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Spreadtrum Communications (NASDAQ:SPRD) reports Q2 results on Aug. 9, 2012.

The Street expects the following:

  • Revenue: $172 million
  • EPS: $0.46
  • Q3 revenue guidance: $189 million

Last quarter, management had forecast $170-$175 million in revenue, of which 30% will come from 3G TD-SCDMA. However, lower ASP and margin pressure will slightly impact margin. According to management, smartphone shipments should be around 1 million in Q2 and 15-20 million for the year. That is higher than consensus estimates, and could support a rally in Spreadtrum's share price if the company meets or exceeds expectations.

Despite near-term concerns that Spreadtrum's feature-phone ASP will be under pressure and that the company's SC8810 might not be good enough to catch the trend in the low-end smartphone segment, several events point to a positive second half:

  1. HTC selected Spreadtrum's TD-SCDMA baseband solution for its One XT and Desire VT models. The One XT is currently HTC's most advanced model within its product lineup.
  2. Lenovo introduced the A288t model, which is based on Spreadtrum's SC8810 solution, once again highlighting the company's core competency and giving investors confidence in the company.
  3. Spreadtrum came out as the big winner in the China Mobile (NYSE:CHL) TD phone tender, in which it won two out of three 3G TD-SCDMA smartphone designs and three out of three TD feature phone models that are approved by China Mobile. Rival MediaTek only won one smartphone design. China Mobile's tender indicates that Spreadtrum is making inroads in its smartphone push as the design wins allow the company to increase its customer base and gain entry into entry-level ($50-$100) smartphones, which represent the fastest growth segment in China's mobile handset market.
  4. Samsung selected Spreadtrum TD-SCDMA baseband solution for its Samsung Galaxy S III model, once again highlighting Spreadtrum's strength and capability in delivering quality TD-SCDMA solutions.
  5. Huawei recently picked Spreadtrum's SC8810 1GHz TD-SCDMA smartphone platform to power its T8808D model for China Mobile customers.

In my view, Spreadtrum is deeply undervalued by the market. The votes of confidence from HTC, Lenovo, and China Mobile in recent months lay the foundation for a big catalyst for Spreadtrum in the second half.

Source: Spreadtrum Communications Q2 Earnings Preview: Expect Continued Execution