timezero

China Techfaith Wireless Beats By $0.04; Guides Above Consensus; Stock Up 12% in After-Hours Trading (CNTF 3Q05 Earnings)

I am sorry to bring up the stock and be inconsistent on the comments. I used to be a firm believer of the company's story. On paper (publicly released infomration by the firm), the firm was definitely undervalued. If the products they design are great and have supported its major client's growth, then I have all the reasons to buy around 9. I was just too reliant on NEC's brandname for the judgement. Actually, since NEC does not have strength on 2G and 2.5G products, it outsources all those design work to China (according to NEC Telecom (China)'s CEO). I do not have to be assertive here. Just go to forum.younet.com (the most popular cellphone website in China) and check out customer's comments on NEC models. The webpage has an image of each model and you can find its counterpart on CNTF's website.

I believe the stock is going to get even higher because the 6-month lock-up will soon expire in early December (it was postponed due to the 3Q earning release). But, I have to say I made a mistake even though I made money on this one. Looks like I'd better shut up.

China Techfaith Wireless Beats By $0.04; Guides Above Consensus; Stock Up 12% in After-Hours Trading (CNTF 3Q05 Earnings)

correction: the joint venture was established in Nov 2003. sorry for the mistake. CNTF got a complaint from Wuhan NEC on certain quality issues related to a model designed in Dec 2003 and had agreed to pay $1.5m to Wuhan NEC for the damages. But, the issue was resolved amically in late 2004 after Mr. Lu took office.

China Techfaith Wireless Beats By $0.04; Guides Above Consensus; Stock Up 12% in After-Hours Trading (CNTF 3Q05 Earnings)

Follow-up on NEC Telecom (China) and CNTF

Puzzled by the fact that NEC models suck in China (a cold hard fact, at least according to MII and China's Consumer Association) and CNTF takes care of most of its design work anyway (proved by the joint venture), I dig deeper into the issue and found some interesting information.

According to a recent interview of NEC Telecom (China)'s CEO with Sina (you can get it on many web sources), the joint venture takes care of 70% of the design work for NEC globally including 3G. Basically, all the orders except those from Japan are now being designed by the joint venture. Congratulate to all the longs on CNTF: you can have an assurance on CNTF's future revenue. But, do you know why NEC Telecom (China) sticks with CNTF and ask the headquarter to move those work to China?

The CEO of NEC Telecom (China) was the general manager of Motorola (China). He become the CEO of NEC Telecom (China) in may 2004. Later that year, the joint venture was established. Remember CNTF was led by a bunch of Motorola guys? That may explain why NEC models designed by CNTF suck in China but CNTF still get orders. And, it also explains why it takes much longer time for CNTF to crack the nuts to get order from the top 6 vendors. If NEC Telecom (China)'s CEO does not come from Motorola thus having no tie with CNTF's leadership, will CNTF still get order from NEC? You tell.

Anyway, Mr. Lei Lu, the CEO of NEC Telecom (China) really helped a lot on CNTF's business. I am not an expert on plot-making. But, with a strong partnership producing underperforming models, everybody would ask why. I found the answer lies in the special relationship between some former motorola employees.

Maybe the big drop in stock price was for someone who has made special contribution to the firm but the firm can not publicly issue shares to or grant options to. So, how about a big whack on the stock price so you can buy cheap. And, as long as there are olders pouring in, you are always the firm's God.

China Techfaith Wireless Beats By $0.04; Guides Above Consensus; Stock Up 12% in After-Hours Trading (CNTF 3Q05 Earnings)

A shocking reality

After seeing the biggest gain in one day on a position I have ever held, I did some follow-up research that was long time due. I tried to be as neutral as I could be as I refrain from being too optimistic about the stock normally following a big reversal. Something unexpected came up and I believe it is material.

Remember CNTF's biggest client: NEC? They have a joint venture and CNTF takes care of most of the design work for NEC's models in China. According to the China Consumer's Association, NEC is the No. 1 on the complaint list. The complaints point to two areas: quality and repair. If you type "NEC handset quality" in Chinese in Google and Baidu, you will find out pages of links saying bad things about NEC models in China. It was shocking. I have to admit. But, apparently, it was not a joke. Customers complain about many design drawbacks including all kinds of problems you can think of. Some of them directly point to the design features and software bugs. Either the features were not useful or comsumers need to take software upgrades many times. Basically, the problems with the machine drive customers crazy. And, the bad customer service let them become outraged. I am not exaggerating this. Find someone who can read Chinese and let them type the keyword for you in Google and Baidu. The results speak for itself.

An excuse for CNTF could be the chaos inside NEC China. NEC China has huge internal HR problem. In one word, they spend more time on fighting against each other than on anything else. This has become so infamous that some insiders wrote a book on it. I immediately called one of my friends who is using a NEC model. He told me he changed the PCB within two months after buying it and then encountered a series of problems. He vows to never buy another model from NEC again. Then I arranged a meeting with an industry insider who gave me another excuse: NEC China is releasing models too quickly and did not give CNTF enough time on design work so the bugs are inevitable.

I have to admit if all these information were true, I would have had a second thought on the investment. I regret I did not call my friend and this insider before because I thought Japanese, especially NEC, is the leader on quality, so I do not have to worry about it.

I hope the managemet could give a clear answer to this. Actually, I contacted the IR immediately. She had no idea of what I was talking about. After seeing all the negative coverage on the web, her answer was those models were not designed by CNTF but she promised to check back on this. I know it was a lie or at least an ignorance. According to the industry insider, CNTF takes care more than half the pie. And, just to use common sense, if the pie is not big enough, why do they have to construct a joint venture on design? The question was why NEC is still using CNTF. The industry insider told me NEC China is a place where no one takes reponsibility for these issues.

It seems my marriage with CNTF will probably end very soon.

China Techfaith Wireless Beats By $0.04; Guides Above Consensus; Stock Up 12% in After-Hours Trading (CNTF 3Q05 Earnings)

sorry, please disregard Q3 and Q4. I made a mistake when reconciling the 3Q number with its historical numbers.

China Techfaith Wireless Beats By $0.04; Guides Above Consensus; Stock Up 12% in After-Hours Trading (CNTF 3Q05 Earnings)

I was wondering where everybody go. Busy trading CNTF? just kidding... Hope those who bought and held at the low enjoy the ride yesterday. What a push upward! Let us congratulate each other on helping an undervalued firm who is doing a great job at optimizing the cost structure of the mobile handset segment.

After all, the earning report was nothing new. All the information in it was disclosed before. So, it was not a difficult task to figure out the numbers before the earning release. The management already told you everything about it well before Nov. 15. On this aspect, I have to say the stock could be rated the No. 1 manipulated stock of the year. Everyone who followed the stock closedly knows what I am saying. I have no interests to dismantle all the tricks played by someone. It was just disgusting as it could be.

But, I have to agree with goldenlion here. The cash side does not look at all. I have a strong feeling that it becomes very difficult for CNTF to get enough contracts to support the revenue number. The followings are the questions I want to ask the management next Monday on the investor conference. Here I invite you all to share your thought on one or more of these:

1. What happened to the cash? Why the cash flow from operation become so weak?
2. What happened to the advance from customers? Is it an industry trend that clients reduce or stop paying advance or what?
3. Why do we see a surge in the selling and marketing expense in 3Q 2005 as a percentage of the total revenue? Is it becoming more difficult to get customer?
4. And, why did the R&D expense drop this far in 3Q?
5. In what kind of currency do you hold your cash and where? How much interest do you earn on that pile of cash and why do we see a big drop in interest income in 3Q compared to 2Q?
6. What is your DSO? Does it deteriorate in the 3Q? How do you select domestic clients since they are not creditworthy? What will be the mix of revenue in the future?
7. What is your expected capital expenditure in the future?
8. How do you comment on CNTF versus competitor in India and Taiwan and other regions with quality and low-cost labor?
9. Do you have a plan to have your own brand name or be acquired by a brand owner in the future?
10. Do you plan to expand into other area of brain outsourcing?

Although those questions dealing with the financial strength side might be related to short-term things only, but a clear answer would make us feel much better.

We're Giving Away 5 Copies of "An Introduction to Project Finance" by Andrew Fight

Sorry, I have to disagree with vulcandoc here. As seeking alpha is providing transcripts on conference calls, I believe it is for everybody's interests to keep them forever for future reference by viewers. Or you guys can put such valuable information into an accessible archive that viewes can get back to. Does the trend of websites point to the direction where viewers just need an internet connection and a browser so they do not have to be equipped with a super harddisk? The trend is to let websites function as the always-on service and content provider.

The9 Misses By $0.08; Reports First Full Quarter of World of Warcraft; Stock Down 11% in After-Hours Trading (NCTY 3Q05 Earnings)

I am wondering what will look like when WoW's magic fades away. What will The9 do then? Sit there and cry? With no core competence (from its own strength), I hardly believe investors value this creepy firm at this high valuation. What a hype!

"The Company Should Never Have Gone Public" (JRJC)

JRJ is just a joke like China's own stock market. Without having any idea about corporate governance and fiduciary responsibility to public investors, lack of integrity has led to the crash of the whole system. It was quite like what happend in the US before 1933. Insider trading and cooked books are everywhere. Once you put down your money into Chinese stock market, you are entering a trap or another and get burned sooner or later. What most Chinese investors count on now is technical analysis. After all, what can they believe? The only thing left is the chart. Sadly, it is just a toy of manipulators.

With this backdrop, will a online financial advisory firm prosper? An idiot can tell. What can they offer? They basially act as accomplice of those manipulating masterminds, giving value-destroying advice one by one. In fact, the only thing they can do to create value for the investors is to tell them keep away from the casino-in-nature market.

Sohu on Being Official Internet Content Sponsor for the Beijing 2008 Olympic Games (SOHU 3Q05 Conf Call Quotes)

The interesting thing about this firm is its founder, chairman and CEO Charles Zhang. He has an ego that is bigger than the firm and everyone else in the firm. He feels so good about being a celebrity. And, he does not like men, at least, those men acting like a man. So, he is pretty much surrounded by girls and subdued men. I personally talked to many Sohu employees. No one likes him. They said he is too obsessed with his fame. Please pay attention: that is his fame, not his firm's. If he does care about the latter, it is because the firm is a vehicle for him to be more famous. So, basically, the ones left at the firm are those who only say yes to him and flatter him.

Let us hope this King of Chinese Internet (at least he thinks so) will do someting good for the other investors. Would somone tell him stop exercising his low-exercisng-price options as a way to encourage other investors to buy? Did any one find after all these stock-buyback crap, sohu's shares out. has been steady? Why? Check out the insider tradings. So, the whole buy-back thing is to use other shareholder's money to push up the stock price in the open market while he buys at price below 5. Forget his open-market buying. Those are trivial compared to his option exercising.

Overall, this MIT Ph.D. graduate has got rewarded both psychologically and financially in a very sleek way. Does him remeber Sohu's IPO price in 1999 is 13?

I am not saying he is sort of evil like his counterpart at DHB, David Brooks. I am just saying without monitoring and power restriction, even a angel could turn into a demon. Charlce is well on his way to destroy value. Get a close look at Sohu's content offering's performance category-by-category, you will know what I am saying. And, think why Sohu owns five Top-50 sites in China but still got much less ads. revenue than Sina.

We're Giving Away 5 Copies of "An Introduction to Project Finance" by Andrew Fight

Does the popularity of this message say something about human's nature? Just kidding...No offense... BTW, I acknowledge that is also part of my instinct ..

salute to all the hiden dragons and crouching tigers

How Are Avian Flu Concerns Affecting Chinese Airline Stocks? (CEA, ZNH)

First of all, I am an illiterate on medical stuff. I did some research on this bird flu thing. As its name suggested, the genesis of the disease is a sort of virus carried by birds. Migratory birds have carried the virus for thousands of years. In the history, the virus had been transferred to poultry. The scientists have divided the virus into two categories. One of them is causing mild symtoms while the other is lethal even to the orginal host, migratory birds. In some rare occasions, the virus can be transferred to human and pigs and cause death. But, the historical statistics shows that possibility is very low although there were small-scale outbreaks. In one word, most people are immune to it like to many virus carried by animals.

The curent concern about it is whether and when this virus will mutate to a form that can be easily transferrable among people. My question is why this smart bird flu choose to mutate to massively infect human now? Why in thousands of years during which they have only caused minor trouble to human then suddenly WHO expects it will kill millions of us? Does someone push this process of mutation? I do feel that way. Imagine there are tons of virus that normally infect animal and we can believe they are all on the way of mutation to kill people.

When people are panic about the mutaion of bird flu virus, they should also do some research on why, in the God's name, will this virus mutate now after waiting for thousand of years and who is the next on the queue to mutate and scare the hell out of us?

If the virus does mutate to kill people now, I suspect the mutation must be aided by someone who has an interest to see an outbreak during his lifespan.

Free Conference Call Transcripts on Seeking Alpha

Thanks to the seeking alpha and those who worked hard to get this right. It would be a valuable service if you guys can provide conference call transcripts on Chinese firms listed in the US. It will save blog readers a huge effort to understand all kinds of weird accents. No offence to the senior management of those firms. But, I believe a lot of people here would appreciate that.

Thanks and wish the seeking alpha prosper as intelligent investors..

Investor Assesses China Techfaith Wireless' Weak Stock Performance (CNTF)

My answer to my own question:

It is almost becoming a destiny that CNTF will head to the same valuation as its Chinese peers Sim and LongCheer.

So, first let us look at why Sim and LongCheer have such a low P/E. It is primarily because their clients, Chinese mobile terminal brand owners have a very bad year so far. Many of them incur loss while some of them went bankrupt. For an example, Soutec who used to the one of the top five Chinese brand owners had a cash-flow problem which led to the courts froze its operating assets. BTW, Soutec owed money to CNTF too and CNTF wrote off the A/R competely in 2Q. So, considering Sim and LongCheer's clients are all Chinese brand owners, I think it is rational for the investors to value the two at low P/E. Tomorrow they may disappear with their clients on the market together. But, look back at CNTF, 70% of its revenue in 2005 comes from international clients as disclosed by the CFO in the 2Q conference call. I expect the percentage will go even higher in the future as CNTF is doing its best at getting away from Chinese clients (disclosed in the Prospectus and other filings). So, it is rational to value CNTF as comparable international players in the mobile terminal sector of the telecom industry. That will price CNTF as 15x 2006 EPS (a sector average), which gives u hint on why analysts have all pointed to a price target of 15 or something. Here I think I found the answer for why Sim and LongCheer have such a low P/E and why CNTF has followed it so far. But, the real picture shows CNTF is designing for the winners which makes CNTF deserve a valuation like its clients and competitors (like HTC) while Sim and LongCheer are designing for the losers. The market will recognize the difference and give CNTF a proper valuation in the future.

A little more on mobile terminal R&D: let us get realistic about it. The R&D units of the mobile terminal sector are functioming as system integrators who combine third-party hardware and software to offer a final solution. Do they add value in the process? Yes, but it is not that big as most think. What they need to do is to offer a trendy outlook, pratical and easy-to-use functions and assure product stability in manufacturing and usage. The designers of enabling components and software applications plus new network capabilities and attractive content provide more value to the customer's experience with a mobile terminal. So, the innovation here boils down to a little bit creativity (mainly enabled by third-paty innovations) and quality. Why quality plays such an important role here? Get back to Chinese brand owners: they have the cheapest price on the market and have the worst product quality also. The latter kills them, not their products' mimic outlook and generic funtions. So, the whole thing let me questiion what R&D units at international brand owners are doing. It has been referred by many sources that designing a new model cost them at least 10M dollars, while CNTF can get it done by 1.5M with a 45% net margin and FLEX can do it with 3M. So, outsourcing a highly-inefficient internal function which adds moderate value makes perfect sense. The future is bright for CNTF and its competitors who will help the sector achieve a better economic structure. Brand owners will focus on sales and marketing and supply chain management like what Dell does. Under this backdrop, do the prominent design houses deserve a P/E like its clients?

At the same time, I expect we will see more players enter the mobile terminal segtor in the future. A strong force is network operators. Their networks put them most close to the end users. Almost all the cool functions and rich content have to be delivered through the networks, which make them most interested with integrating the terminals into their product portfolios. They tend to offer the machines that are best catering to the network capabilities and content offerings. This makes perfect sense. Why use Nokia and Moto since it is so easy to get a customized terminal by just calling a design house like CNTF and a EMS like FLEX? On the other side, Dell and HPQ will join the force since they will see the small terminal performs more fuctions of a PC and they know it is the future form of PC or whatever you call it. The No. 3 PC sellers in the world, Lenovo, already joined the race and it fares pretty good as one of only two Chinese mobile terminal brand owners who make profit so far this year. Its supply chain for PC must have functioned well for the cellphone also. So, it makes sense for PC vendors to join the race to proect their turf. This is certainly a good news for CNTF and its competiors. Get back to CNTF's edge: now I adjust it to design quality/ cost considering mobile terminal's R&D process is heaviy dependent on third-party innovations (design quality should assure product's stability in manufatcuring and usage after meeting client's feature requirement). So, the segment reminds me of an industry that has fuled China's growth in the past 20 years: manufacturing outsourcing service. Since it is just a low-end R&D process which emphasizes cost after assuring quality, will Chinese be the king of it? You tell. I think they will. CNTF already told you: they offer the cheapest price available (from public sources) and still enjoy a 45% net margin. Should investors benefit from this new trend of outsouring to China? We will see.

Investor Assesses China Techfaith Wireless' Weak Stock Performance (CNTF)

well, I was sort of speechless after seeing the price and volume on the second half of the tranding. In fact, when CNTF first hit 8.75 on 9/29 then suddenly got a boost from an analyst report, I felt the report was really a bad timing for those who have pushed the price down. Based on CNTF's historical trading pattern, the mastermind had not reached his target before the report came out. So, I waited to see if the gap would be filled. No suprise, it was done pretty soon, thanks to the cooperation of the broad market. Under such a glooming backdrop, no one will blame a downturn here. Although I feel disgusted of talking about the trading and technical stuff, I have to clap for those who did this. These guys are great with firm determination and well-scheduled agenda to move the price as they want. I was thinking what the guys from Singapore were thinking when they saw their heavy position depreciated 50% in 3 months. This is brutal. But, I really want to know based on the light trading volumes all the way down to here, how much will these masterminds profit? They were as foolish as they could be to push the price down to here since I bet they will not be the ones who can benefit most from this.