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TechFaith Reports Fourth Quarter and Fiscal Year 2005 Results22 March 2006
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 fourth quarter and fiscal year 2005.
Fourth Quarter Financial Highlights
* Net revenue increased to US$24.1 million, reflecting 64.5% year-over-
year growth
* Income from operations increased to US$9.4 million, reflecting 33.7%
year-over-year growth
* Net income increased to US$10.5 million, reflecting 58.1% year-over-year
growth
* Fourth quarter diluted earnings per weighted average outstanding
American Depositary Share ("ADS") increased to US$0.24, reflecting 26.3%
year-over-year growth from US$0.19 in the fourth quarter of 2004
Fiscal Year 2005 Financial Highlights
* Fiscal year 2005 net revenue increased to US$90.1 million, reflecting
93.5% year-over-year growth
* Fiscal year 2005 income from operations increased to US$40.8 million,
reflecting 117.9% year-over-year growth
* Fiscal year 2005 net income increased to US$41.4 million, reflecting
126.8% year-over-year growth
* Fiscal year 2005 diluted earnings per weighted average outstanding ADS
increased to US$1.00, reflecting 92.3% year-over-year growth from
US$0.52 in 2004
Defu Dong, TechFaith's Chairman and CEO, said, "This was another successful year for TechFaith as measured by growth in our revenues, net income, design wins, and our expanded international footprint. Since our inception in 2002, we have become the largest handset software design house in China and one of the largest in the world. During the fourth quarter of 2005, we continued to expand globally, with the opening of our first U.S. office in San Diego to provide on-the-ground technical support and services to our customers in the important North American market and serve as a platform for our regional business expansion. Importantly, we have realigned our company along three business units: handset design, smartphone and wireless module, and wireless software and applications. We expect our new structure will enable us to even more effectively manage the business and capitalize on the numerous market opportunities we are pursuing."
"Notably, we launched our first 3G phone during the quarter. The 3G phone is available in Italy and features Qualcomm's 6250 chipset, with WCDMA/GSM mode. As we believe demand for 3G handsets presents significant opportunity to us, we have reallocated most of our GSM resources to focus on 3G programs beginning from the fourth quarter of 2005. While this move impacted our revenue in the short-term since we halted 2 out of 4 GSM platforms, 3G demand was high enough to make this a compelling strategic business decision. We are now able to handle a much greater number of 3G designs, which positions TechFaith to work with carriers and handset brand owners to adopt this advanced technology worldwide. We also established TechFaith Intelligent Handset Technology Limited, a new wholly owned subsidiary focused on Smartphones and related products. This fast growing segment is being driven by the continued convergence of voice and data. Smartphone technologies are unique and require dedicated R&D and other resources in order to be successful. We are confident in the new subsidiary's long-term growth prospects and expect the first series of products will launch in the second quarter of 2006."
TechFaith's Unaudited Fourth Quarter and Fiscal Year 2005 Results
Net revenue for the fourth quarter of 2005 was US$24.1 million, a 64.5% increase as compared to US$14.7million for the same period in 2004. Design fee revenue for the fourth quarter of 2005 was US$14.8 million, a 47.9% increase as compared to US$10.0 million for the same period in 2004. Royalty income in the fourth quarter of 2005 was US$4.1 million, an increase of 124.6% compared to US$1.8 million for the same period in 2004. Revenue from component products was US$5.3 million in the fourth quarter of 2005, an increase of 84.4 % compared to US$2.8 million in the same period in 2004. In the fourth quarter of 2005, approximately 65.1% of revenue from component products was from sales of wireless modules and 34.9% from sales of other component products.
Income from operations for the fourth quarter of 2005 was US$9.4 million, an increase of 33.7% compared to US$7.1 million in the same period in 2004. Net income for the fourth quarter of 2005 was US$10.5 million or US$0.24 per weighted average outstanding ADS (basic and diluted), an increase of 58.1% compared to net income of US$6.6 million or US$0.20 per basic weighted average outstanding ADS and US$0.19 per diluted weighted average outstanding ADS in the same period in 2004.
Net revenue for fiscal year 2005 was US$90.1 million, a 93.5% increase as compared to US$46.6 million for fiscal year 2004. Design fee revenue for the full year 2005 was US$63.0 million, a 113.7% increase from 2004. Royalty income for the full year 2005 was US$15.7 million, an increase of 124.8% from 2004. Revenue from component products was US$11.4 million for the full year 2005, an increase of 13.2% from 2004. For the fiscal year 2005, approximately 48.0% of revenue from component products was from sales of wireless modules and 52.0% from sales of other component products.
Income from operations for the fiscal year 2005 was US$40.8 million, an increase of 117.9% compared to US$18.7 million in 2004. Net income for fiscal year 2005 was US$41.4 million or US$1.03 per weighted average outstanding ADS (basic and diluted), an increase of 126.8% compared to net income of US$18.2 million or US$0.55 per basic weighted average outstanding ADS and $0.52 per diluted weighted average outstanding ADS in 2004.
Gilbert Lee, President and Chief Operating Officer of TechFaith, said, "While we continued to leverage our relatively low operating costs in supporting a higher revenue base, our gross profit margin decreased to 57.9% in the fourth quarter of 2005, compared to 61.1% in the third quarter of 2005. The decline was due to changes in the product mix and strategic allotment, with higher sales of lower margin component products. Revenue from component products increased primarily due to our recent entrance into the CDMA wireless modules market. We expect revenue from component products will be flat or decreased in 2006 compared to 2005. We continue to maintain strict cost controls as we manage the company's growth. As we move forward, we aim to target both top-line growth and increased operating efficiencies while continuing to successfully execute our business strategy worldwide. In line with this goal, we recently appointed several executives to our senior management team. These latest appointments will help further strengthen our management team and enable us to execute on the increasing opportunities we are seeing both domestically and internationally."
Business Outlook
Mr. Dong concluded, "We are very positive about our growth prospects for 2006. Our markets are growing fast globally. New technologies are being embraced by consumers, which is 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. Revenue from Smartphone opportunities is expected to contribute 25% of our 2006 revenue. Our other goal is to increase the percentage of revenue from product designed for international markets from 5% of revenue in 2005 to approximately 20% in 2006 with demand from Japan, United States, Russia, India and other European countries. We expect international brand owners will represent 65% of our revenue in 2006, up from 64% in 2005."
"While we are optimistic about our prospects for the full year 2006, we do not expect the year to develop in a linear fashion. In fact, based on current forecasts, we expect the first quarter to come in significantly lower than the fourth quarter of 2005. This is lower than our prior expectations primarily due to lower orders from a major customer along with our discontinuance of 2 out of 4 GSM platforms. 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, we expect revenue for first quarter of 2006 to be approximately US$12.5 million, with net income of approximately US$1 million. 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. For the full year 2006, we expect revenue will be at least US$120 million, with net income of approximately US$44 million.
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 March 20, 2006 at 7:00 p.m. U.S. Eastern Standard Time (8:00 a.m., March 21, 2006 in Beijing) is +001-617-213-8054. The passcode is "TechFaith." 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 March 20, 2006 at 9:00 p.m., U.S. Eastern Standard Time (10:00 a.m., March 21, 2006 in Beijing) through midnight on March 27, 2006, U.S. Eastern Standard Time (1:00 p.m., March 28, 2006 in Beijing) at http://www.techfaithwireless.com and by telephone at +001- 617-801-6888. The passcode to access the replay is 60561873.
About TechFaith
TechFaith (Nasdaq: CNTF) is one of the largest handset application software and handset solution providers based in China. With the technology capabilities in 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 major global operators. TechFaith provides a full range of handset application software including WAP, Java, MMS, WWW browser, SyncML and DRM. TechFaith is also capable of providing total solutions for upper layer software of handsets. In addition, TechFaith has the capability to develop smart phones and smart phone software based on open operating systems including Linux and Windows CE. TechFaith is able to implement high-end smart phones integrating Bluetooth, WiFi, high mega pixel cameras, based on different communication technologies according to special requirements of customers. Based on the above technology and software capabilities, TechFaith provides a full range of services in handset design to satisfy different customers' needs. Our services include (i) handset design solutions; (ii) turnkey software and design solutions on chipsets; (iii) application software; and (iv) wireless module and wireless application products. For more information 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, 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:
Ms. Yuping OuYang
Tel: 86-10-5822-9918
ir@mail.techfaith.cn
In the U.S.:
David Pasquale, EVP at The Ruth Group
Tel:+646-536-7006
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 Twelve Months Ended
December 31, December 31,
2004 2005 2004 2005
(unaudited) (unaudited) (audited) (unaudited)
(note)
Revenues:
Design Fees $9,992 $14,777 $29,495 $63,020
Royalty income 1,817 4,081 6,961 15,651
Component products 2,847 5,251 10,104 11,439
Total net revenues $14,656 $24,109 $46,560 $90,110
Cost of revenues
Design fees $3,634 $6,135 $10,951 $26,258
Royalty income 181 - 725 -
Component products 2,080 4,009 8,208 8,803
Total cost of revenues $5,895 $10,144 $19,884 $35,061
Gross Profit $8,761 $13,965 $26,676 $55,049
Operating expenses:
General and
administrative $1,226 $3,249 $4,771 $9,574
Selling and marketing 275 896 2,506 3,447
Research and development 193 372 694 1,269
Total operating expenses $1,694 $4,517 $7,971 $14,290
Income from operations $7,067 $9,448 $18,705 $40,759
Other (expenses)
income, net (380) 1,031 (1,346) 3,452
Change in fair value
of call option (1) - 862 (1,303)
Income before income taxes $6,686 $10,479 $18,221 $42,908
Income tax - (54) - (54)
Income before minority
interests $6,686 $10,425 $18,221 $42,854
Minority interests (50) 65 23 (1,469)
Net income $6,636 $10,490 $18,244 $41,385
Net income per ordinary share
Basic $0.01 $0.02 $0.04 $0.07
Diluted $0.01 $0.02 $0.03 $0.07
Net income per ADS*
Basic $0.20 $0.24 $0.55 $1.03
Diluted $0.19 $0.24 $0.52 $1.00
Weighted average ordinary
shares outstanding
Basic 500,000,000 658,183,409 500,000,000 604,011,009
Diluted 566,037,735 658,183,409 551,823,942 626,626,671
* Each ADS represents 15 ordinary shares
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
UNAUDITED SUPPLEMENTAL FINANCIAL DATA
(In Thousands of U.S. Dollar)
Revenue Breakout 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05
Design fees
International
customers $6,111 $7,383 $14,062 $12,203 $10,238 $9,166
Domestic
customers $3,012 $2,609 $2,472 $2,872 $6,396 $5,610
Royalty
International
customers $0 $0 $181 $432 $387 $349
Domestic
customers $827 $1,582 $2,189 $3,311 $2,792 $2,778
Component
vendors $13 $235 $730 $670 $878 $955
Component products
Wireless module $294 $67 $59 $639 $1,375 $3,420
Other component
sales $1,776 $2,780 $1,787 $1,086 $1,242 $1,831
Total net
revenues $12,033 $14,656 $21,480 $21,213 $23,308 $24,109
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands of U.S. Dollars)
For Three Months Ended For Twelve Months Ended
December 31, December 31,
2004 2005 2004 2005
(unaudited) (unaudited) (audited) (unaudited)
(note)
Cash flows from
operating activities:
Net income $6,636 $10,490 $18,244 $41,385
Adjustments to reconcile
net income to net cash
provided by operating
activities 4,626 (7,840) 7,565 (26,900)
Net cash provided by
operating activities $11,262 $2,650 $25,809 $14,485
Cash flows from investing
activities:
Deposit paid (3,740) - (3,740) -
Deposit paid for
acquisition of and
purchase of plant,
machinery and
equipment (2,263) (1,872) (6,172) (9,429)
Purchase of acquired
intangible assets (78) - (1,941) (221)
Net proceed from sale of
marketable securities 3,740 - 3,740 4,160
Proceeds on disposal of
plant, machinery and
equipment 1 8 1 13
Interest income - 1,019 - 2,418
Net cash used in investing
activities ($2,340) ($845) ($8,112) ($3,059)
Net cash provided by
financing activities - - $9,700 $89,258
Effect of exchange
rate changes ($19) $203 ($10) $1,437
Net increase in cash
and equivalents 8,903 2,008 27,387 102,121
Cash and equivalents,
beginning of the period 26,183 135,199 7,699 35,086
Cash and equivalents, end
of the period $35,086 $137,207 $35,086 $137,207
CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars)
December September December
31, 2004 30, 2005 31, 2005
(audited) (unaudited) (unaudited)
(note)
Assets
Current assets:
Cash and cash equivalents $35,086 $135,199 $137,207
Accounts receivable 7,760 22,969 34,060
Notes receivable 2,296 1,974 1,070
Marketable securities 346 - -
Deposit 3,740 - -
Inventories 5,030 4,783 4,974
Prepaid expenses and other
current assets 2,254 1,058 926
Total current assets $56,512 $165,983 $178,237
Deposits for acquisition of
plant, machinery and equipment,
and acquisition of
intangible assets $529 $1,611 $597
Plant, machinery and
equipment, net 9,556 12,754 14,483
Acquired intangible
assets, net 945 889 846
Total assets $67,542 $181,237 $194,163
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable $2,834 $1,790 $3,294
Accrued expenses and other
current liabilities 4,617 5,998 9,714
Advance from customers 16,418 5,249 2,273
Income tax payable - - 54
Total current liabilities $23,869 $13,037 $15,335
Convertible notes $11,887 $- $-
Derivative liability 1,956 - -
Minority interests 1,740 3,040 2,975
Shareholders' equity
Ordinary shares 10 13 13
Additional paid-in capital 4,832 109,798 109,798
Accumulated other
comprehensive income 47 1,253 1,456
Retained earnings 23,201 54,096 64,586
Total shareholders' equity $28,090 $165,160 $175,853
Total liabilities and
shareholders' equity $67,542 $181,237 $194,163
Note: Information extracted and derivated from the audited financial information included in the company's prospectus dated May 5,2005.
Source: prnewswire
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