Techfaith Wireless (CNTF): Designed for success?

Apr.13.05 | About: China TechFaith (CNTF)

Techfaith Wireless (proposed ticker: CNTF), a Beijing based independent mobile handset designer, filed for a US IPO to
raise up to $150 million. Here are some key stats from the F-1 plus comments and analysis.


2004 Results
(Note: all changes/growth rates are year over year unless otherwise stated.)

  • Revenue of $46.6 million, up 381.1%.
  • Cost of revenue was $19.9 million, up 655.8%.
  • Gross margins were 57.3%, versus 72.8%.
  • Sales and marketing of $694,000, up 1,679.5%.
  • G&A of $4.8 million, up 392.9%.
  • Operating profit was $18.7 million, up 280.5%.
  • Top 3 customers accounted for 88.2% of net revenues in 2003. Beijing Sunrise, Lenovo and NEC each contributed over 10% of net revenue
  • Top 4 customers accounted for 56.8% of net revenues in 2004. Lenovo and NEC contributed over 10% of net revenues.
  • 63.4% of revenue came from handset design, versus 82.1%.
  • As of December 31, 2004, the company had 890 employees, including 814 in research and development and supportive function, 25 in selling and marketing and 51 in management and administration.

Q4 Results
(Note: all changes/growth rates are year over year unless otherwise stated.)

  • Revenue of $14.7 million, up 81.7%.
  • Cost of revenue was $5.9 million, up 297.2%.
  • Gross margins were 59.8%, versus 81.6%.
  • Sales and marketing of $193,000, up 739.1%.
  • G&A of $1.2 million, up 60.1%.
  • Operating profit was $7.1 million, up 30.0%.
  • 68.2% of revenue came from handset design, versus 78.6%.

Quick comments:

  • Company profile here.
  • Revenue growing fast - but revenue costs and operating expenses growing faster.
  • First independent design house to receive license from Qualcomm.
  • % of revenues from design services declining - suggesting some diversification.
  • Customer base increasing - company less reliant on a handful of clients.
  • Company offering 6,143,045 ADSs; Selling shareholders offering 2,583,912 ADSs.
  • Use of proceeds from IPO: $45.0 million to expand research and development efforts, $15.0 million to acquire new premises in Beijing and build an R&D center, $5.0 million to expand sales and marketing activities and
    establish overseas offices in Asia, Europe and the US; and
    the balance to fund working capital and other general corporate
    purposes.
  • Both Intel Capital and Qualcomm own equity stakes in the company.
  • Lead-underwriter is Merrill; the others are Lehman and CIBC World Markets.
  • Concerns: decline in the average design fee per project. Some risk factors here.
  • Long term debt: $13.8 million.
  • Benefited from not paying income taxes in 2003 and 2004.
  • Cash grew from $7.7 million to $35.1 million in 2004.

Quick question: Many of the executive team worked at Motorola (ticker: MOT) China prior to TechFaith Wireless. I wonder what employees of Motorola who chose to stay at the telecom giant are thinking now. In just under 3 years, TechFaith is generating revenue, profitable, and planning a US IPO.