Spreadtrum Communications' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Spreadtrum Communications, Inc. (SPRD)

Q2 2012 Earnings Call

August 9, 2012 9:00 p.m. EDT

Executives

Leo Li – Chairman and CEO

Shannon Gao – CFO

Analysts

Bill Lu – Morgan Stanley

Randy Abrams – Credit Suisse

Mike Walkley – Canaccord Genuity

Dan Heyler – Bank of America Merrill Lynch

Jay Srivatsa – Chardan Capital Markets

Jack Lu – RBS

Eric Chen – Daiwa Capital Markets

Andrew Lu – BarCap Research

Donald Lu – Goldman Sachs

Jessica Chang – Deutsche Bank

Hao Guo – CICC

Presentation

Operator

Welcome to the Spreadtrum Communications second quarter 2012 results conference call. [Operator Instructions].

Joining the conference today are Dr. Leo Li, Chairman and CEO, and Ms. Shannon Gao, CFO.

Shortly before the start of this call, Spreadtrum issued a press release announcing its second quarter 2012 financial results which is also available along with the quarterly results presentation on the company's IR webpage at ir.spreadtrum.com. This call is also being broadcast live over the internet and will be available on the company's website.

Today's call will include forward-looking statements that include risks and uncertainties that could cause Spreadtrum's actual results to differ materially from management's current expectations. Such forward-looking statements include without limitation statements regarding revenue, cost, profit, competition, customers, products, technologies, partners, business models, M&A and market trends. Spreadtrum encourages you to review the Safe Harbor Statement contained in today's earnings release as well as the risk factors discussed in its Annual Report on Form 20-F filed on April 10, 2012, as well as other documents filed from time to time with the SEC. The company undertakes no obligation to review or update publicly any forward-looking statement to reflect future events or circumstances.

Today's call will include a discussion of certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from GAAP measures. A reconciliation of the non-GAAP and GAAP reporting for the period discussed can be found in today's earnings release.

All numbers discussed today will be in US dollars unless otherwise noted.

I would now like to turn the call over to Dr. Leo Li. Please go ahead, sir.

Leo Li

Thank you. Welcome, everyone, and thank you for joining us today.

In the second quarter of 2012, we achieved revenue of $173.1 million, which is in line with the guidance we gave previously and 7.5% increase over the first quarter. I am very pleased to update you on the progress we have made with our smartphone products.

This quarter we achieved a strong volume ramp-up of our 1 Ghz TD-SCDMA Edge smartphone chipset, shipping more than 1 million units as expected. Customers such as Huawei, Lenovo, [Pryor], Hisense and others have completed China Mobile's certification test, launched low-cost smartphones based on our products. Many are targeting a new [ratio] price in the range of RMB500 to RMB700, which is making TD-SCDMA smartphone even more affordable and attractive for mass market consumers.

We are seeing very strong demand for our smartphone products and are raising our shipment focus. We now expect to ship more than 10 million smartphone chipsets in the third quarter alone. In the high end of TD-SCDMA market, we expanded our business with the first-tier OEMs, growing shipment of our best-in-class TD-SCDMA-based modems. In our customers, our customers use these modems in very high-end smartphone designs.

Our baseband and RF transceivers are shipping in flagship handsets, that is recently launched, including Samsung's Galaxy S3, HTC One XT and the other devices from first-tier China OEMs.

With the continuing growth in our smartphone chipsets and modem business, we have firmly established our leadership position in TD-SCDMA smartphone market. Our best-in-class modems are designed into top-of-line handsets and our smartphone chipsets are in neighboring 1 Ghz devices at a price of as we low as RMB500.

With this innovation at the low end, we're now seeing consumer preferences shifting rapidly from 3G feature phones to low-cost smartphones. As a result, in the short term of our strong growth in the smartphone segments will occur in tandem with lower shipments on TD feature phones. However, we expect that smartphone units, which carry higher margin and ASP, to continue to grow rapidly in the coming quarters and more than offset this near-term market transition.

Recently, China Mobile has taken steps to speed up TD-SCDMA handset sales in the second half of this year. At a recent conference, China Mobile discussed a plan or plans to increase their investment in TD-SCDMA. In addition, they also encouraged handset makers to sell their TD-SCDMA product through open market with China Mobile providing support with the quality monitoring.

With the China Mobile's handset replacement market now approaching 100 million units per year, this shift in distribution model will make the TD-SCDMA devices even more broadly available and help speed up the 3G adoption in China.

Now, turning briefly to our 2.5G business. Our 40nm baseband and the SC6530 have been well-received by the consumers, by the customers, and it's ramping up nicely. We are now continuing to increase our volumes, in particular in midrange of the market, and expect this trend to continue in the coming quarters. In the next few months we will be introducing our 2.5G products with integrated connectivity. We believe this shift delivers a superior performance and quality at a competitive price. This shift also will help address pricing pressure in the coming quarters.

I'd now like to turn the call to Shannon, our CFO, who will give you a more in-depth look of our financial results this quarter. Shannon?

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