omniture

Spreadtrum Communications, Inc. Announces Second Quarter 2007 Results: Strong Growth Driven by Robust Increase in Baseband Shipments

2007-08-09 20:18 1054

SHANGHAI, China, Aug. 10 /Xinhua-PRNewswire-FirstCall/ --

Second Quarter 2007 Financial Summary:

-- Revenue increased 8% year-over-year and 23% sequentially to US$32.2

million.

-- Gross margin increased from 38.8% in 2Q06 and 42.9% in 1Q07 to

45.5% in 2Q07.

-- Operating margin decreased from 16.0% in 2Q06 and increased from

5.0% in 1Q07 to 7.9% in 2Q07.

-- Net income decreased 41% year-over-year and increased 37%

sequentially to US$2.8 million.

-- Diluted earnings per American Depositary Share (ADS) was US$0.07,

down 50% from US$0.14 in 2Q06 and up 40% from US$0.05 in 1Q07.

Second Quarter 2007 Business Highlights:

-- The Company began shipping samples of its SC6600I GSM/GPRS 2G/2.5G

multimedia baseband semiconductors and SC8800H GSM/GPRS/TD-

SCDMA/HSDPA 2G/2.5G/3G dual mode baseband semiconductors.

-- The Company secured design wins at BYD Company, Panda Group, and

Hisense with its SC6600 series of baseband semiconductors.

-- The Company secured a design win at Lenovo with its SC8800 series of

baseband semiconductors.

-- The Company completed its public listing on Nasdaq on June 27, 2007.

Spreadtrum Communications, Inc. (Nasdaq: SPRD) (the "Company"), a fabless semiconductor company that designs, develops, and markets baseband processor solutions for the mobile wireless communications market, today announced its second quarter 2007 financial results. Under accounting principles generally accepted in the United States of America (US GAAP), diluted earnings per ADS was US$0.07 in the second quarter of 2007 (2Q07), a decrease of 50% from US$0.14 in the same period in 2006 (2Q06) but an increase of 40% from US$0.05 in the first quarter of 2007 (1Q07). Net income for 2Q07 was US$2.8 million, a decrease of 41% from US$4.7 million in 2Q06 but an increase of 37% from US$2.0 million in 1Q07.

US GAAP net income for 2Q07 included US$1.5 million of share-based compensation expense. Excluding the share-based compensation, the Company's non-GAAP net income for 2Q07 was US$4.3 million. Diluted non-GAAP earnings per ADS in 2Q07 was US$0.11.

Commenting on the results, the Company's President and CEO, Dr. Ping Wu, said: "In the second quarter, we believe we continued to gain share in the Chinese mobile handset market. Our shipments of baseband semiconductors increased by 37% from the first quarter of 2007, which increase we believe was greater than the China market's overall growth rate and demonstrated the competitiveness of our solutions. We also began sampling our SC6600I and SC8800H baseband semiconductors to customers.

While we have demonstrated strong growth to date, we believe that there are many exciting opportunities ahead of us. In the near future, the China mobile market may deploy 3G wireless networks that support TD-SCDMA, which we believe should drive demand for our TD-SCDMA baseband semiconductors. In addition, we anticipate that, as the Beijing 2008 Olympic Games approach, the China market may see a proliferation of mobile entertainment devices. We have been increasing our R&D investments in EDGE, HSDPA, and mobile TV and believe that these investments should position the Company well for both the near future and the long term."

Second Quarter 2007 Financial Review

Revenue

Revenue in the second quarter totaled a record US$32.2 million, representing increases of 8% from 2Q06 and 23% from 1Q07. Revenue from baseband semiconductors was $27.4 million, or 85% of revenue, up from 40% of revenue in 2Q06 and 79% of revenue in 1Q07. Revenue from turnkey solutions was $4.8 million, which represented 15% of revenue, down from 60% of revenue in 2Q06 and 21% of revenue in 1Q07.

Revenue from baseband semiconductors increased by 133% from 2Q06 and 33% from 1Q07 to US$27.4 million. Unit shipments of baseband semiconductors increased by 37% from 1Q07. Nearly all baseband semiconductor shipments in the second quarter were 2G/2.5G related products. The average selling price per unit for baseband semiconductors declined by 3% from 1Q07.

Revenue from turnkey solutions decreased by 73% from 2Q06 and 13% from 1Q07 to US$4.8 million, as a result of the Company’s prior decision to phase out its SP7000 series handset boards in 2006 and gradually phase out its SM5100 series modules.

Gross Margin

The gross margin for the quarter was 45.5%, up from 38.8% in 2Q06 and 42.9% in 1Q07. This margin improvement was primarily due to a more favorable revenue mix from baseband products, as the Company gradually phases out its lower margin turnkey solutions. The cost of revenue in 2Q07 totaled US$17.5 million, representing a decrease of 4% from 2Q06 but an increase of 17% from 1Q07. The year-over-year decrease was driven by a decline in the total cost of turnkey solutions partially offset by an increase in the total cost of baseband semiconductors. The total cost of turnkey solutions declined as the Company phased out its SP7000 series handset board business and continued to de-emphasize its SM5100 series module business. The sequential increase was driven by an increase in total wafer fabrication and assembly and testing costs as a result of the large increase in baseband unit volume from 1Q07.

The non-GAAP gross margin was 45.7%, up from 38.8% in 2Q06 and 43.1% in 1Q07.

Operating Expenses

Total operating expenses in 2Q07, which include selling, general and administrative (SG&A) expenses and research and development (R&D) expenses, were US$12.1 million, representing increases of 79% from 2Q06 and 22% from 1Q07. Excluding the share-based compensation expense, total operating expenses increased 64% year-over-year and 22% sequentially.

Total operating expenses for the quarter represented 37.6% of revenue, compared to 22.7% and 37.9% of revenue in 2Q06 and 1Q07, respectively. The Company’s operating margin decreased from 16.0% in 2Q06 but increased from 5.0% in 1Q07 to 7.9% in 2Q07. The non-GAAP operating margin in 2Q07 was 12.6%, down from 17.0% in 2Q06 but up from 9.7% in 1Q07.

SG&A expenses in 2Q07 increased by 90% from 2Q06 and 6% from 1Q07 and represented 12.9% of revenue. The year-over-year increase was driven primarily by higher salary and benefits as a result of headcount addition especially at the senior management level, share-based compensation expense, legal and audit fees, professional fees, and depreciation. The sequential increase was driven primarily by higher salary and benefits, share-based compensation charge, business tax expense, and depreciation partially offset by lower legal and other professional fees.

R&D expenses in 2Q07 increased 74% year-over-year and 33% sequentially and represented 24.7% of revenue in 2Q07. The year-over-year increase was driven by higher wages and benefits, share-based compensation, tape-out, and amortization expense. The sequential increase was primarily driven by higher wages and benefits, share-based compensation, tape-out and amortization expense.

Earnings

The Company's net income totaled US$2.8 million in 2Q07, a decrease of 41% from US$4.7 million in 2Q06 but an increase of 37% from US$2.0 million in 1Q07. The net margin was 8.6%, down from 15.8% in 2Q06 but up from 7.8% in 1Q07. Diluted earnings per ADS was US$0.07, down 50% from US$0.14 in 2Q06 but up 40% from US$0.05 in 1Q07.

Non-GAAP diluted earnings per ADS for 2Q07 was US$0.11, down from US$0.15 in 2Q06 but up from US$0.08 in 1Q07.

Balance Sheet

As of June 30, 2007, the Company had US$41.3 million in cash and cash equivalents. Accounts receivable (A/R) decreased from US$10.7 million at March 31, 2007 to US$6.7 million at June 30, 2007, and the average A/R days decreased from 38 days to 25 days. Inventory increased from US$9.9 million at March 31, 2007 to US$14.9 million at June 30, 2007, and the inventory days increased from 59 days to 77 days. Total assets as of June 30, 2007 were US$110.3 million, up 12% from US$98.7 million at March 31, 2007.

Current liabilities increased from US$33.2 million at March 31, 2007 to US$38.5 million at June 30, 2007, primarily due to the increase in accounts payable. There were no material changes in the Company's long-term liabilities.

On July 2, 2007, the Company issued 8 million ADSs, or 24 million ordinary shares, in connection with its initial public offering and raised approximately $100 million in net proceeds. Post offering, there are approximately 126.5 million ordinary shares outstanding, which is equivalent to approximately 42.2 million ADSs. The Company estimates that its weighted average diluted share count for the third quarter will be approximately 47.4 million ADSs.

Cash Flow

In 2Q07, the Company generated $3.9 million cash from operating activities. The Company also spent $1.3 million on property and equipment and $4.5 million on intangible assets. Cash and cash equivalents balance at June 30, 2007 decreased by $3.5 million as compared to balance as of March 31, 2007.

Business Outlook

The Company currently expects revenue in the third quarter of 2007 to be approximately US$37 million to US$38 million, which represents a sequential increase of 15% to 18% from US$32.2 million in the second quarter of 2007. The Company estimates that its gross margin in 3Q07 will likely be in the range of 45.0% to 46.0% and its operating margin will increase from 7.9% in 2Q07 to slightly over 10%.

Webcast of Conference Call:

The Company's management team will conduct a conference call at 6:00 pm Eastern Time on August 9, 2007. A webcast of the conference call will be accessible on the Company's web site at http://www.spreadtrum.com . The conference call can also be accessed via the following telephone numbers:

USA (Toll Free): +1-866-383-8003

USA (Toll): +1-617-597-5330

Hong Kong (Toll): +852-3002-1672

China (Toll Free): +86-10-800-130-0399

Participant Passcode: 7952-2793

A replay of the conference call will be available for seven days via the following telephone numbers:

USA (Toll Free): +1-888-286-8010

USA (Toll): +1-617-801-6888

Participant Passcode: 8411-3076

Discussion of Non-GAAP Financial Measures

In addition to disclosing financial results prepared in accordance with US GAAP, the Company's earnings release contains non-GAAP financial measures that exclude the effects of share-based compensation. The non-GAAP financial measures used by management and disclosed by the Company exclude the income statement effects of all forms of share-based compensation.

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for financial measures prepared in accordance with US GAAP. The financial results reported in accordance with US GAAP and reconciliation of GAAP to non-GAAP results should be carefully evaluated. The non-GAAP financial measures used by the Company may be prepared differently from and, therefore, may not be comparable to similarly titled measures used by other companies.

The Company believes that the presentation of non-GAAP gross margin, non-GAAP operating margin, non-GAAP net income, and non-GAAP diluted earnings per ADS provides important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. The non-GAAP diluted earnings per ADS is calculated by dividing non-GAAP net income by the US GAAP weighted average diluted shares outstanding.

Listed below are share-based compensation amounts included in net income that management excludes in computing the non-GAAP financial measures referred to in the text of this press release. A reconciliation of GAAP to non-GAAP results is presented after the consolidated balance sheets.

Three months ended

June 30, 2006 March 31, 2007 June 30, 2007

(in thousands of US dollars)

Share-based compensation:

Cost of revenue $8 $49 $52

Research and development 176 457 563

Selling, general, and

Administrative 108 711 904

Spreadtrum Communications, Inc.

Consolidated Income Statements

(in thousands of US dollars, except per share data and percentages)

(unaudited)

Three months ended Change from

June 30, March 31, June 30,

2006 2007 2007 2Q06 1Q07

Revenue $29,721 $26,167 $32,187 8 % 23 %

Cost of revenue 18,203 14,954 17,543 (4)% (17)%

Gross profit 11,518 11,213 14,644 27 % 31 %

Operating expenses

Research & development 4,566 5,996 7,952 74 % 33 %

Selling, general &

administrative 2,183 3,920 4,149 90 % 6 %

Total operating

expenses 6,749 9,916 12,101 79 % 22 %

Operating income 4,769 1,297 2,543 (47)% 96 %

Non-operating income (expense)

Interest income 233 439 299 28 % (32)%

Interest expense (14) (6) (6) (57)% 0 %

Other income, net 82 331 116 41 % (65)%

Total non-operating

income 301 764 409 36 % (46)%

Income before tax 5,070 2,061 2,952 (42)% 43 %

Income tax expense 367 29 171 (53)% 490 %

Net income $4,703 $2,032 $2,781 (41)% 37 %

Basic earnings per ADS $0.95 $0.36 $0.41 (57)% 14 %

Diluted earnings $0.14 $0.05 $0.07 (50)% 40 %

per ADS

Margin analysis:

Gross margin 38.8 % 42.9 % 45.5 %

Operating margin 16.0 % 5.0 % 7.9 %

Net margin 15.8 % 7.8 % 8.6 %

Weighted average ADS

equivalent: (1)

Basic 4,926,128 5,659,595 6,859,226

Diluted 33,052,974 38,156,489 39,240,015

(1) Assumes all outstanding ordinary shares are represented by ADSs. Each

ADS represents three ordinary shares.

Spreadtrum Communications, Inc.

Consolidated Income Statements

(in thousands of US dollars, except per share data and percentages)

(unaudited)

Six months ended

June 30, 2006 June 30, 2007 Change

Revenue $49,412 $58,354 18 %

Cost of revenue 31,708 32,497 2 %

Gross profit 17,704 25,857 46 %

Operating expenses

Research & development 8,215 13,948 70 %

Selling, general & 4,333 8,069 86 %

administrative

Total operating expenses 12,548 22,017 75 %

Operating income 5,156 3,840 (26)%

Non-operating income (expense)

Interest income 420 738 76 %

Interest expense (38) (12) (68)%

Other income, net 230 447 94 %

Total non-operating income 612 1,173 92 %

Income before tax 5,768 5,013 (13)%

Income tax expense 416 200 (52)%

Net income $5,352 $4,813 (10)%

Basic earnings per ADS $1.10 $0.77 (30)%

Diluted earnings per ADS $0.16 $0.12 (25)%

Margin analysis:

Gross margin 35.8 % 44.3 %

Operating margin 10.4 % 6.6 %

Net margin 10.8 % 8.2 %

Weighted average ADS

equivalent: (2)

Basic 4,859,285 6,262,724

Diluted 32,732,960 38,798,495

(2) Assumes all outstanding ordinary shares are represented by ADSs. Each

ADS represents three ordinary shares.

Spreadtrum Communications, Inc.

Condensed Consolidated Balance Sheets

(in thousands of US dollars)

December March June

31, 2006 31, 2007 30, 2007

(Note)

Cash and cash equivalents $47,254 $44,801 $41,336

Term deposit 1,281 -- --

Accounts receivable, net 11,384 10,713 6,674

Inventories 13,617 9,870 14,925

Deferred tax assets 202 202 202

Prepaid expenses and other current

assets 1,101 1,063 5,638

Total current assets 74,839 66,649 68,775

Property and equipment, net 18,944 19,503 21,468

Acquired intangible assets, net 5,920 7,551 12,489

Deferred tax assets 1,060 1,060 1,087

Other long term assets 3,339 3,939 6,512

Total assets 104,102 98,702 110,331

Current portion of long term loan 576 1,099 985

Accounts payable 12,980 10,218 12,317

Advances from customers 3,297 2,028 4,428

Obligation on acquisition of

building 9,236 5,447 5,531

Income tax payable 1,849 1,858 2,008

Accrued expenses and other current

liabilities 13,363 12,596 13,262

Total current liabilities 41,301 33,246 38,531

Long term loan 3,842 3,232 3,283

Deferred tax liabilities 17 17 17

Other long-term obligations -- -- 971

Total long term liabilities 3,859 3,249 4,271

Total liabilities 45,160 36,495 42,802

Shareholders' equity 58,942 62,207 67,529

Total liabilities & shareholders'

equity $104,102 $98,702 $110,331

Note: The Financial information at December 31, 2006 is derived from the

Company’s audited consolidated financial statements in its

prospectus.

Spreadtrum Communications, Inc.

Supplemental Information

(in thousands of US dollars, except percentages)

Revenue 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07

(in thousands

of US

dollars)

Baseband

Semiconductor $579 $3,028 $4,849 $11,760 $15,684 $22,645 $20,589 $27,357

Turnkey

Solutions 7,879 17,566 14,842 17,961 11,017 8,317 5,578 4,830

Total $8,458 $20,594 $19,691 $29,721 $26,701 $30,962 $26,167 $32,187

As % of

Total

Revenue

Baseband

Semiconductor 7 % 15 % 25 % 40 % 59 % 73 % 79 % 85 %

Turnkey

Solutions 93 % 85 % 75 % 60 % 41 % 27 % 21 % 15 %

Gross

Margin 19.2 % 25.0 % 31.4 % 38.8 % 43.2 % 46.4 % 42.9 % 45.5 %

Spreadtrum Communications, Inc.

Reconciliation of GAAP to Non-GAAP Results

(in thousands of US dollars, except per share data and percentages)

(unaudited)

Three months ended

June 30, March 31, June 30,

2006 2007 2007

Cost of revenue $18,203 $14,954 $17,543

Adjustment for share-based

compensation (8) (49) (52)

Cost of revenue (non-GAAP) $18,195 $14,905 $17,491

Operating income $4,769 $1,297 $2,543

Adjustment for share-based

compensation within:

Cost of revenue 8 49 52

Research and development 176 457 563

Selling, general, and

administrative 108 711 904

Operating income (non-GAAP) $5,061 $2,514 $4,062

Net income $4,703 $2,032 $2,781

Adjustment for share-based

compensation within:

Cost of revenue 8 49 52

Research and development 176 457 563

Selling, general, and

administrative 108 711 904

Net income (non-GAAP) * $4,995 $3,249 $4,300

Diluted earnings per ADS $0.14 $0.05 $0.07

Adjustment for share-based

compensation 0.01 0.03 0.04

Diluted earnings per ADS

(non-GAAP)* $0.15 $0.08 $0.11

Gross margin 38.8 % 42.9 % 45.5 %

Adjustment for share-based

compensation 0.0 % 0.2 % 0.2 %

Gross margin (non-GAAP) 38.8 % 43.1 % 45.7 %

Operating margin 16.0 % 5.0 % 7.9 %

Adjustment for share-based

compensation 1.0 % 4.7 % 4.7 %

Operating margin (non-GAAP) 17.0 % 9.7 % 12.6 %

Net margin 15.8 % 7.8 % 8.6 %

Adjustment for share-based

compensation 1.0 % 4.7 % 4.7 %

Net margin (non-GAAP)* 16.8 % 12.5 % 13.3 %

* The non-GAAP adjustment does not take into consideration the impact of

taxes.

About Spreadtrum Communications

Spreadtrum Communications, Inc. (Nasdaq: SPRD) (the "Company") is a fabless semiconductor company that designs, develops, and markets baseband processor solutions for the mobile wireless communications market. The Company combines its semiconductor design expertise with its software development capabilities to deliver highly-integrated baseband processors with multimedia functionality and power management. The Company has developed its solutions based on an open development platform, enabling its customers to develop customized wireless products that are feature-rich and meet their cost and time-to-market requirements.

Safe Harbor Statements

This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry in China, the timing for the deployment of 3G wireless networks that support TD-SCDMA in China, the anticipated proliferation of mobile entertainment devices in China as the Beijing 2008 Olympic Games approach, the expected phase-out of the Company's SM5100 series modules and our expectations with respect to the revenue, gross margin and operating margin for the third quarter of 2007, and the Company's future results of operations, financial condition, and business prospects. These statements are forward-looking in nature and involve risks and uncertainties that may cause actual market trends and our actual results to differ materially from those expressed or implied in these forward looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressure on prices; unpredictable changes in technology and consumer demand for mobile phones; uncertainty regarding the timing and pace of deployment of 3G wireless networks that support TD-SCDMA in China; the Company's ability to sustain recent rates of growth; the state of and any change in the Company's relationship with its major customers; and changes in political, economic, legal and social conditions in China. For additional discussion of these risks and uncertainties and other factors, please consider the information contained in the Company's filings with the U.S. Securities and Exchange Commission (the "SEC"), including the registration statement on Form F-1 filed on June 26, 2007, as amended, especially the sections under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and such other documents that the Company may file with the SEC from time to time, including on Form 6-K. The Company assumes no obligation to update any forward-looking statements, which apply only as of the date of this press release.

For more information, please contact:

Investors:

Investor Relations

Phone: +86-21-5080-2727 x2268

Email: ir@spreadtrum.com

Media Contact:

Kathy Zhou, PR Manager

Phone: +86-21-5080-2727 x1120

Email: kathy.zhou@spreadtrum.com

Source: Spreadtrum Communications, Inc.
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