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China Techfaith Wireless (ticker: CNTF), an independent mobile handset designer announced Q1 2005 earnings results last week. Here are key points from CEO Defu Dong and CFO Eva Hon from the company's earnings results conference call:


Financial highlights

  • Excluding one-time charge, net income of $9.6 million.
  • Excluding one-time charge, net margin of 44% versus 45% in Q4 2004.
  • Pro-forma earnings per ADS of $0.19.
  • 1,404 employees. Plan to have a staff of 2,000 by the end of 2005. 890 at end of Q4 2004.

Guidance

  • Revenue contributing models to reach 45-50 in Q2 2005 from 41 in Q1.
  • Q2 top line similar to Q1.
  • Expansion of net margin by a few percentage points.
  • Q2 net income of $11 million.

Q1 highlights

  • Won 22 design contracts in Q1.
  • Completed qualification process for potential international customer in Q1 - and working on 2 more qualifications in Q2.
  • Product request-for-qualifications (RFQs) from 4 of the top 6 international brand owners in the world.
  • The qualification process can take up to 6-12 months.
  • In March signed strategic alliance with Microsoft (ticker: MSFT) to develop Windows Mobile and Windows Smartphones. Company believes Smartphones will be one of the fastest growing segments of the handset industry in the coming years. Recently completed prototype and expect first product in Q4 2005.
  • Deal with Qaulcomm (ticker: QCOM) to develop CDMA handsets. Expect the first handsets in 2006.
  • Prices remain firm. No decline in contract value.
  • Management focused on increasing international customer base. Established sales and service center in Korea.
  • Began marketing wireless modules - GSM and CDMA.

Handset market

  • Outsourcing handset design has become increasingly important for large brand owners looking to improve margins.
  • Techfaith expects to capitalize on this trend.

Competition

  • Major cost advantages over European competitors.
  • Techfaith has not
    lost customers to competitors.
  • Management does not see any
    meaningful competitors in the China market.
  • Chinese government recently gave out 9 new licenses to Taiwanese firms.
  • Management expects more competition in the
    market.

Wireless modules

  • Started building a team for wireless modules in Q2.
  • Over long term expect this line to contribute 30% of revenue.
Source: China Techfaith (CNTF) provides guidance; focused on growing int'l business (1Q05 conf call)