Declining Revenue Hits China TechFaith's 1Q Earnings

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On May 19, 2009, China TechFaith Wireless Communication Technology ( CNTF)> 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.

Looking ahead, the company expects its Q2 FY09 revenue to be in the range of $45.00 to $49.00 million.

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