Acquisition-Related Costs Hurt Cogo's Earnings

Fourth quarter earnings plunged despite revenue increases, due in part to acquisition-related expenses.
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On March 16, 2009,

Cogo Group


reported that its Q4 FY08 earnings plunged 87.5%, hurt by a share-based compensation expense of $1.50 million and acquisition-related costs of $4.33 million. Net income decreased to $759,000 or $0.02 per share from $6.06 million or $0.15 per share in Q4 FY07. On a non-GAAP basis, net income slipped 24.3% to $6.60 million or $0.18 per share from $8.72 million or $0.22 per share a year ago. The latest quarterly results beat the consensus estimate of $0.17 per share.

Net revenue increased 16.1% to $82.34 million from $70.90 million a year ago. Product-wise, revenue from mobile handset sales, which account for 32.0% of total revenue, increased 6.7% to $26.30 million. Revenue from telecommunication equipment sales, which contribute 28.9% of total revenue, grew 10.2% to $23.80 million. Revenue from digital media products, which comprise 29.6% of total revenue, rose 35.3% to $24.40 million. Component sales relating to the Industrial Application Business, which account for 8.5% of total revenue, stood at $7.00 million, while revenue from its Services Business, which represents 1.0% of total revenue, was $0.80 million.

For the latest fourth quarter, the company reported a 23.7% increase in cost of sales to $70.61 million. As a result, its gross profit margin deteriorated 527 basis points to 14.24% from 19.51%, due to an unfavorable product mix, reflecting growing demand in the lower gross margin handset market.

For FY08, net income fell 32.7% to $14.06 million or $0.36 per share from $20.90 million or $0.55 per share in FY07. Annual sales were up 25.7% to $287.22 million from $228.46 million a year ago.

Looking forward to Q1 FY09, COGO reiterated its non-GAAP EPS guidance to be in the range of $0.12 and $0.13, on revenue of $60.00 million to $65.00 million.