TCL Communication Announces Q1 2015 Results

HONG KONG, April 23, 2015 /PRNewswire/ --

TCL Communication Technology Holdings Limited ("TCL Communication" or the "Company" which, together with its subsidiaries referred to as the "Group"; HKSE stock code: 02618) today announced the unaudited results of the Group for the first quarter ended 31 March 2015.

In the first quarter of 2015, the Group still achieved outstanding mobile phone sales performance in each market. Total sales volume of handsets and other products reached 15.8 million units, representing a y-o-y increase of 16%, with 13.5 million units sold overseas and 2.3 million units sold in China. The Group continued to seize the growing market demand for cost-effective and multi-functional smartphones to further its worldwide market shares. Sales volume of smart devices has increased by 54% y-o-y to 9.7 million units, which accounted for 62% of the Group's total shipments. As a result, the overall average selling price of the Group's products has increased from US$52.2 in the first quarter of 2014 to US$54.7 in the first quarter of 2015, thereby boosting its overall revenue to HK$6.7 billion, up by 21% y-o-y. North America and South America remained the major growth drivers, reporting significant 26% and 18% increases in revenue respectively; meanwhile revenue from the Middle East & Africa and China grew by 174% and 161% y-o-y respectively.

Despite the fierce market competition, the Group has been actively optimising its product mix, which maintained the gross profit margin at a stable and healthy level. Overall gross profit margin slightly decreased to 19.1% in the first quarter of 2015 from 19.6% in the first quarter of 2014. Due to the ongoing growth in smartphone sales and efficient implementation of various business strategies, the Group achieved a net profit of HK$185 million in the first quarter of 2015.

Dr. Guo Aiping, the Chief Executive Officer of TCL Communication, said "In order to fully utilise resources and accelerate business expansion, we restructured our division of business regions to enable each region to be more focused during the period under review. The Group's four business regions were split into six, namely North America, South America, Europe, the Middle East and Africa, Asia-Pacific and China."

North America

For the first quarter of 2015, sales volume of handsets and other products to North America increased by 87% y-o-y to 3.5 million units, with sales of smart devices increasing by 43% y-o-y to 1.9 million units, accounting for 54% of the total shipment to the region. Revenue rose by 26% y-o-y to HK$1.8 billion, accounting for 26% of the Group's total revenue.

There has been a huge demand for smartphones in North America. Seizing this opportunity, the Group has launched a variety of smartphones ranging from entry-level to mid- to high-end to address the market demand in North America. However, as the market remained fiercely competitive, the Group's product prices were under pressure. To address this, the Group will establish a specific pricing strategy, continue to improve its product design and features, and deepen its relationship with operators to seek continuous expansion in the North American region.

South America

For the first quarter of 2015, sales volume of handsets and other products to South America decreased by 6% y-o-y to 5.4 million units. Despite this, sales of smart devices grew by 54% y-o-y to 3.4 million units, accounting for 63% of the total shipment to the region. The continual product mix enhancement enabled the Group to achieve an 18% y-o-y growth in revenue to HK$2.1 billion, accounting for 31% of the Group's total revenue.

While local players have leveraged their geographical advantages to compete aggressively in the feature phone and entry-level smartphone segments, the Group has also been presented with intensified competition from first-tier brands in the mid- to high-end smartphone segment. These have posed challenges to the Group in respect of product technology and pricing. In response to these, the Group will launch a range of innovative smartphones and devices from entry-level to mid- to high-end models, with customised features and targeted pricing strategies, to address the differing needs of markets within South America, in a bid to sustain strong growth momentum in this region.

Europe

Sales volume of handsets and other products to the European market for the period under review totalled 2.9 million units, up 1% y-o-y, of which sales of smart devices rose 18% y-o-y to 1.8 million units, accounting for 60% of total shipment to Europe. Revenue however posted a 16% y-o-y declined to HK$1.1 billion, accounting for 17% of the Group's total revenue.

Owing to the continuing weak economy in the Eurozone which has adversely affected the operating environment of the entire industry in the region, the Group's growth in Europe lagged behind other markets. Despite the exceptionally fierce price competition which exerted pressure on the average selling price, the Group was able to minimise the adverse impact in the first quarter, as it benefited from the solid operational performance base it had established in the previous year. Given entry-level 4G smartphones are expected to be the main growth driver in Europe going forward, the Group will continue to strengthen relationships with operators and distributors. In early March of this year, the Group has set up a distribution centre in France to enhance its open market channels and develop a new supply chain model, in order to pave the way for new product launches in the next two quarters.

The Middle East and Africa

Sales volume of handsets and other products to the Middle East and Africa for the period under review totalled 1.4 million units, up 47% y-o-y, of which smart devices rose 133% y-o-y to 0.8 million units, accounting for 62% of the total shipment to the Middle East and Africa. Revenue surged by 174% to HK$0.7 billion, accounting for 11% of the Group's total revenue.

Weak currencies together with plummeting oil prices have affected the demand for consumer electronics products in emerging markets, thereby affecting the price competitiveness of the Group's products. Nonetheless, the Group strategically increased sales of tablets to optimise its product mix, and consolidated sales channels to create synergy. These resulted in a rise in the revenue in the Middle East and African markets.

Asia Pacific ("APAC")

During the period under review, sales volume of handsets and other products across the APAC region was down by 73% y-o-y to 0.3 million units, within which sales volume of smart devices dropped 55% y-o-y to 0.2 million units. Revenue decreased by 67% y-o-y to HK$0.2 billion, accounting for 2% of the Group's total revenue.

In the first quarter, the Group's revenue decline was due to the mismatch of product portfolio and regional needs. However, the Group will launch more appropriate products to the region to capture the opportunities in APAC in the second quarter. Despite this, entry-level smartphones will be the key product category to fuel the Group's growth in 2015, with India and Southeast Asian countries having particularly robust market demands. Looking into the second quarter, the Group will focus on enhancing its operator network in Myanmar and Thailand, and capturing the enormous opportunities in the 3G phone market in the region.

In addition, the Group is committed to developing both online and offline sales channels to tap into new markets, including fostering partnership with an operator in Myanmar, and strengthening cooperation with leading e-commerce platforms across the region to enhance the Group's online sales.

China

In the first quarter of 2015, sales volume of handsets and other products in China rose by 118% to 2.3 million units. Sales volume of smart devices grew by more than two-fold y-o-y to 1.6 million units. Revenue rose by 161% to HK$0.8 billion, accounting for 13% of the Group's total revenue.

In order to better optimise the Group's distribution strategy in China, Shenzhen Momoda Internet Communication Company Limited ("Shenzhen Momoda Internet Communication"), an affiliate of the Group, was established in the first quarter of 2015 and is expected to commence operations in the second quarter. Subsequently, Shenzhen Momoda Internet Communication will be appointed as the sales distributor of the Group for the China market. Utilising smart devices as an entry point, Shenzhen Momoda Interactive Communication will establish a truly open-ended smart ecosystem based on smart devices and services together with its partners, wearable devices, third-party mobile payment systems, smart home systems and cloud platforms.

The above mentioned reorganisation of the distribution model in the China market is to enhance the Group's profitability in the China market by enhancing its cost efficiency. The new arrangement will not create any direct competition between Shenzhen Momoda Internet Communication and the Group.

The Group's smartphone sales in Shaanxi, Jiangsu and Hunan provinces have recorded satisfactory growth. To capture opportunities in the rapidly rising online sales channel, the Group has entered into strategic cooperation agreements with China Mobile Henan, Shanxi and Guangdong, to put a truly O2M business model into practice. Following the launch of the TCL Momoda exclusive online mall "mmd.cn" in the fourth quarter last year and smooth operations thereafter, the Group entered into cooperation with Suning to jointly promote its TCL Momoda 3N products, the latest Momoda product series.

"Double +" Transformation Strategy

Having undergone a successful transformation in the last few years, the Group has entered a new phase of transformation in 2014: the "Double +" transformation strategy (i.e, "Intelligence + Internet" and "Products + Services"). Last year, TCL Group, TCL Communications and TCL Multimedia set up a joint venture to promote the TCL Smart Home project. Through the integration of the mobile Internet, Big Data and cloud computing, the cooperation will tap into the e-commerce market. TCL Smart Home is a major step for TCL Communication to realise the "Double +" strategic transformation and promote industry upgrade internally within the Group. Another innovation of the Group is a venture into mobile healthcare with the launch of the Fortune Doctor ("Fortune Dr") application ("app"). Fortune Dr has already formed collaborations with ehaoyao.com, 91160.com, and belter.com.cn to fully integrate high-quality healthcare resources. In addition, TCL Communication, in cooperation TCL Group and Cisco, have been jointly developing an enterprise cloud platform solution using cloud computing to develop further into a new generation in video communication and Internet technology. The Group and its parent company have also been jointly developing a new Internet banking service platform (third-party mobile payment), to seize new business opportunities in the future. As of the first quarter 2015, the mobile Internet application platform developed by Mobile Internet Business Centre has accumulated over 8.2 million active users, with service revenue increasing by 135% y-o-y to HK$5.4 million (US$0.7 million). As the number of active mobile users is expected to increase substantially this year, the corresponding services will grow in tandem significantly. According to the target set out in the "Double +" transformation strategy, the Group will strive to increase the cumulative number of its mobile smart device users with ARPU (average revenue per user) contribution to 100 million. 

Given the worldwide political instabilities and currency fluctuations, The Group has always maintained a high degree of sensitivity and reactivity towards the global market environment, and continues to adopt effective credit control and exchange rate hedging policies to mitigate the associated risks. Looking ahead, the Group will leverage its product development, supply chain management, production, sales and marketing, and other competitive advantages, coupled with its "Double +" transformation strategy to create a new business model. Meanwhile, the Group will continue to implement its "Step Up" strategy, and lay a solid foundation for product quality and technological innovations. It will focus on improving its operational efficiency to enhance the Group's performance, with the aim of developing into one of the world's leading mobile internet enterprises.

Dr. Guo Aiping, concluded, "Uncertainties in the global economy and complicatedly dynamic industry competition may flatten the global market demand, which may put pressure on mobile phone sales prices and gross profit. The Group's business has been rapidly extending from smart devices to mobile Internet businesses. It will use its smart devices as an entry point to launch seven innovation projects focusing on mobile Internet application and services. Together with wearable devices, established third-party mobile payment systems, smart home systems and cloud platforms, the Group aims to develop an open smart devices ecosystem with the Group's partners based on "Smart Device + Cloud Platform + Internet Services". The Group remains optimistic in its business outlook, and is confident of capturing the opportunities brought on by the challenges to achieve the target of 30% y-o-y revenue growth in 2015."

About TCL Communication

TCL Communication Technology Holdings Limited ("TCL Communication" or the "Company"; HKSE stock code: 02618) together with its subsidiaries (collectively the "Group") designs, manufactures and markets an expanding portfolio of mobile and internet products worldwide under two key brands -- ALCATEL ONETOUCH and TCL. The Group's portfolio of products is currently sold in China and over 170 countries throughout North America, South America, Europe, the Middle East, Africa and Asia Pacific. According to telecommunication research firm Gartner and company's data, the Group ranked No. 4 and No. 7 among global phone manufacturers and global smartphone manufacturers respectively in the fourth quarter of 2014. The Group also achieved breakthrough in tablet sales and ranked No. 7 among global tablet manufacturers. Headquartered in Shenzhen, China, TCL Communication operates its highly efficient manufacturing plant and R&D centres in various provinces of the PRC. It employs over 14,000 people in Mainland China, Hong Kong and overseas.

TCL Communication is one of the few companies in Hong Kong or Mainland China who owns or licenses 2G, 2.5G, 2.75G, 3G and 4G patented technologies. It is also able to independently develop products and solutions for the GSM, GPRS, EDGE, CDMA, WCDMA, TD-SCDMA and LTE. For more information, please visit its website at http://tclcom.tcl.com.