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TechFaith Reports Second Quarter 2014 Financial Results

BEIJING, Aug. 19, 2014 /PRNewswire/ -- China TechFaith Wireless Communication Technology Limited (NASDAQ: CNTF) ("TechFaith" or the "Company") today announced unaudited financial results for the second quarter ended June 30, 2014.

For the second quarter of 2014, TechFaith reported net revenue of US$23.1 million compared to US$26.2 million in the first quarter of 2014. This is in line with the Company's previously issued guidance for the second quarter, which estimated revenue to be in the range of US$22 million to US$26 million. Revenue for the Company's Original Developed Product, or ODP, business was US$18.4 million, as compared to US$23.3 million in the first quarter of 2014. The 21.3% sequential decline in revenue from the ODP business was mainly due to continuing intensive competition in smartphone markets worldwide. Revenue in the Company's brand name phone business was US$4.5 million, as compared to US$2.7 million in the first quarter of 2014. The 64.6% sequential increase in revenue from the brand name phone business was mainly due to increased customer demand for the Company's tailored mobile devices. 

Gross profit for the second quarter was US$2.0 million, compared to US$1.9 million in the first quarter of 2014 and US$3.4 million in the second quarter of 2013, reflecting the adverse impact of the lower revenue base and different business mix compared to the same period from last year. Gross margin for the second quarter of 2014 was 8.8%, compared to 7.4% in the first quarter of 2014 and 11.2% in the second quarter of 2013. Net loss attributed to TechFaith for the second quarter of 2014 was US$2.1 million, or US$0.04 loss per basic and diluted weighted average outstanding ADS, compared to net loss of US$2.9 million, or US$0.05 loss per basic and diluted weighted average outstanding ADS, in the first quarter of 2014, and a net loss of US$1.0 million, or US$0.02 loss per basic and diluted weighted average outstanding ADS, in the second quarter of 2013.

Miss Ouyang Yuping, TechFaith's Chief Financial Officer, said, "Revenue for the second quarter was in line with our guidance, as sequential growth in our brand name phone business helped offset declines in our ODP business.  We were also able to achieve a sequential improvement in our gross margin to 8.8% from 7.4% in the first quarter. This remains below our historical average gross margin level, reflecting the continuing negative impact of intense competition worldwide in the smartphone markets.  As a positive, operating expenses declined slightly in the second quarter of 2014 as we continually monitor our costs. We are also keeping the development of our real estate portfolio on track from an investment cost and timeline standpoint.  This is reflected in our quarter end balance of cash and cash equivalents, which declined slightly to US$253.9 million, as compared to US$258.5 million in the first quarter, primary due to the planned costs associated with our ongoing real estate portfolio development."

Mr. Deyou Dong, President and Chief Operating Officer of TechFaith, said, "Despite the lower revenues level at which we have been operating, we are very optimistic about TechFaith's prospects.  There is a fundamental shift going on in the dynamic mobile market. Large dominant brands are no longer able to control all local markets. The pendulum has swung back in favor of local brands being able to make inroads with competitively priced, value-added offerings. We are seeing this in our domestic China market and other key markets worldwide. For TechFaith, we expect the competitive environment to remain very challenging for the foreseeable future. We understand, however, that we can make inroads above our current lower revenue level by leveraging our design expertise, market knowledge and close customer relationships. Areas where we have been at the forefront – including our branded ruggedized smartphones and perfecting features like dual-SIM capacity, better camera capabilities and a variety of healthcare applications - give us a window of opportunity on which we can capitalize. For example, we are optimistic that shipments for our new ruggedized models will increase over the next few quarters given the uniqueness of our integrated hardware and software. Finally, we continue our efforts in developing our branded Smart ruggedized devices in the domestic China market through above and below the line advertisements, as well as new social media platforms."

Mr. Defu Dong, Chairman and Chief Executive Officer of TechFaith, said, "The continued challenging competitive market is masking our continued progress on the development of our real estate portfolio and the value of our core handset business. We have navigated widespread industry and business shifts in the past. By focusing on our core market strengths and the needs of customers and carriers we serve worldwide, we have built TechFaith as a global brand that is equated with excellence in design and superb handset performance. We remain flexible in navigating the challenging market and focused on keeping operating costs lean, while maintaining a very strong balance sheet. We are optimistic about our long-term prospects despite our current lower revenue level. We have several promising product upgrades and new launches in the pipeline, including our planned entry later this year into the wearables market with a ruggedized sports watch. We also plan to expand and extend the success of our ruggedized product line by developing a ruggedized extreme camera. This is particularly exciting for us as we can offer a complete line of ruggedized solutions to our clients."

Third Quarter of 2014 Outlook

The forecast below is TechFaith's current and preliminary view, which is subject to change.  TechFaith currently expects total revenues for the third quarter of 2014 to be in the range of US$22.0 million to US$24.0 million.

Investor Conference Call / Webcast Details

TechFaith will hold a conference call on Tuesday, August 19, 2014 at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Tuesday, August 19, 2014 in Beijing), using dial-in +1-857-244-7556 or +1-877-474-9503. The conference call passcode is 93469840.  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 43203244. 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 under its  ODP business (Original Developed Product).  The Company is a leading developer of specialized mobile phones for differentiated market segments, including the rapidly growing smartphone market targeting wireless mobile phone network operators and end users; the Company also serves sports enthusiasts with a tailored line under the MFOX brand and the teen market under licensed brands. Under the Company's 17Fox brand (previously "17Vee"), the Company has built a leading intellectual property based motion gaming business ranging from Bluetooth-enabled motion gaming controllers and software to a planned proprietary set-top motion game box. 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," "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.

 

CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands of U.S. Dollars, except share and per share/ADS data)










Three Months Ended


Three Months Ended


Six Months Ended

March 31


June 30


June 30


2014


2014

2013


2014

2013









Revenues:








ODP

$23,338


$18,365

$20,128


$41,703

$34,660

Brand name phone sales

2,712


4,463

8,392


7,175

18,693

Game

117


266

1,643


383

5,045

Total net revenues

$26,167


$23,094

$30,163


$49,261

$58,398









Cost of revenues:








ODP

$21,719


$16,823

$19,059


$38,542

$32,216

Brand name phone sales

2,492


4,211

6,414


6,703

14,292

Game

26


38

1,303


64

3,942

Total cost of revenues

$24,237


$21,072

$26,776


$45,309

$50,450









Gross Profit

$1,930


$2,022

$3,387


$3,952

$7,948









Operating expenses:








General and administrative

$2,104


$1,916

$1,722


$4,020

$3,469

Research and development

1,799


1,467

1,884


3,266

3,729

Selling and marketing

2,420


2,278

657


4,698

1,304

Total operating expenses

$6,323


$5,661

$4,263


$11,984

$8,502









Government subsidy income

-


91

170


91

189

Other operating income

612


606

297


1,218

581









(Loss) income from operations

$(3,781)


$(2,942)

$(409)


$(6,723)

$216









Interest expenses

(130)


(121)

(1)


(251)

(1)

Interest income

443


434

447


877

970

Other (expense) income

(1)


3

4


2

4

Change in fair value of put option

(60)


(30)

(30)


(90)

(60)

(Loss) income before income taxes

$(3,529)


$(2,656)

$11


$(6,185)

$1,129

Income tax expenses

(32)


(88)

(1,177)


(120)

(1,931)

Net loss

$(3,561)


$(2,744)

$(1,166)


$(6,305)

$(802)

Less: net loss attributable to the noncontrolling interest

(668)


(659)

(196)


(1,327)

(138)

Net loss attributable to TechFaith

$(2,893)


$(2,085)

$(970)


$(4,978)

$(664)









Net loss attributable to TechFaith per share








  Basic

$(0.00)


$(0.00)

$(0.00)


$(0.01)

$(0.00)

  Diluted

$(0.00)


$(0.00)

$(0.00)


$(0.01)

$(0.00)









Net loss attribute to TechFaith per ADS








  Basic

$(0.05)


$(0.04)

$(0.02)


$(0.09)

$(0.01)

  Diluted

$(0.05)


$(0.04)

$(0.02)


$(0.09)

$(0.01)









Net loss

$(3,561)


$(2,744)

$(1,166)


$(6,305)

$(802)

Other comprehensive (loss) income, net of tax








Foreign currency translation adjustment

(9,529)


721

3,974


(8,808)

5,006

Comprehensive (loss) income

(13,090)


(2,023)

2,808


(15,113)

4,204









Less: Comprehensive loss attributable to noncontrolling interest

(1,545)


(621)

(109)


(2,166)

(252)

Comprehensive (loss) income attributable to TechFaith

$(11,545)


$(1,402)

$2,699


$(12,947)

$3,952









Weighted average shares
outstanding








  Basic

794,003,193


794,003,193

794,003,193


794,003,193

794,003,193

  Diluted

794,003,193


794,003,193

794,003,193


794,003,193

794,003,193

 

 

CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands of U.S. Dollars)
















June 30, 2014


March 31, 2014


December 31, 2013









Assets







Current assets:







Cash and cash equivalents

$253,930


$258,507


$265,649


Accounts receivable, net of allowances of $713, $605 and $543 as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively

6,978


15,613


17,100


Notes receivable

12


41


58


Inventories, net

11,989


13,461


13,576


Prepaid expenses and other current assets

21,517


10,277


10,436


Property held for sale

3,019


-


-


Total current assets

$297,445


$297,899


$306,819









Property, plant and equipment, net

93,812


$96,519


$94,282


Land use rights, net

10,359


10,393


10,729


Acquired intangible assets, net

6,064


3,653


2,798


Prepayment for purchase land use right

1,934


-


-


Total assets

$409,614


$408,464


$414,628









Liabilities and equity







Current liabilities:














Accounts payable (including accounts payable of the consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $nil, $nil and $nil as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

9,745


11,845


14,247









Short-term loan (including short-term loan of the consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $nil, $nil and $nil as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

14,250


15,350


15,350









Accrued expenses and other current liabilities(including accrued expenses and other current liabilities of the consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $185, $184 and $189 as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

28,048


25,991


21,302









Advance from customers(including advance from customers of the consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $nil, $nil and $nil as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

9,378


8,976


9,525









Deferred revenues (including deferred revenues of the consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $nil, $nil and $nil as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

4,153


3,927


3,854









Income tax payable (including income tax payable of consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $22, $22 and $22 as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

181


190


254









Put option liability (including put option liability of consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $nil, $nil and $nil as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

1,920


1,890


1,830


Total current liabilities

$67,675


$68,169


$66,362









Long-term loan (including long-term loan of consolidated variable interest entity without recourse to China Techfaith Wireless Communication Technology Limited, $nil, $nil and $nil as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

5,126


5,116


290









Total liabilities

$72,801


$73,285


$66,652









Equity:







Ordinary shares of par value $0.00002:
(50,000,000,000,000 shares authorized; shares issued and outstanding, 794,003,193, 794,003,193 and 794,003,193 as of June 30, 2014, March 31, 2014 and December 31, 2013, respectively)

$16


$16


$16


Additional paid-in capital

144,836


144,376


144,083


Accumulated other comprehensive income

47,872


47,189


55,841


Statutory reserve

23,730


23,730


23,730


Retained earnings

85,431


87,516


90,409


Total Techfaith shareholders' equity

$301,885


$302,827


$314,079


Noncontrolling interest

$34,928


$32,352


$33,897


Total equity

$336,813


$335,179


$347,976


Total liabilities and equity

$409,614


$408,464


$414,628


 

SOURCE China TechFaith Wireless Technology Limited

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