China TechFaith Wireless Communication Technology Limited (Nasdaq: CNTF), a handset application software and handset solution provider based in China, today announced its unaudited financial results for the first quarter ended March 31, 2006. The Company also reiterated its prior financial guidance for the second quarter and full year 2006 and announced 9 new Smartphone contracts.
Defu Dong, TechFaith's Chairman and CEO, said, "The first quarter developed as we expected and was a transition period. We remain confident based on the success and outlook of our three business units -- handset design, smartphone and pocket PC, and application software. Our focused structure differentiates TechFaith and is helping us work effectively with customers globally to speed the design process, reduce the time to market and lower the costs."
"The upside in first quarter revenue compared to prior guidance was primarily due to the relatively faster growth of existing customers than we had expected. Based on current forecasts, we are reiterating our prior guidance. We expect sequential revenue and profit growth will resume in the second quarter based on existing customer orders and our successful business diversification efforts. We already have multiple new customers ramping design programs with us, including one in Japan and at least two in Europe. Specifically, based on existing orders, we expect second quarter 2006 revenue to be approximately US$24 million, with net income of approximately US$8.5 million."
TechFaith's Unaudited First Quarter 2006 Results
Net revenue for the first quarter of 2006 was US$12.8 million, as compared to US$21.5 million for the same period in 2005. As outlined in the Company's press release on March 21, 2006, it expected lower revenue due to lower orders from a major customer along with TechFaith's discontinuance of 2 out of 4 GSM platforms to focus on 3G opportunities.
Design fee revenue for the first quarter of 2006 was US$9.0 million, as compared to US$16.5 million for the same period in 2005. Royalty income in the first quarter of 2006 was US$1.8 million, as compared to US$3.1 million for the same period in 2005. Revenue from component products was US$2.0 million in the first quarter of 2006, as compared to US$1.8 million in the same period in 2005. In the first quarter of 2006, approximately 65.4% of revenue from component products was from sales of wireless modules and 34.6% from sales of other component products.
Net income for the first quarter of 2006 was US$1.3 million or US$0.03 per weighted average outstanding ADS (basic and diluted), compared to net income of US$8.3 million or US$0.25 per basic weighted average outstanding ADS or US$0.22 per diluted weighted average outstanding ADS in the same period in 2005.
Gilbert Lee, President and Chief Operating Officer of TechFaith, said, "During the quarter we expanded our long-standing relationship with Qualcomm to form a new mobile software company. The new company, TechFaith Software China Ltd., will develop software for wireless devices. The independent entity will be based in Beijing and Hangzhou, China and will receive cash and in-kind contributions worth up to US$35 million from both parties, subject to performance milestones and other conditions. This is an important initiative for us and significantly expands the dedicated resources we have. The company will focus on application software for handset usage. In the initial phase, all products will be based on Qualcomm's platform."
Business Outlook
Mr. Dong concluded, "With the first quarter behind us, we believe TechFaith is back on the fast growth trajectory we were previously on. We are very positive about our growth prospects for 2006 given the strength of our core business and the expected global growth of the handset sales. New technologies are being embraced at a faster pace by consumers, which are driving carriers and handset brand owners to accelerate their adoption of advanced technologies to remain competitive. Software remains the backbone of these new feature sets and TechFaith has the realigned structure, handset application software and design strengths, and long-term customer relationships already in place to benefit.
TechFaith continues to expect revenue from Smartphone opportunities will contribute 25% of its 2006 revenue. Nine new Smartphone contracts have already been signed. Reflecting the large, global opportunity we are pursuing in this area, among the nine new contracts, five are with customers in China, two are with customers in Europe, one is with a customer in Southeast Asia and one is with a customer in Russia. Smartphone adoption is accelerating given the compelling benefits and convergence of telecommunications, email, music, camera and many other feature sets. The complexity of the devices and required software also continues to increase with each feature set added. This trend bodes well for TechFaith given our expertise in helping customers address this complexity in a cost-down environment.
As part of our Smartphone efforts we are aggressively going after the Windows Mobile and Windows Media opportunity. We recently signed a M.O.U. with Microsoft to establish a strategic collaboration to promote the use of Windows Mobile and Windows Media technology. TechFaith and Microsoft will work together to improve the user experience and market share of Windows Mobile based devices, while reducing the time to market and lowering development costs. This strategic collaboration will give us a further competitive advantage in the marketplace.
Finally, we continue to expect that international brand owners will represent 60% to 70% of our revenue in 2006, about the same level in 2005. However, the percentage of revenue from product designed for international markets is expected to increase to 20% to 30% in 2006, up from 5% in 2005, with demand from Japan, United States, Russia, India and European countries."
TechFaith's ADSs, each of which represents 15 ordinary shares of TechFaith, are currently trading on the Nasdaq National Market under the symbol "CNTF."
Investor Conference Call / Webcast Details
The dial-in number for the live audio call beginning on May 15, 2006 at 7:00 p.m. U.S. Eastern Time (7:00 a.m., May 16, 2006 in Beijing) is 1-800-599-9829 (domestic) or 1-617-847-8703 (international). The passcode is 92133459. A live webcast of the conference call will be available on China TechFaith's website at http://www.techfaithwireless.com.
A replay of the call will be available on May 15, 2006 at 9:00 p.m., U.S. Eastern Time (9:00 a.m., May 16, 2006 in Beijing) through midnight on May 22, 2006, U.S. Eastern Time (noon, May 23, 2006 in Beijing) at http://www.techfaithwireless.com and by telephone at 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode to access the replay is 58454500.
About TechFaith
TechFaith (Nasdaq: CNTF) is one of the largest handset application software and handset solution providers. Based in China, the Company employs approximately 2,350 professionals with 90% engineers. TechFaith's three business units are handset design, application software, and smartphone and pocket PC. With the capability of developing MMI / UI software on GSM/GPRS, CDMA1X, EVDO, WCDMA/UMTS, HSDPA and TD-SCDMA communication technologies, TechFaith is able to provide MMI/UI software packages that fulfill the specifications of handset brand owners and major global operators. Having a full range of wireless application software including WAP, Java, MMS, WWW browser, SyncML and DRM, TechFaith is also providing total solutions for upper layer software of handsets. In addition, TechFaith is developing smart phone software based on open operating systems including Linux and Windows Mobile, and capable of implementing high-end smart phones integrating Bluetooth, WiFi, high mega pixel cameras etc. based on different communication technologies according to special requirements of customers. TechSoft, the Company's newly established entity with Qualcomm's capital investment is focusing on the development of application software for wireless devices. For more information, please visit http://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" 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 successfully execute its business plan and growth strategy, mobile handset brand owners' discontinuation or reduction of the use of independent design houses, TechFaith's ability to retain existing or attract additional international customers, TechFaith's earnings or margin declines, failure of competing against new and existing competitors, and other risks outlined in TechFaith's filings with the U.S. Securities and Exchange Commission, including its registration statement on Form F-1, as amended. TechFaith does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
CONTACTS:
In China: In the U.S.:
Ms. Helen Zhang David Pasquale, EVP at The Ruth Group
Tel: 86-10-5822-7395 Tel: +646-536-7006
ir@mail.techfaith.cn dpasquale@theruthgroup.com
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of U.S. Dollars, except share and per
share/ADS data and unless otherwise stated)
Three Months ended
March 31, 2005 Dec 31, 2005 March 31, 2006
(unaudited) (unaudited) (unaudited)
Revenues:
Design fees $16,534 $14,777 $8,990
Royalty income 3,100 4,081 1,849
Component products 1,846 5,251 1,993
Total net revenues $21,480 $24,109 $12,832
Cost of revenues
Design fees $6,408 $6,135 $5,541
Royalty income - - -
Component products 1,566 4,009 1,687
Total cost of revenues $7,974 $10,144 $7,228
Gross profit $13,506 $13,965 $5,604
Operating expenses:
General and administrative ($1,331) ($3,249) ($2,518)
Research and development (868) (896) (2,681)
Selling and marketing (267) (372) (467)
Total operating expenses ($2,466) ($4,517) ($5,666)
Income (loss) from operations $11,040 $9,448 ($62)
Interest expense (583) - -
Other income, net 73 1,031 1,219
Change in fair value of call
option (1,303) - -
Income before income taxes $9,227 $10,479 $1,157
Income tax - (54) -
Income before minority
interests $9,227 $10,425 $1,157
Minority interests (976) 65 109
Net income $8,251 $10,490 $1,266
Net income per ordinary share
Basic $0.02 $0.02 $ -
Diluted $0.02 $0.02 $ -
Net income per ADS*
Basic $0.25 $0.24 $0.03
Diluted $0.22 $0.24 $0.03
Weighted average ordinary shares
outstanding
Basic 500,000,000 658,183,409 658,183,409
Diluted 566,037,735 658,183,409 658,183,409
* Each ADS represents 15 ordinary shares
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
UNAUDITED SUPPLEMENTAL FINANCIAL DATA
(In Thousands of U.S. Dollar)
Revenue Breakout 1Q05 2Q05 3Q05 4Q05 1Q06
Design fees
International customers $14,062 $12,203 $10,238 $9,167 $5,737
Domestic customers $ 2,472 $ 2,872 $ 6,396 $5,610 $3,253
Royalty
International customers $ 181 $ 432 $ 387 $ 349 $ 454
Domestic customers $ 2,189 $ 3,311 $ 2,792 $2,778 $ 638
Component vendors $ 730 $ 670 $ 878 $ 954 $ 757
Component products
Wireless module $ 59 $ 639 $ 1,375 $3,420 $1,304
Other component sales $ 1,787 $ 1,086 $ 1,242 $1,831 $ 689
Total net revenues $21,480 $21,213 $23,308 $24,109 $12,832
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands of U.S. Dollars)
Three Months ended
March 31, 2005 Dec 31, 2005 March 31, 2006
(unaudited) (unaudited) (unaudited)
Cash flows from operating
activities:
Net income $8,251 $10,490 $1,266
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities (4,381) (6,821) 11,185
Net cash provided by
operating activities $3,870 $3,669 $12,451
Cash flows from investing
activities:
Deposit paid for
acquisition of plant,
machinery and equipment (416) (597) (534)
Purchase of plant,
machinery and equipment (1,298) (1,275) (1,240)
Investment in an affiliate - - (1,243)
Proceeds on disposal of
plant, machinery and
equipment - 8 1
Net cash used in investing
activities ($1,714) ($1,864) ($3,016)
Effect of exchange rate
changes $ 30 $ 203 $ 454
Net increase in cash and
equivalents 2,186 2,008 9,889
Cash and equivalents,
beginning of the period 35,086 135,199 137,207
Cash and equivalents, end
of the period $37,272 $137,207 $147,096
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars)
March 31, 2005 Dec 31, 2005 Mar 31, 2006
(unaudited) (audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $37,272 $137,207 $147,096
Accounts receivable 16,915 34,060 24,220
Notes receivable 2,600 1,070 659
Marketable securities 261 - -
Deposit 3,852 - -
Inventories 4,774 4,974 6,010
Prepaid expenses and other
current assets 3,454 926 1,405
Total current assets $69,128 $178,237 $179,390
Deposits for acquisition
of plant, machinery and
equipment, and acquired
intangible assets $945 $597 $1,021
Plant, machinery and
equipment, net 9,937 14,483 14,219
Acquired intangible assets,
net 853 846 750
Investment in an affiliate - - 1,243
TOTAL ASSETS $80,863 $194,163 $196,623
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Account payable $2,999 $3,294 $3,051
Accrued expenses and other
current liabilities 6,418 9,714 9,203
Advance from customers 16,975 2,273 3,818
Profit tax payable - 54 54
Total current liabilities $26,392 $15,335 $16,126
Convertible notes $12,122 $ - $ -
Derivative liability 3,259 - -
Minority interests 2,716 2,975 2,865
Shareholders' equity
Ordinary shares of par value
$0.00002 10 13 13
Additional paid-in capital 4,832 109,798 109,857
Accumulated other
comprehensive income 80 1,456 1,910
Retained earnings 31,452 64,586 65,852
Total shareholders' equity $36,374 $175,853 $177,632
Total liabilities and
shareholders' equity $80,863 $194,163 $196,623