Wednesday, March 22, 2006

CNTF Reports Q405 Earning

CNTF Reported Q405 Earnings

Techfaith Wireless(CNTF), the Chinese handset design solution provider, reported a better than expected Q405. For full year 2005, net revenue was 90 million USD, diluted EPS is 1$.

However, Q106 guidance is only about half of what was expected, revenue is guided to be 12.5 mil USD, net income to be about 1 mil USD. They also provided Q2 guidance for revenue of 24 mil USD and net income of 8.5 mil USD. For full year 2006, they are extremely upbeat, giving a revenue forecast of 'at least' 120 mil USD,net income of about 44 mil USD.

The company cited losing one customer and discontinuing of two GSM platforms to be the reason for the Q106 revenue shortfall. Since we are at the end of Q1 already, I guess actual Q1 and Q2 numbers will come closely with guidance. So if Q2 is really based on 'existing orders'(as they claimed), then the Q1 shortfall is not that material.

Beyond Q2, I don't think many have faith and visibility to belive too much in their at least 120 mil USD revenue guidance. The management said smart phones and pocket pcs will start contributing revenue in Q2 and total contribution from this unit for full year 2006 is expected to be 30 mil USD. So essentially they believe revenue from other units will be roughly flat to that of 2005, the growth driver is the smart phone and pocket pc business.

Techfaith set up the smart phone operation last December, so far they have about 450 people working under this unit. Based on products published on their website(http://www.techfaithwireless.com/english/services_1_5.htm), it is quite impressive to be able to build these gadgets in such a short time. I tend to agree that smart phones will be more popular in both enterprise and retail space, the success of Blackberry is a proof of the enterprise needs on wireless communication device. On the retail front, I believe phones will become 'smarter', in the sense that they are not only going to be calling devices, but also a information organizer and mobile entertainment platform. I think the 30 mil USD revenue target from smart phone and pocket pc is achievable.

On the margin front, we may see some further gross margin compression due to a product mix that includes more low margin products, such as smart phones. CEO believes gross margin for handset design and software application should be quite stable.

The conference call did not mention anything about the rumor I mentioned yesterday.

Given the volatility in both business performance and stock price, it is hard to call for a sure bet. I am holding a small piece which I bought before the earnings, I plan to hold on to it. If this stock drops to single digits, I am thinking to pick up more.

0 Comments:

Post a Comment

<< Home