2007'08.10.Fri
Spreadtrum Communications, Inc. Announces Second Quarter 2007 Results: Strong Growth Driven by Robust Increase in Baseband Shipments
August 10, 2007
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
PR
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