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Declining Revenue Hits China TechFaith's 1Q Earnings

Once these most recent quarterly results are finalized, they will be run through Ratings' model and our ratings will be adjusted accordingly. To keep up to date on all of our ratings, visit Ratings Screener.

On May 19, 2009, China TechFaith Wireless Communication Technology (CNTF - Get Report)> reported that its Q1 FY09 earnings declined 20.2%, hurt by income tax charges of $1.22 million. Net income for the fourth quarter declined to $2.12 million, or $0.05 per American Depository Share (ADS), from $2.86 million, or $0.07 per ADS, in Q1 FY08.

Revenue decreased 1.9% to $48.67 million from $49.60 million, hurt by lower revenue from handset design. Revenue from product sales, accounting for 98.7% of revenue, increased 6.6% to $48.02 million from $45.03 million, while handset design fees plunged 94.3% to $186,000 from $3.26 million and component sales related to design dropped 35.8% to $469,000 from $731,000 in the prior year's quarter. Within the product sales segment smart phones revenue surged 50.0% to $27.19 million from $18.12 million, while feature phone sales slipped 12.8% to $20.19 million from $23.16 million. Similarly, revenue from the wireless module declined 83.0% to $639,000 million from $3.75 million a year ago.

The company's gross profit margin contracted 149 basis points to 18.11% from 19.60% on lower revenue. Its operating margin expanded 212 basis points, benefitting from a 44.0% drop in total operating expenses to $5.65 million, as a result of the cost-cutting initiatives within the company.

Recently, China Techfaith launched a feature-rich multimedia mobile phone designed with a built-in 2D motion sensor and 10 pre-loaded interactive games. The phone boasts a 3.0 QVGA flat touch screen and supports RM, RMVB, AVI, FLV, 3GP, 3GP2 and MPEG4. In addition, the company entered into a strategic cooperation with D Magic Mobile, a cooperative partner with a number of renowned international brands in the mobile telecommunications sector to develop a licensed high-end phone under the Barbie brand in China.

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