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China TechFaith: TechFaith Reports Fourth Quarter and Full Year 2008 Financial Results

^{Published on 2009-03-09 14:06:49, Last Modified on 2009-11-04 08:03:44 - Market Wire}
 

BEIJING--(Marketwire - March 9, 2009) - China Techfaith Wireless Communication Technology Limited (NASDAQ: [ CNTF ]) ("TechFaith"), an original developed product (ODP) company focused on research and development of cell phone solutions, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2008.

For the fourth quarter of 2008, TechFaith reported total revenues of US$51.9 million, representing a 13.5% increase from US$45.7 million for the same period in 2007 and a 2.1% increase from US$50.8 million in the third quarter of 2008. Gross profit for the fourth quarter of 2008 was US$8.4 million, down from US$14.3 million for the same period last year and down from US$9.3 million in the previous quarter. Gross margin for the fourth quarter of 2008 was 16.2%, compared to 31.3% for the fourth quarter of 2007 and 18.4% in the previous quarter. The decline in gross profit and gross margin was mainly due to the weak market environment and intensified price competition. Operating expense for the quarter was US$8.2 million, down from US$12.3 million for the year ago period and down from US$11.4 million in the previous quarter. The decrease in operating expenses was mainly attributed to continued cost cutting measures which included reducing the workforce and improving R&D efficiency. Net income for the fourth quarter of 2008 was US$0.8 million, or US$0.02 per weighted average outstanding ADS (basic and diluted), compared to a net income of US$3.2 million, or US$0.07 per weighted average outstanding ADS (basic and diluted) in the same period in 2007. Prompted by the decline of its share price in 2008, TechFaith performed an impairment test on all its long-lived fixed assets in accordance with FAS 144. As a result, the company recorded an impairment loss of approximately US$0.9 million in the fourth quarter of 2008. No impairment loss was reported in 2007.

For the full year ended December 31, 2008, TechFaith reported total revenue of US$208.9 million, representing a 45.6% increase from US$143.4 million for full year 2007. Gross profit for the full year 2008 was US$41.4 million, an increase of $2.7 million, or 7.0% compared to the full year 2007. Net income for the full year 2008 was US$8.0 million, or US$0.18 per weighted average outstanding ADS (basic and diluted), compared to a net loss of US$3.3 million, or US$0.08 per weighted average outstanding ADS (basic and diluted) for the full year 2007.

As part of our Sarbanes-Oxley compliance we have conducted an internal control assessment as of December 31, 2008. We have identified certain internal control deficiencies. The final results of our assessment of our internal controls will be disclosed in our annual report on Form 20-F for the year ended December 31, 2008.

Mr. Wilson Cai, the Deputy Chief Executive Officer of TechFaith, said, "Our ability in maintaining our market expansion in the fourth quarter and throughout 2008 in a very difficult global economic environment attests to our successful transformation from a handset design house to a full-range handset ODP provider. The diversity of our product offering combined with our sound execution and delivery in challenging market conditions continued to improve our market position both in China and internationally. We are pleased to see that our early efforts in cost-saving and in resource optimization have resulted in improved operating margin structure and R&D efficiency. And we are excited to report that, in 2008, One Net Entertainment Limited, our wholly-owned subsidiary spearheading TechFaith's effort in developing mobile gaming and related businesses, has made significant progress in operation infrastructure and product development."

Mr. Wilson Cai continued, "In the coming year, our focus remains on positioning TechFaith to be one of the most competitive and efficient handset ODP providers to the global market. We believe China's 3G initiatives represent exciting business opportunities and we are confident in our capability and experience to benefit from these opportunities. Our goal is to continue to strengthen our customer base by optimizing product offering across the full range of GSM/CDMA/EVDO/WCDMA/HSDPA and dual mode platforms and improving our products' speed-to-market. Management remains vigilant on cost saving and we strive to maintain and improve our profit margins through increased cooperation with our co-branding partners in China to promote and develop middle to high-end products to our international customers. Leveraging our design knowledge base, TechFaith aims to be a premier player in the smartphone segment based on Windows Mobile and Google Android operating systems."

Mr. Defu Dong, the Chairman and Chief Executive Officer of TechFaith, said, "I am extremely proud of the facts that we returned to profitability in 2008 despite all the internal and external hurdles that we had to face, and that we largely achieved a comprehensive change in our business model and an overhaul of our cost structure while maintaining positive working capital cash flow. However, this is not a moment to let down our guard. The year 2009 is shaping up to be another very challenging year, and our operating environment can definitely deteriorate further. Yet I believe we are making timely and appropriate strategic responses to the current difficult market conditions while keeping clear sights on a more profitable future when the global economy recovers. We will continue to focus on optimizing our cost structure and enhancing our product development efficiency."

Mr. Defu Dong continued, "On the other hand, current dislocations in our industry as a result of the global recession are creating business opportunities that would be rare in normal situations, and TechFaith will be actively pursuing these opportunities in a responsible way. A particularly bright spot in 2009 will be our new business effort, One Net Entertainment, which we expect to become profitable by the middle of 2009. The wireless mobile gaming platform [ www.798uu.com ] will be commercially launched in the second quarter of 2009; and one to two massively multiplayer online role-playing games will be in open beta very soon. With our product strength and through our efforts on both revenue opportunities and operating efficiency, I am confident that TechFaith will sustain profit growth in 2009."

TechFaith currently expects revenue to be in the range of US$45 million to US$49 million for the first quarter of 2009. This forecast reflects TechFaith's current and preliminary view, which is subject to change.

Conference Call

TechFaith will hold a conference call on Monday, March 9, 2009 at 7:00 p.m. U.S. Eastern Time (Tuesday, March 10 at 7:00 a.m. China Standard Time) to discuss the results. The dial-in numbers for the live audio call are +1-800-510-9691 for U.S. domestic callers and +1-617-614-3453 for international callers. The conference call passcode is 64597864. A live webcast of the conference call will also be available on the investor section of China TechFaith's website at [ www.techfaithwireless.com ].

A replay of the call will be available on Monday, March 9, 2009 at 8 p.m. U.S. Eastern Time (Tuesday, March 10 at 8 a.m. China Standard Time) through 12:00 a.m. U.S. Eastern Time (12 p.m. China Standard Time) on Tuesday, March 24, 2009 at [ www.techfaithwireless.com ] and by telephone at +1-888-286-8010 for US callers or +1-617-801-6888 for international callers. The passcode to access the replay is 44204729.

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) 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 ]

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, TechFaith's limited operating history, TechFaith's ability to effectively manage its business operations and control cost, 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, the global economic downturn, particularly a slowdown in the Chinese economy, 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 Twelve Months Ended September 30 December 31 December 31 2008 2007 2008 2007 2008 ----------- ----------- ----------- ----------- ----------- Revenues: Design fees $ 1,051 $ 5,314 $ 6,517 $ 26,042 $ 15,488 Royalty income 166 1,059 181 7,772 1,158 Component sales 544 586 465 7,854 2,260 Product sales 49,036 38,697 44,687 101,723 189,727 Service income 13 35 5 53 217 ----------- ----------- ----------- ----------- ----------- Total net revenues $ 50,810 $ 45,691 $ 51,855 $ 143,444 $ 208,850 Cost of revenues: Design fees $ 1,447 $ 3,054 $ 3,116 $ 16,882 $ 8,521 Component sales 451 1,107 230 8,328 1,543 Product sales 39,576 27,194 40,125 79,556 157,377 Service Cost 10 25 1 29 44 ----------- ----------- ----------- ----------- ----------- Total cost of revenues $ 41,484 $ 31,380 $ 43,472 $ 104,795 $ 167,485 Gross Profit $ 9,326 $ 14,311 $ 8,383 $ 38,649 $ 41,365 Operating expenses: General and administ- rative $ 6,143 $ 2,852 $ 2,977 $ 11,014 $ 15,098 Research and development 3,462 7,808 2,612 30,876 18,195 Selling and marketing 1,676 868 1,668 3,422 5,497 Impairment of Long-lived Assets - - 880 - 880 Other operating expense 200 - - - 200 Exchange loss (gain) (100) 790 40 2,128 455 ----------- ----------- ----------- ----------- ----------- Total operating expenses $ 11,381 $ 12,318 $ 8,177 $ 47,440 $ 40,325 Other operating income 2,136 81 825 1,734 5,524 (Loss) income from operations $ 81 $ 2,074 $ 1,031 ($ 7,057) $ 6,564 Interest expense (5) (26) (26) (166) (47) Interest income 405 849 295 3,871 1,616 Other income (expense), net 4 121 (11) (220) (22) Change in fair value of put option (201) (12) (663) (43) (855) ----------- ----------- ----------- ----------- ----------- Income before income taxes $ 284 $ 3,006 $ 626 ($ 3,615) $ 7,256 Income tax (21) (3) 114 (6) 93 ----------- ----------- ----------- ----------- ----------- Income before minority interests $ 263 $ 3,003 $ 740 ($ 3,621) $ 7,349 Minority interests 188 223 84 1,200 652 Equity in loss of an affiliate - - - (851) - ----------- ----------- ----------- ----------- ----------- Net (loss) income $ 451 $ 3,226 $ 824 ($ 3,272) $ 8,001 =========== =========== =========== =========== =========== Net income per ordinary share Basic $ - $ - $ - ($ 0.01) $ 0.01 =========== =========== =========== =========== =========== Diluted $ - $ - $ - ($ 0.01) $ 0.01 =========== =========== =========== =========== =========== Net income per ADS* Basic $ 0.01 $ 0.07 $ 0.02 ($ 0.08) $ 0.18 =========== =========== =========== =========== =========== Diluted $ 0.01 $ 0.07 $ 0.02 ($ 0.08) $ 0.18 =========== =========== =========== =========== =========== Weighted average ordinary shares outstanding Basic 650,027,078 649,902,047 650,034,590 649,807,421 649,972,306 =========== =========== =========== =========== =========== Diluted 650,055,184 650,161,411 650,097,813 649,807,421 650,052,859 =========== =========== =========== =========== =========== Revenue Breakout 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 ------- ------- ------- ------- ------- ------- ------- ------- Design fees Internat- ional 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 $ 6,517 Royalty Internat- ional customers $ 300 $ 461 $ 194 $ 287 $ 10 $ - $ 17 $ - Domestic customers $ 1,851 $ 1,427 $ 925 $ 483 $ 524 $ 277 $ 149 $ 181 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 $25,483 PCBA $ 2,149 $ 2,454 $ 717 $ 22 $ - $ - $ 109 $ - Wireless module $ 1,452 $ 7,202 $ 2,483 $ 1,377 $ 3,752 $ 1,220 $ 1,035 $ 1,324 Feature phone $ 3,787 $ 5,349 $18,153 $20,134 $23,156 $22,774 $18,525 $17,880 Other component sales $ 2,965 $ 2,642 $ 1,682 $ 565 $ 731 $ 520 $ 544 $ 465 Service income $ - $ - $ 18 $ 35 $ 35 $ 164 $ 13 $ 5 ------- ------- ------- ------- ------- ------- ------- ------- Total net revenues $27,280 $32,027 $38,446 $45,691 $49,595 $56,590 $50,810 $51,855 ======= ======= ======= ======= ======= ======= ======= ======= CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands of U.S. Dollars) December September December 31, 2007 30, 2008 31, 2008 --------- --------- --------- Assets Current assets: Cash and cash equivalents $ 84,754 $ 103,578 $ 78,926 Restricted cash 3,389 80 162 Accounts receivable 40,014 40,447 37,804 Amount due from related parties 1,101 5,609 5,537 Notes receivable 4,020 101 85 Inventories 50,763 43,022 37,763 Deferred tax assets - - 132 Prepaid expenses and other current assets 10,116 12,804 10,003 --------- --------- --------- Total current assets $ 194,157 $ 205,641 $ 170,412 --------- --------- --------- Deposits for acquisition of plant, machinery and equipment, and acquisition of intangible assets $ 10,177 $ 15,655 $ - Plant, machinery and equipment, net 28,275 26,345 24,667 Construction in progress - - 23,458 Acquired intangible assets, net 1,646 1,747 921 Goodwill 606 606 606 Total assets $ 234,861 $ 249,994 $ 220,064 ========= ========= ========= Liabilities and shareholders' equity Current liabilities: Current portion of Long term payable $ 1,358 $ 1,185 $ 1,211 Accounts payable 35,416 40,569 9,214 Amount due to related parties 201 475 419 Accrued expenses and other current liabilities 14,569 8,874 10,247 Advance from customers 7,512 5,941 5,260 Deferred revenue 1,541 1,372 1,748 Income tax payable 142 171 149 --------- --------- --------- Total current liabilities $ 60,739 $ 58,587 $ 28,248 Long-term payable $ 453 $ - $ - --------- --------- --------- Total liabilities $ 61,192 $ 58,587 $ 28,248 --------- --------- --------- Minority interests $ 1,660 $ 1,092 $ 1,008 Shareholders' equity Ordinary shares $ 13 $ 13 $ 13 Additional paid-in capital 110,327 110,513 110,581 Treasury stock (4,628) (4,628) (4,628) Accumulated other comprehensive income 13,776 24,719 24,320 Statutory reserve 6,813 6,813 8,542 Retained earnings 45,708 52,885 51,980 --------- --------- --------- Total shareholders' equity $ 172,009 $ 190,315 $ 190,808 --------- --------- --------- Total liabilities and shareholders' equity $ 234,861 $ 249,994 $ 220,064 ========= ========= =========