Chinese technology companies have been sailing in rough waters,
with search company Sohu.com (
SOHU
,
quote
) and gaming company Changyou.com (
CYOU
,
quote
) dropping in value after
questionable first-quarter results
.
[caption id="attachment_48057" align="alignright" width="240"
caption="Spreadtrum had a weak first quarter, but looks forward to
better times."]
[/caption]
However, the outlook is better for hardware companies
like Spreadtrum (
SPRD
,
quote
), which reported Thursday.
The semi-conductor manufacturer announced
first-quarter revenue of $161.1 million
, a 16.2% drop quarter-over-quarter and a 17.5% increase
year-over-year. Net income was $24.3 million, down for both the
quarter and the year.
While sales are up compared to last year, gross margin has been
squeezed to 38%, down from 40% last quarter and 42% last year.
The mixed results echo those reported by Sohu.com and
Changyou.com, which have been pummeled by investors in the week
preceding. SOHU is down 2.65% for the week, and CYOU is down
3.08%.
Investors are treating Spreadtrum's results a little differently
though. SPRD rose 15.79% Thursday in after-hours trading, selling
at $15.55 after a May 3 close of $13.43.
What explains the optimism? Most likely it's Spreadtrum's
outlook for the second quarter. Revenue is expected to rebound to
more than $170 million, though gross margin will continue to be
squeezed due to higher R&D expenses.
Spreadtrum CEO Leo Li called the first quarter a "strong
foundation" for growth in smartphones. "Our smartphone platform is
now commercially available," he said. "and we expect to ship more
than one million units in the second quarter."
The company is targeting the low-end phone market through China
Mobile (
CHL
,
quote
), and looking to
expand into the fast-growing Indian market
.
Analysts seem to agree with the strategy.
Canaccord Genuity has raised its target price
for SPRD to $21 and rated the stock a buy.
Investors can expect more trouble for Chinese technology stocks,
especially companies dependent on advertising or consumer spending.
Smartphones and other electronics are still growing fast
, though, and chipmakers like Spreadtrum have opportunities to
prosper.
