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

| About: China TechFaith (CNTF)

Mobile handset designer China Techfaith Wireless (ticker: CNTF) reported Q3 2005 results that beat earnings per ADS estimates by $0.04. Key stats from the quarter:

Q3 Results
(all percentage changes and comparisons are year on year, unless stated otherwise)

  • Net revenue rose 93.7% to $23.3 million, and rose 9.9% sequentially (due to increased number of models). There were no consensus estimates available.
  • Design fee revenue rose 82.3% to $16.6 million, and rose 10.3% sequentially.
  • Royalty income rose 383.0% to $4.1 million, but fell 8.1% sequentially.
  • Component products revenue rose 26.4% to $2.6 million.
  • Gross margin was 61.1% vs 57.0%.
  • Total operating expenses rose 33.9% to $3.7 million, and rose 4.4% sequentially.
  • General and administrative expenses rose 53.6% to $2.4 million.
  • Selling and marketing expenses rose 84.8% to $364,000.
  • Research and development expenses fell 6.1% to $961,000.
  • Operating income rose 158.3% to $10.5 million, and rose 7.5% sequentially.
  • Operating margin was 45.1% vs 33.8%.
  • Net income rose 207.9% to $11.4 million, and rose 0.8% sequentially.
  • Net margin was 48.8% vs 30.7%.
  • Diluted earnings per ADS of $0.26 vs $0.11, and vs consensus estimate of $0.22.


  • The Company derived 55.6% of its design fees and royalty income from international brand owners and 44.4% from domestic brand owners.

Balance Sheet
(as of September 30, 2005)

  • Cash and equivalents of $135.2 million.

FY 2005 Guidance

  • Revenue of approximately $90 million.
  • Non-GAAP net income per ADS of at least $0.93 per ADS. Previous management guidance of $0.91 - $0.93. Consensus estimate of $0.91.
  • GAAP net income per ADS of at least $1.01.

Chairman and CEO Defu Dong:

"We are pleased with our results for the third quarter of 2005. We continue to maintain a leadership position in the mobile handset design space while benefiting from general improvements in business fundamentals. Importantly, we continue to leverage our handset application software and design strengths to penetrate high growth and highly lucrative related markets, such as wireless modules, the ultra low cost handset market and embedded software for mobile applications."

CFO Eva Hon:

"This was an impressive quarter for us from an operations standpoint. We continued to leverage our relatively low operating costs while supporting a higher revenue base. Our gross profit margin increased to 61.1% in the third quarter of 2005, compared to 57.0% in the same period in 2004. The slight decline compared to the prior second quarter of 2005 was due to changes in the product mix, with higher sales of lower margin component products. We expect that our gross profit margin will improve going further as we benefit from the economies of scale of our expanding customer base. Operating profit margin increased to 45.1% in the third quarter of 2005, compared to 33.8% in the same period in 2004. We will continue to target both top-line growth and increased operating efficiencies, as we continue to successfully execute on our business strategy worldwide."


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Tagged: , Diversified Communication Services, China, Earnings
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