Profile of China wireless IPO: Techfaith Wireless (CNTF)

| About: China TechFaith (CNTF)

China Techfaith Wireless Communication Technology (proposed ticker: CNTF) filed for an IPO last week. Here are some notes from the company's F-1:

Company Description:

  • Designs GSM-based mobile handsets based on technology platforms licensed from Philips (ticker: PHG), Texas Instruments (ticker: TXN) and Skyworks Solutions (ticker: SWKS).
  • Designs CDMA and WCDMA mobile handsets based on technology licensed from Qualcomm (ticker: QCOM) and NEC (ticker: NIPNY).
  • From inception in July 2002, through December 31, 2004, the company had designed 58 mobile handset models.
  • Derives bulk of revenue from mobile handset design services. Other revenue from sales of wireless modules,
    printed circuit boards (PCBs), and other component products for mobile handsets.
  • Domestic Chinese mobile handset customers: Bird, Capitel,
    CEC Telecom, Eastcom, Haier, Huawei, Konka, Lenovo (ticker: and Soutec.
  • International mobile handset customers: Alcatel
    (ticker: ALA), Kyocera (ticker: KYO), Mitsubishi, NEC (ticker: NIPNY),
    and UTStarcom (ticker: UTSIE).

Opportunity (language from the F-1):

  • Mobile handset industry is characterized by shortened product life cycles, increasing competition, margin pressure for wireless handset brand owners and a growing trend toward outsourcing.
  • We expect our business to be primarily driven by the growing mobile handset markets and the industry trend to outsource the handset design function.
  • We also expect our future revenue growth to be driven by our design contracts
    from new international customers and top Chinese customers and the expansion of our service offerings to cover handsets for sale internationally.

Mobile Phone Growth Projections:

  • IDC projects the annual shipment of mobile handsets to increase to 890 million units by 2008,
    or a compounded annual growth rate (OTCPK:CAGR) of 8.2% from 2004 onwards.

Risks Factors:

  • Limited operating history (commenced operations in July 2002).
  • Mobile handset brand owners could discontinue or reduce use of independent design houses.
  • Company has expertise designing 2.5G mobile handsets. Market moving toward 2.75G and
  • Small number of customers generates a significant portion of company revenues.
  • Dependence on Qualcomm for CDMA-related technology.
  • Company has not registered copyrights in China for any of its inventions.

Defu Dong, Chairman and CEO (language from the F-1)

  • Mr. Defu Dong has been the Chairman and Chief Executive Officer of our company since our inception. Prior to founding our company in July 2002, Mr. Dong co-founded Beijing Sino-Electronics Future Telecommunication R&D, Ltd., or SEF, a mobile handset design house, in February 2001. He was a director, shareholder and the Chief Executive Officer of SEF from its inception until July 2002. Mr. Dong worked at Motorola (China) as a sales manager from 1997 to 2001. Prior to joining Motorola (China), Mr. Dong was a sales manager at Mitsubishi (China) for one year. Mr. Dong received a bachelor’s degree in mechanical engineering from Chongqing University in China in 1994.

Notable Independent Directors (language from the F-1):

  • Peter Clarke has agreed to serve as a director of our company immediately upon the completion of this offering. Mr. Clarke was the Chairman of Merrill Lynch, Asia Pacific Region from 1992 – 1999.
  • Jy-Ber Gilbert Lee has agreed to serve as a director of our company immediately upon the completion of this offering. Dr. Lee is the deputy general manager of the Guangdong branch of China Netcom Corp., a subsidiary of China Netcom Group.

Thought: Analysis of the company's financials is upcoming.