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Spreadtrum Communications Inc. (SPRD)

Q2 2009 Earnings Call

August 19, 2009 8:00 am ET

Executives

Dr. Leo Li - President and CEO

David S. Wu - CFO

Analysts

Charles John - Piper Jaffray

Timothy Lam - Citigroup

Quinn Bolton - Needham

Dan Heyler - Bank of America

Bill Lu - Morgan Stanley

Tse-Yong Yao - HSBC

Presentation

Operator

Welcome to the Spreadtrum Communications Second Quarter Fiscal 2009 Financial Results Conference Call. At this time all participants are in a listen-only mode. Following management prepared remarks there will be a Q&A session. As a reminder this conference is being recorded.

Joining the conference today are Dr. Leo Li, President and CEO, Mr. David S. Wu, CFO, and Ms. Shannon Gao, Vice President and Finance of Corporate Controller. After the close of the US markets on Tuesday, Spreadtrum issued a press release announcing its second quarter fiscal 2009 financial results, which will also be available on the company’s IR webpage at www.spreadtrum.com. This is call is also being broadcast live over the internet and will be available on the company’s website.

Before management briefing, I would like to refer to the Safe Harbor Statement in connection with today’s conference call. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans meaning of the expectation and goals and projections, which are subject to enormous assumptions, risks and uncertainties. Such forward-looking statements include without limitation statements regarding the company’s ability to withstand the current adverse market condition. The Chinese government [conference] and the company are [enrolled] in China 3G and TD-SCDMA rollout. Our ability to continue developing new and innovation product and the company expect the financial performance in the third quarter of 2009.

Forward-looking statements involve known and unknown risks, uncertainties and contingencies many of which are beyond our control, which may cause actual results, level of activity, performance or achievements to differ materially from any future results. Levels of activity performance or achievements expressed or implied by such forward looking statements.

The company’s actual results can differ materially from those contained in the forward looking statements. Since with the number of factors includes and those described under the heading Risk Factors in the company’s final prospectus filed with the Securities and Exchange Commission. Its annual report on Form 20-F filed on June 30, 2009 and documents perpetually filed by the company from time to time with the Securities and Exchange Commission including on Form 6-K. Unless required by law, the company undertakes no obligation to update or revise any forward-looking statements, where as the result of new information, future events or otherwise.

I will now like to turn the call over to Mr. David S. Wu. Sir, please go ahead.

David S. Wu

Thank you for joining us today for review of our second quarter 2009 results. I will give you a very brief overview of the numbers and then turn the call over to Dr. Leo Li to talk about our operational performance and business outlook. After that we will be happy to take your questions.

The total revenue for Q2 was $16.2 million, up 97% sequentially and down 60% year-over-year. Baseband and RF revenue in 2Q ‘09 accounted for 99% of total revenue, a $16.1 million, up 101% from $8 million in first quarter ‘09 and down 58% from second quarter last year.

Our gross margin in 2Q ‘09 was 23.6%, which is a solid improvement compared to 19.4% in first quarter ‘09 and down from 45.2% in 2Q ‘08. Our GAAP net loss in 2009 was $13.1 million compared to a net loss of $8.3 million in first quarter of ‘09 and net income of $2.6 million in 2Q ‘08.

We incurred higher non-cash expenses in the second quarter, mostly driven by $5.6 million in share based compensation expenses. Excluding these charges the Company's non-GAAP net loss for second quarter '09 would have been $7.2 million, which is an improvement from the non-GAAP loss of $7.4 million in the first quarter.

The diluted loss per American Depositary Share in 2Q '09 was $0.29 compared to a diluted loss of $0.19 in the first quarter and diluted earnings per ADS of $0.06 in 2Q '08. The non-GAAP diluted loss for ADS, however was $0.15, compared to a diluted loss of $0.17 in first quarter '09 and an earnings for ADS of $0.11 in 2Q '08.

Let me now turn the call over to our President and CEO, Dr. Leo Li.

Dr. Leo Li

Thank you, David and thank you all again for joining us today. Looking at the our second quarter results, we have seen some clear signs of improvement in our performance and we are confident that our continual focus on the fundamentals, that is the products quality and customer support is paying off.

This is evidenced by the strong increase in the product shipments in second quarter this year. We have increased the baseband shipments by 86% sequentially, including our greater shipments of GSM, GPRS and TD-SCDMA baseband products. We also increased the shipments of RF transceivers by 93% sequentially as well.

In the second quarter, we also began the volume shipments of TD-SCDMA baseband chips through the fixed wireless market. The TD-SCDMA coverage will be present in more than 239 cities across China by the end of this year. Although we do not expect the TD-SCDMA to have a material impact on our financial performance this year, we should see the contribution of the product to the revenue and margins in the second half of 2010.

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