded the net proceeds of the Notes, a debit amount of US$3.2 million for the debt host was recorded at issuance date. We then accreted the residual amount (the residual amount of the debt host after deducting the embedded derivatives) to the amount due on the redemption of the Notes over the life of the debt instrument assuming no conversion on redemption. Subsequently, to reflect a more proper accounting treatment, we have recognized the embedded derivatives at their fair value of US$12.8 million and recognized the difference between that amount and the amount of the net proceeds as a loss upon the issuance of the Notes. As a result, for the three months periods ended September 30, 2010, the interest expense in relation to the Notes was adjusted from US$200,541.0 to US$553.0 and the net income was adjusted from US$4.3 million to US$4.5 million. And for the nine months periods ended September 30, 2010, the interest expense in relation to the Notes was adjusted from US$730,817.0 to US$829.0 and the net income was adjusted from US$ 18.4 million to US$19.0 million.



SOURCE China TechFaith Wireless Technology Limited



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