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» Cogo Group CEO Discusses Q3 2010 Results – Earnings Call Transcript
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» Cogo Group 1Q10 Earnings Call Transcript (Q&A Session)
At this time, I'd like to turn the call over to Jeffrey. Jeffrey, the floor is yours.Jeffrey Kang Thank you, Wanyee, and thanks to everyone for joining our earnings call. Our excellent execution continued in the fourth quarter of 2010, as we posted unaudited revenues of $113.5 million, up over 13% sequentially and 29% from the prior year period. This represents the highest sequential growth for a Cogo fourth quarter since 2007 and the highest year-over-year growth rate for any quarter in 2010. We easily exceeded our guidance of $107-108 million due to continued solid bookings across all of our business segments with specific end market strength in 3G Smartphones, HDTV, fiber roll-outs, and Industrial areas such as High-Speed Railways, Automotive and Smart Grid/Meters. Our 2010 revenue was up nearly 26% from 2009 and, in our view, it leaves no doubt that we have returned to high-growth mode. Our Non-GAAP EPS Diluted in the fourth quarter was 24 cents, surpassing our guidance of 22-23 cents and clearly showing we are well on our way to showing one dollar in annual earnings power in the near future. Cogo posted a gross margin of 14.2%, up about 30 basis points sequentially. Note that our gross margins are determined almost entirely by revenue mix and are not tied to elements such as capacity utilization. Over time, we expect that our gross margins will trend upward, and we maintain our 15% gross margin target - although we would expect it to stay in the range of 14.2-14.4% through 2011. The growth of our Industrials and SME revenue are two of the key positive drivers of our gross margins. In the fourth quarter, Cogo posted operating margins of 8.7%, which was flat sequentially. As we have indicated previously, while we could post 10% Non-GAAP operating margins in any given quarter by slashing investments in new growth areas, this would starve growth in future years in some very high growth end-markets. Since the first quarter of 2009, our operating margins have grown over 140 basis points. Additionally, we believe that operating margins can improve sequentially in the first quarter 2011 and rise slightly each quarter through 2011 due to continued efficiencies and increased ARPU per customer. We are maintaining our 10% operating margin target and expect to make clear progress towards that goal as we progress through 2011.
In the fourth quarter of 2010, our Industrials revenue grew 46% year-over-year to $20.3 million, representing about 18% of total sales. Our telecom business grew 28% year-over-year to $27.8 million, representing about 25% of sales. Finally, our digital media business grew about 24% year-over-year to $63.8 million, representing about 56% of total sales. Our services revenue grew 37% year-over-year to $1.7 million. I am rather pleased with the results of all of these business units.I’d like to take a minute to discuss what we view as the fundamental value that Cogo brings to the marketplace. We are the leading gateway for global semiconductor companies like Broadcom, Freescale, Atmel and Intel to access the fast growth Industrials and Technology sectors in China. We offer a unique business-to-business services platform to design specific embedded solutions for our list of over 1,600 customers, of which about 90 are blue-chip and over 1,500 are SMEs. We are very proud of our component partner relationships and strongly believe that we offer clear symbiotic benefits. Essentially, Cogo offers a cost effective way for our component partners to reach these fast growth end-markets in China and we decrease time to market for our customers. In China, time to market is king because life-cycles continue to shrink and industry fragmentation leads to a tremendous amount of competition. The very nature of high levels of industry fragmentation in China is a natural advantage for us and allows us to capture operating leverage by servicing an increasingly large customer base. Read the rest of this transcript for free on seekingalpha.com