2007'11.23.Fri
Spreadtrum Communications, Inc. Announces Third Quarter 2007 Results: Robust Increase in Baseband Shipments Drove Strong Revenue Growth
November 01, 2007
Third Quarter 2007 Financial Summary:
-- Total revenue increased 20% sequentially and 44%
year-over-year to
US$38.6 million. Baseband revenue grew 25%
sequentially and 118%
year-over-year.
-- Gross margin increased to 45.6% in 3Q07 from 43.2%
in 3Q06 and 45.5%
in 2Q07.
-- Operating margin increased to 11.7% in 3Q07 from
7.9% in 2Q07 but
decreased from 13.8% in 3Q06.
-- Net income increased 118% sequentially and 64%
year-over-year to
US$6.1 million.
-- Diluted earnings per American Depositary Share
(ADS) was US$0.13, up
86% from US$0.07 in 2Q07 and 18% from US$0.11 in
3Q06.
Third Quarter 2007 Business Highlights:
-- The Company began sampling its SC6600H product, a
new baseband chip
that is optimized for the music mobile phone with
high-quality music
playback functionality that enables CD sound
quality playback.
-- The Company began sampling its SC6600R product, a
new high
performance baseband chip with high-end functions
that is targeted at
the mainstream mobile phone market.
-- The Company began sampling its SV6111 product,
which the Company
believes is the world's first commercial AVS
audio/video decoder chip.
-- Set-top boxes using the Company's SV6111 chip
successfully passed
China Netcom's commercial trials.
-- The Company entered into a TD-SCDMA strategic
partnership agreement
with Zhongxing Telecommunication Equipment Co., Ltd
(ZTE).
-- The Company hosted its first Technology Forum in
Shanghai, at which
the Company and its customers, suppliers, and
business partners
convened to exchange thoughts and perspectives on,
among other
topics, recent achievements, market trends, and
strategies for future
growth and development in China's wireless
semiconductor and
communications industry.
SHANGHAI, China, Oct. 31 /Xinhua-PRNewswire/ --
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 third quarter 2007 financial results. Under
accounting principles generally accepted in the United
States of America (US GAAP), diluted earnings per ADS was
US$0.13 in the third quarter of 2007 (3Q07), an increase of
18% from US$0.11 in the same period in 2006 (3Q06) and 86%
from US$0.07 in the second quarter of 2007 (2Q07). Net
income for 3Q07 was US$6.1 million, an increase of 64% from
US$3.7 million in 3Q06 and 118% from US$2.8 million in 2Q07.
US GAAP net income for 3Q07 included US$1.5 million of
share-based compensation expense. Excluding the
share-based compensation, the Company's non-GAAP net income
for 3Q07 was US$7.6 million. Diluted non-GAAP earnings per
ADS in 3Q07 was US$0.16.
Commenting on the results, the Company's President and
CEO, Dr. Ping Wu, said:
"We are pleased with our performance in the third
quarter. We have experienced two consecutive quarters of
37% growth in the shipments of our baseband semiconductors
and believe that we are continuing to gain share in the
Chinese mobile handset market. Our shipments of baseband
semiconductors for the nine-month period already exceeded
our shipments for all of last year.
On the new product front, the results of our recent
strategic R&D investments became more apparent as we
refreshed our portfolio with several product extensions
that should position us well for next year. In the third
quarter, we announced and began sampling three new
chips--our SC6600H and SC6600R baseband chips and SV6111
AVS audio/video decoder chip. The SC6600H is designed to
enable CD sound quality playback on music mobile phones,
while the SC6600R is a high-performance, high-function
baseband chip targeted at the mainstream mobile phone
market. The SV6111, which we believe is the first decoder
chip to support the Chinese AVS standard, successfully
passed China Netcom's commercial trial tests in October.
On the 3G front, we continue to work towards the
commercialization of the TD-SCDMA standard. We entered
into a strategic partnership agreement with ZTE, the
largest TD-SCDMA equipment supplier in the first phase of
TD-SCDMA deployment. We are cooperating with ZTE in a
number of projects designed to improve the functionality of
TD-SCDMA system and terminals and introduce additional
TD-SCDMA commercial products. This month, we announced
sampling of our SC8800S chip, a TD-SCDMA/GSM dual-mode
baseband chip designed to support HSDPA/EDGE and dedicated
for the data card market. Also in this month, ZTE used our
TD-SCDMA baseband to demonstrate the feasibility of
multimedia broadcast multicast services (MBMS) over a
TD-SCDMA network."
Third Quarter 2007 Financial Review
Revenue
Revenue in the third quarter totaled US$38.6 million,
representing increases of 44% from 3Q06 and 20% from 2Q07.
Revenue from baseband semiconductors was US$34.2 million, or
89% of revenue, up from 59% of revenue in 3Q06 and 85% of
revenue in 2Q07. Revenue from turnkey solutions was US$4.4
million, which represented 11% of revenue, down from 41% of
revenue in 3Q06 and 15% of revenue in 2Q07.
Revenue from baseband semiconductors increased by 118%
from 3Q06 and 25% from 2Q07 to US$34.2 million. Unit
shipments of baseband semiconductors increased by 37% from
2Q07. Nearly all baseband semiconductor shipments in the
third quarter were 2G/2.5G related products. The average
selling price per unit for baseband semiconductors declined
by 9% from 2Q07.
Revenue from turnkey solutions decreased by 60% from
3Q06 and 9% from 2Q07 to US$4.4 million, as a result of the
Company's prior decision to phase out its SP7000 series
handset boards by the end of 2006 and gradually phase out
its SM5100 series modules.
Gross Margin
The gross margin for the quarter was 45.6%, up from
43.2% in 3Q06 and flat from 45.5% in 2Q07. This margin
improvement from the same period in 2006 was primarily due
to a more favorable revenue mix from baseband products, as
the Company continues to gradually phase out its lower
margin turnkey solutions. The cost of revenue in 3Q07
totaled US$21.0 million, representing increases of 38% and
20% from 3Q06 and 2Q07, respectively. The year-over-year
increase in absolute dollars was driven by an increase in
the total cost of baseband semiconductors from higher
volumes partially offset by a decline in the total cost of
turnkey solutions. The total cost of turnkey solutions
declined as the Company phased out its SP7000 series
handset board business by the end of 2006 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 37% increase in baseband unit volume from
2Q07.
The non-GAAP gross margin was 45.7%, up from 43.4% in
3Q06 and unchanged from 2Q07.
Operating Expenses
Total operating expenses in 3Q07, which include
selling, general and administrative (SG&A) expenses and
research and development (R&D) expenses, were US$13.1
million, representing increases of 66% from 3Q06 and 8%
from 2Q07. Excluding the share-based compensation expense,
total operating expenses increased 62% year-over-year and 9%
sequentially.
Total operating expenses for the quarter represented
33.9% of revenue, compared to 29.4% and 37.6% of revenue in
3Q06 and 2Q07, respectively. The Company's operating margin
decreased from 13.8% in 3Q06 but increased from 7.9% in 2Q07
to 11.7% in 3Q07. The year-over-year decline in operating
margin was due to higher R&D expenses as a result of
the Company's strategic decision to expand its product
portfolio. The non-GAAP operating margin in 3Q07 was
15.7%, down from 16.7% in 3Q06 but up from 12.6% in 2Q07.
SG&A expenses in 3Q07 increased by 39% from 3Q06
and decreased by 2% from 2Q07 and represented 10.5% of
revenue, down from 10.9% of revenue in 3Q06 and 12.9% of
revenue in 2Q07. The year-over-year dollar 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, depreciation,
insurance, business tax, and shipping expense. The
sequential dollar decrease was driven primarily by
decreases in business tax expense and professional fees,
partially offset by higher salary and benefits, insurance,
and other administrative expenses.
R&D expenses in 3Q07 increased 82% year-over-year
and 13% sequentially and represented 23.3% of revenue in
3Q07, compared to 18.5% in 3Q06 and 24.7% in 2Q07. The
year-over-year dollar increase was driven primarily by the
Company's efforts to expand its product portfolio, and this
increase included higher salary and benefits, share-based
compensation expense, tape-out expense, depreciation and
amortization expense, and travel expense. The sequential
dollar increase was primarily driven by higher salary and
benefits, depreciation and amortization expense, travel
expense, and utilities expenses.
Non-Operating Income
In 3Q07, the Company recorded net interest income of
US$1.7 million, representing increases of US$1.5 million
from 3Q06 and US$1.4 million from 2Q07. The increases were
primarily attributed to interest earned from investing the
higher balance of cash and cash equivalents arising from
the Company's initial public offering.
Earnings
The Company's net income totaled US$6.1 million in
3Q07, an increase of 64% from US$3.7 million in 3Q06 and
118% from US$2.8 million in 2Q07. The net margin was
15.7%, up from 13.9% in 3Q06 and 8.6% in 2Q07. Diluted
earnings per ADS was US$0.13, up 18% from US$0.11 in 3Q06
and 86% from US$0.07 in 2Q07.
Non-GAAP diluted earnings per ADS for 3Q07 was US$0.16,
up from US$0.13 in 3Q06 and US$0.11 in 2Q07.
Balance Sheet
As of September 30, 2007, the Company had US$147.0
million in cash and cash equivalents, which represented an
increase of US$105.6 million from June 30, 2007. The
Company's initial public offering, which settlement took
place in early July, contributed US$100.0 million of this
increase. Accounts receivable (A/R) decreased from US$6.7
million at June 30, 2007 to US$3.0 million at September 30,
2007, and the average A/R days decreased from 25 days to 11
days. Inventory at September 30, 2007 was US$15.0 million,
fairly comparable with the inventory at June 30, 2007, and
the inventory days decreased from 77 days to 65 days.
Total assets as of September 30, 2007 were US$215.5
million, up 95% from US$110.3 million at June 30, 2007.
Current liabilities decreased from US$38.5 million at
June 30, 2007 to US$35.5 million at September 30, 2007,
primarily due to a decrease in accounts payable. Long-term
liabilities at September 30, 2007 were US$4.8 million,
compared to US$4.3 million at June 30, 2007. The increase
was primarily due to an increase in long-term payable
related to acquired intangibles.
On July 2, 2007, the Company issued 8 million ADSs, or
24 million ordinary shares, in connection with its initial
public offering. There were approximately 126.6 million
ordinary shares outstanding at September 30, 2007,
equivalent to approximately 42.2 million American
Depositary Shares. The weighted average diluted share
count in the third quarter was 46.9 million ADSs.
Cash Flow
In 3Q07, the Company generated US$17.2 million cash
from operating activities. The Company also spent US$6.9
million on property and equipment, of which approximately
US$5.7 million represented the final payment for the
Company's current headquarters building, and US$1.6 million
on intangible assets. In addition, the Company spent
approximately US$3.0 million on the final installment of
its purchase of land use rights for a parcel of land near
its current headquarters building. Cash and cash
equivalents balance at September 30, 2007 increased by
US$105.6 million as compared to balance as of June 30,
2007. US$100.0 million of this increase came from the net
proceeds of the Company's initial public offering.
Business Outlook:
The Company currently expects revenue in the fourth
quarter of 2007 to be approximately US$46 million to US$47
million, which represents a sequential increase of 19% to
22% from US$38.6 million in the third quarter of 2007. The
Company estimates that its operating margin will likely
increase from 11.7% in 3Q07 to slightly over 13% in 4Q07.
Webcast of Conference Call:
The Company's management team will conduct a conference
call at 6:00 pm Eastern Time on October 31, 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): +1-866-679-8035
USA (Toll): +1-617-213-4848
Hong Kong (Toll Free): 800-962-844
China (Toll Free): 10-800-130-0399
Participant Passcode: 8804 0657
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: 5949 5354
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
September 30, 2006 June 30, 2007
September 30, 2007
(in thousands of US
dollars)
Share-based compensation:
Cost of revenue $ 44 $ 52
$ 54
Research and developme 385 563
582
Selling, general, and
Administrative 333 904
891
Spreadtrum Communications, Inc.
Consolidated Income Statements
(in thousands of US dollars, except per share data and
percentages)
(unaudited)
Three months ended
Change from
September June 30,
September 3Q06 2Q07
30, 2006 2007 30,
2007
Revenue $26,701 $32,187
$38,570 44% 20%
Cost of revenue 15,161 17,543
20,996 38% 20%
Gross profit 11,540 14,644
17,574 52% 20%
Operating expenses
Research & development 4,945 7,952
8,997 82% 13%
Selling, general &
administrative 2,914 4,149
4,059 39% (2)%
Total operating
expenses 7,859 12,101
13,056 66% 8%
Operating income 3,681 2,543
4,518 23% 78%
Non-operating income
(expense)
Interest income 134 299
1,676 1151% 461%
Interest expense (5) (6)
(18) 260% 200%
Other income, net 207 116
347 68% 199%
Total non-operating
income 336 409
2,005 497% 390%
Income before tax 4,017 2,952
6,523 62% 121%
Income tax expense 314 171
465 48% 172%
Net income $3,703 $2,781
$6,058 64% 118%
Basic earnings per ADS $0.74 $0.41
$0.14 (81)% (66)%
Diluted earnings per ADS $0.11 $0.07
$0.13 18% 86%
Margin analysis:
Gross margin 43.2% 45.5%
45.6%
Operating margin 13.8% 7.9%
11.7%
Net margin 13.9% 8.6%
15.7%
Weighted average ADS
equivalent:(1)
Basic 5,002,184 6,859,226
42,005,199
Diluted 34,033,283 39,240,015
46,940,325
(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)
Nine months
ended
September
September
30, 2006
30, 2007 Change
Revenue $76,113
$96,924 27%
Cost of revenue 46,869
53,493 14%
Gross profit 29,244
43,431 49%
Operating expenses
Research & development 13,160
22,945 74%
Selling, general & administrative 7,247
12,128 67%
Total operating expenses 20,407
35,073 72%
Operating income 8,837
8,358 (5)%
Non-operating income (expense)
Interest income 554
2,414 336%
Interest expense (43)
(30) (30)%
Other income, net 437
794 82%
Total non-operating income 948
3,178 235%
Income before tax 9,785
11,536 18%
Income tax expense 730
665 (9)%
Net income $9,055
$10,871 20%
Basic earnings per ADS $1.84
$0.59 (68)%
Diluted earnings per ADS $0.27
$0.26 (4)%
Margin analysis:
Gross margin 38.4%
44.8%
Operating margin 11.6%
8.6%
Net margin 11.9%
11.2%
Weighted average ADS equivalent:(2)
Basic 4,907,441
18,307,807
Diluted 33,130,200
41,531,113
(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 31,
June 30, September
2006 (Note)
2007 30, 2007
Cash and cash equivalents $47,254
$41,336 $146,973
Term deposit 1,281
-- --
Accounts receivable, net 11,384
6,674 3,020
Inventories 13,617
14,925 15,020
Deferred tax assets 202
202 202
Prepaid expenses and other current
assets 1,101
5,638 3,716
Total current assets 74,839
68,775 168,931
Property and equipment, net 18,944
21,468 22,388
Acquired intangible assets, net 5,920
12,489 13,622
Deferred tax assets 1,060
1,087 1,035
Other long term assets 3,339
6,512 9,567
Total assets 104,102
110,331 215,543
Current portion of long term loan 576
985 666
Accounts payable 12,980
12,317 10,874
Advances from customers 3,297
4,428 7,229
Obligation on acquisition of building 9,236
5,531 --
Income tax payable 1,849
2,008 2,397
Accrued expenses and other current
liabilities 13,363
13,262 14,294
Total current liabilities 41,301
38,531 35,460
Long term loan 3,842
3,283 3,329
Deferred tax liabilities 17
17 17
Other long-term obligations --
971 1,433
Total long term liabilities 3,859
4,271 4,779
Total liabilities 45,160
42,802 40,239
Shareholders' equity 58,942
67,529 175,304
Total liabilities & shareholders'
equity $104,102
$110,331 $215,543
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 (US$000) 4Q05 1Q06
2Q06 3Q06
Baseband Semiconductor $3,028 $4,849
$11,760 $15,684
Turnkey Solutions 17,566 14,842
17,961 11,017
Total $20,594 $19,691
$29,721 $26,701
As % of Total Revenue
Baseband Semiconductor 15% 25%
40% 59%
Turnkey Solutions 85% 75%
60% 41%
Gross Margin 25.0% 31.4%
38.8% 43.2%
Revenue (US$000) 4Q06 1Q07
2Q07 3Q07
Baseband Semiconductor $22,645 $20,589
$27,357 $34,161
Turnkey Solutions 8,317 5,578
4,830 4,409
Total $30,962 $26,167
$32,187 $38,570
As % of Total Revenue
Baseband Semiconductor 73% 79%
85% 89%
Turnkey Solutions 27% 21%
15% 11%
Gross Margin 46.4% 42.9%
45.5% 45.6%
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
September
June 30, September
30, 2006
2007 30, 2007
Cost of revenue $15,161
$17,543 $20,996
Adjustment for share-based
compensation (44)
(52) (54)
Cost of revenue (non-GAAP) $15,117
$17,491 $20,942
Operating income $3,681
$2,543 $4,518
Adjustment for share-based
compensation within:
Cost of revenue 44
52 54
Research and development 385
563 582
Selling, general, and
administrative 333
904 891
Operating income (non-GAAP) $4,443
$4,062 $6,045
Net income $3,703
$2,781 $6,058
Adjustment for share-based
compensation within:
Cost of revenue 44
52 54
Research and development 385
563 582
Selling, general, and
administrative 333
904 891
Net income (non-GAAP) * $4,465
$4,300 $7,585
Diluted earnings per ADS $0.11
$0.07 $0.13
Adjustment for share-based
compensation 0.02
0.04 0.03
Diluted earnings per ADS (non-GAAP)* $0.13
$0.11 $0.16
Gross margin 43.2%
45.5% 45.6%
Adjustment for share-based
compensation 0.2%
0.2% 0.1%
Gross margin (non-GAAP) 43.4%
45.7% 45.7%
Operating margin 13.8%
7.9% 11.7%
Adjustment for share-based
compensation 2.9%
4.7% 4.0%
Operating margin (non-GAAP) 16.7%
12.6% 15.7%
Net margin 13.9%
8.6% 15.7%
Adjustment for share-based
compensation 2.9%
4.7% 4.0%
Net margin (non-GAAP)* 16.8%
13.3% 19.7%
* The non-GAAP adjustment does not take into
consideration the impact of
taxes.
About Spreadtrum Communications, Inc.:
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 Company's share in the Chinese mobile handset market,
the positioning of the Company with respect to new chips
announced in the third quarter and this month, the
Company's cooperation with ZTE in projects designed to
improve the functionality of TD-SCDMA system and terminals
and introduce additional TD-SCDMA commercial products, the
expected phase-out of the Company's SM5100 series modules,
the Company's expectations with respect to the revenue and
operating margin for the fourth 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 the
Company's 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, continuing
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;
uncertainty regarding the timing and pace of the commercial
deployment of AVS-based products 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:
Investor Relations
Phone: +86-21-5080-2727 x2268
Email: ir@spreadtrum.com
PR
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