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Spreadtrum Communications, Inc. Announces Third Quarter 2011 Financial Results
Nov 09, 2011 (03:11 PM EST)
SHANGHAI, Nov. 9, 2011 /PRNewswire-Asia-FirstCall/ -- Spreadtrum Communications, Inc. (Nasdaq: SPRD; "Spreadtrum" or the "Company"), a leading fabless semiconductor provider in China with advanced technology in both 2G and 3G wireless communications standards, today announced its unaudited financial results for the third quarter ended September 30, 2011.
THIRD QUARTER 2011 FINANCIAL SUMMARY:
Commenting on the results, Spreadtrum's Chairman and CEO, Dr. Leo Li said, "We exceeded revenue guidance in 3Q 2011 as quarterly revenue grew in both our 3G and 2.5G product lines. In the TD-SCDMA market, we continued to gain market share with global and domestic handset manufacturers as a result of our breakthrough standby and talk time and high level of integration. Our basebands are powering the TD-SCDMA version of the Samsung Galaxy S II, which launched in the third quarter and was well received by consumers. The overall TD-SCDMA market has continued to grow at a good pace given the combination of continuously improving network coverage and compelling portfolio of low-cost feature phones and smartphones that are now available to consumers. In the fourth quarter, we are on track to introduce our low-cost 40nm-based smartphone solutions for both TD-SCDMA and EDGE/WiFi, which we believe will drive further growth in both markets going into 2012. Through improvement in product mix, we have been able to mitigate ASP pressure in low-end feature phones. Looking ahead to 4Q 2011, with continuing growth vectors in both the TD-SCDMA and 2.5G markets, we expect revenue to be in the range of US$188 million - US$194 million with a gross margin of approximately 41%."
Key business highlights include:
Further commenting on the third quarter financial results, Shannon Gao, Spreadtrum's CFO, added, "In 3Q 2011 our inventory levels declined and we achieved both a stable gross margin and a stable operating margin. We declared our second quarterly cash dividend, distributing US$0.05 per ADS to shareholders on October 26, 2011, and have completed repurchase of approximately 5.4% of total outstanding shares before share repurchase, with 2.4% purchased in the third quarter. We expect to double our cash dividend distribution in the fourth quarter to US$0.10 per ADS.
"As of September 30, 2011, we consolidated the balance sheets of MobilePeak and Telegent. In the third quarter, non-recurring signing bonus and consulting fee expenses were offset by increased R&D subsidies. This resulted in a stable operating margin compared to the second quarter. Looking forward, we expect the operating margin to continue to be stable in 4Q11."
THIRD QUARTER 2011 FINANCIAL REVIEW:
Revenue in 3Q11 totaled US$184.8 million, up from US$160.2 million in 2Q11 and US$96.2 million in 3Q10.
Sales volume of 2G/2.5G baseband and radio frequency bundle semiconductors realized in 3Q11 increased 19.1% sequentially and 121.7% year-over-year. Sales volume of 3G bundle semiconductors realized in 3Q11 increased 17.8% sequentially and 101.1% year-over-year.
The average selling price per unit of 2G/2.5G bundle semiconductors in 3Q11 decreased 3.7% sequentially and 15.9% year-over-year. The average selling price per unit of 3G bundle semiconductors in 3Q11 decreased 0.2% sequentially and 16.7% year-over-year.
Gross Profit and Margin
Gross profit for the quarter was US$77.2 million, up 14.8% from US$67.2 million in 2Q11 and up 81.7% from US$42.5 million in 3Q10. Gross margin for the quarter was 41.8%, down from 42.0% in 2Q11 and 44.1% in 3Q10. Non-GAAP gross margin, adjusted to exclude share-based compensation, was 41.9%, down from 42.1% in 2Q11 and 44.3% in 3Q10.
Cost of revenue in 3Q11 totaled US$107.6 million, representing an increase of 15.8% from the previous quarter and up 100.2% from 3Q10 levels, which is generally in line with the increase in sales.
Operating Expense and Margin
The Company's operating margin for the quarter was 21.4%, compared to 21.2% in the previous quarter and 21.5% in 3Q10. Non-GAAP operating margin, adjusted to exclude share-based compensation expense was 23.7% in 3Q11, compared to 23.0% in 2Q11 and 25.1% in 3Q10.
Total operating expenses in 3Q11, including selling, general and administrative (SG&A) expenses and R&D expenses, were US$37.6 million, representing an increase from US$33.3 million in 2Q11 and an increase from US$21.7 million in 3Q10.
R&D expenses increased 7.8% sequentially and 73.5% year-over-year to US$28.9 million in 3Q11. The sequential increase in R&D expenses was primarily due to a non-recurring signing bonus to a newly appointed officer and a milestone achievement bonus related to new technology, partially offset by an increase in subsidies recognized in3Q11 and a decrease in engineering expense related to development of new product. The year-over-year increase in R&D expense was primarily attributable to a non-recurring signing bonus to a newly appointed officer, a milestone achievement bonus related to new technology, an increase in employee compensation including share-based compensation, engineering expense related to development of new product and depreciation and amortization expense, partially offset by an increase in recognized subsidies from the government and other parties.
SG&A expenses increased 34.5% sequentially and increased 72.0% year-over-year to US$8.8 million in 3Q11. The sequential increase in SG&A expense was primarily due to a non-recurring consulting fee to a resigned officer from MobilePeak, partially offset by a decrease in professional service fees. The year-over-year increase in SG&A expense was primarily due to a non-recurring consulting fee to a resigned officer from MobilePeak and an increase in depreciation and amortization expense of office equipment and new office layouts.
In 3Q11, the Company recorded interest income of US$1.6 million, up from US$1.4 million from previous quarter and up from US$1.0 million in 3Q10. The sequential and year-over-year increase was primarily due to investment of a higher balance of cash combined with an increase in deposit saving rate. Interest expense in 3Q11 was US$1.2 million, up from $0.7 million in previous quarter and up from $0.6 million in 3Q10. The sequential and year-over-year increase in interest expenses was due to an increase in short-term loans. Other income in 3Q11 was US$5.2 million, compared to US$2.6 million in 2Q11 and US$1.3 million in 3Q10. Other income (net) mainly represented net foreign exchange gains and losses and, in 3Q11, gains arising from re-measurement of interests previously held in MobilePeak as a result of step acquisition accounting.
The Company's net income totaled US$39.3 million in 3Q11, compared to US$32.5 million in 2Q11 and US$19.5 million in 3Q10. The sequential increase in net income was primarily due to an increase in sales and gross profit, partially offset by higher operating expenses. Net profit margin was 21.3%, up from 20.3% in 2Q11 and 20.3% in 3Q10. Basic and diluted income per ADS were US$0.84 and US$0.75, respectively, in 3Q11, compared to US$0.67 and US$0.60, respectively, in 2Q11 and US$0.41 and US$0.37, respectively, in 3Q10.
Excluding share-based compensation expenses, the Company's non-GAAP net income for 3Q11 was US$43.5 million, up from a non-GAAP net income of US$35.5 million in 2Q11 and up from US$22.9 million in 3Q10. Diluted non-GAAP net income per ADS in 3Q11 was US$0.83, compared with US$0.65 per ADS in the prior quarter and US$0.43 per diluted ADS in 3Q10.
Balance Sheet and Cash Flow
In 3Q11 the Company completed the acquisition of majority shareholding (85.6%) of MobilePeak and 100% shareholdings of Telegent and started to consolidate the financial statements of MobilePeak and Telegent from respective acquisition closing dates. Based on the preliminary purchase price allocations for both acquisitions, the Company recognized identifiable intangible assets (including completed technologies and in-process research and development projects), of US$23.1 million and goodwill of US$34.2 million. The Company expects to finalize the purchase price allocations by December 31, 2011.
As of September 30, 2011, the total balance of cash and cash equivalents and term deposit with maturity dates over 90 days was US$253.8 million, flat compared to June 30, 2011. The total balance of restricted cash pledged to banks for short-term loans was US$70.9 million, compared with $14.7 million as of June 30, 2011. To capture the benefit of the appreciation of the RMB against the US dollar and to quickly access US denominated capital without incurring material borrowing costs, the Company obtained one-year bank loans in the amount of US$64.0 million of which US$50.7 million and US$13.3 million was drawn down in 3Q11 and 2Q11, respectively. These short term loans are denominated in US dollars and secured by RMB term deposits which are recorded as restricted cash. The average borrowing rate of the short term bank loans is lower than the deposit savings rate on the restricted cash. In 3Q11, the Company generated US$30.5 million in cash from operating activities and used $8.9 million in cash on property and equipment as well as US$3.6 million relating to intangible asset acquisitions. In 3Q11, the Company used US$17.3 million in cash to repurchase its outstanding shares.
Accounts receivable increased by US$12.4 million from US$2.2 million as of June 30, 2011 to US$14.6 million as of September 30, 2011 as a result of increased credit line to selected customers. A/R days was calculated based on quarterly average accounts receivable divided by quarterly revenue. Average A/R days increased sequentially from 1 day to 4 days. Inventory as of September 30, 2011 was US$100.2 million, a decrease of US$24.0 million from June 30, 2011. Deferred cost consisted of products shipped to customers where the rights and obligations of ownership had passed to the customers, but revenue had not yet been recognized due to pending customer acceptance. Deferred cost increased from US$78.5 million as of June 30, 2011 to US$93.5 million as of September 30, 2011. Inventory days was calculated based on quarterly average inventory (excluding deferred cost) divided by quarterly cost of goods sold. Inventory days decreased from 117 days in 2Q11 to 96 days in 3Q11. Total assets as of September 30, 2011 were US$705.1 million, up US$79.0 million from US$626.1 million as of June 30, 2011. The increase in total assets was primarily attributable to increase of US$56.1 million in restricted cash, US$34.2 million in goodwill, US$22.9 million in acquired intangible assets, US$15.0 million in deferred cost, US$12.4 million in accounts receivables and indemnification asset of US$5.6 million, partially offset by decrease in equity investment of US$25.0 million, inventory of US$24.0 million, prepaid expenses and other current assets of US$11.0 million and elimination of $11.8 short-term and long-term loans to MobilePeak upon consolidation.
Current liabilities increased from US$373.2 million as of June 30, 2011 to US$414.0 million as of September 30, 2011, primarily due to the addition of US$51.6 million in short-term loan and increases of US$11.5 million in accrued expense and US$2.7 million in income tax payable, partially offset by decrease of US$20.7 million in accounts payable and US$4.3 million in advance from customers. Long-term liabilities as of September 30, 2011 were US$12.5 million, compared to US$5.3 million as of June 30, 2011.
Looking ahead, Spreadtrum expects revenue for the fourth quarter of 2011 to be in the range of US$188 million – US$194 million with a gross margin of approximately 41%.
WEBCAST OF CONFERENCE CALL:
The Company's senior management will host a conference call at 8:00 pm (Eastern) / 5:00 pm (Pacific) on Wednesday, November 9, 2011, which is 9:00 am (Hong Kong) on Thursday, November 10, 2011 to discuss the financial results and recent business activities. The conference call may be accessed by calling:
A telephone replay will be available shortly after the call until November 16, 2011 at (US Toll / International) +1 718 354 1232, passcode: 21737703.
A live webcast of the conference call and replay, along with an accompanying quarterly results presentation, will be available in the investor relations section of the Company's website.
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 and other non-recurring items. 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 provides the presentation of non-GAAP gross margin, non- GAAP operating margin, non-GAAP net income, and non-GAAP diluted earnings per ADS, all excluding share-based compensation expenses. The Company believes that these non-GAAP financial measures provide 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 are calculated by dividing non-GAAP net income by the US GAAP weighted average diluted shares outstanding.
ABOUT SPREADTRUM COMMUNICATIONS, INC.
Spreadtrum Communications, Inc. (NASDAQ: SPRD; "Spreadtrum") is a fabless semiconductor company that develops baseband and RF processor solutions for the wireless communications market. Spreadtrum combines its semiconductor design expertise with its software development capabilities to deliver highly integrated baseband processors with multimedia functionality and power management. Spreadtrum has developed solutions based on an open development platform, enabling its customers to develop customized wireless products that are feature-rich to meet their cost and time-to-market requirements. For more information, visit www.spreadtrum.com.
SAFE HARBOR STATEMENT:
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 the continuing growth of the overall TD-SCDMA market at a good pace, the Company's belief that the introduction of its low-cost 40nm-based smartphone solutions will drive further growth in both TD-SCDMA and EDGE/WiFi markets going into 2012, the Company's ability to mitigate ASP pressure in low-end feature phones, the continuing growth of 2.5G and TD-SCDMA markets, the Company's expectations with respect to revenue for the fourth quarter of 2011 being in the range of US$188 million - US$194 million with a gross margin of approximately 41%, the Company's ability to engage with other global tier-1 manufactures, the Company's ability to maintain revenue growth and margin stability, and the Company's expectation with respect to the operating margin continuing to be stable in 4Q11, the Company's delivery of WCDMA/HSPA+ solutions by mid-2012, and the Company's expectation with respect to doubling its cash dividend distribution in the fourth quarter to US$0.10 per ADS. The Company uses words like "believe," "anticipate," "intend," "estimate," "expect," "project" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. 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; the rate at which the commercial deployment of TD-SCDMA technology will grow; the Company's continuous expansion of its footprint with global and domestic TD-CDMA handset manufacturers, including both global and domestic tier-1 handset manufacturer; the Company's ability to sustain recent rates of growth and its dominant market share position in both the feature phone and fixed wireless handset markets; the state of and any change in the Company's relationship with its major domestic and international customers and Chinese government agencies; 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") and the annual report on Form 20-F filed on April 6, 2011, as amended, especially the section under "Risk Factors" 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, and does not intend to update any forward-looking statement whether as a result of new information, future events or otherwise except as required by law.
SOURCE Spreadtrum Communications, Inc.