CNTF

China TechFaith Wireless Communication Technology Limited (CNTF)

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China Techfaith Wireless Communication Technology Limited (CNTF)

Q3 2012 Results Earnings Call

November 21, 2012 8:00 AM ET

Executives

David Pasquale - Global IR Services

Ouyang Yuping - Chief Financial Officer

Jay Ji - Senior Vice President

Analysts

Joe Cappello - Analyst

Shawn Allen - Private Investor

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Q3 2012 China Techfaith Earnings Call. My name is [Marie], and I will be your operator today. At this time, all participants are in listen-only mode. And we will conduct a question-and-answer session toward the end of this conference. (Operator Instructions)

As a reminder, this call is being recorded for replay purposes. And now, I’d like to turn the call over to David Pasquale of Global IR Services. Please proceed, sir.

David Pasquale

Thank you, Operator. Welcome everyone to China Techfaith's third quarter 2012 financial results conference call. Joining us from the company today are the company’s Chief Financial Officer, Ms. Ouyang Yuping; and SVP, Mr. Jay Ji.

We will have time for your questions after review of the quarter’s results and the company’s outlook. If you have not yet received a copy of today’s results release, please email Global IR Partners at cntf@globalirpartners.com, or you can get a copy of the release off of the Investor Relations section of Techfaith’s website.

The company’s attorneys advise this call will contain forward-looking statements. These statements are made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intend, plans, believes, estimates, confident, outlook, and similar statements.

Among other things, the business outlook and strategic and operational plans of Techfaith and management’s comments contain forward-looking statements. Techfaith may also make written or oral -- looking statements in its period reports to the U.S. Securities and Exchange Commission on Forms 20-F and 6-K, et cetera, and in the annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors, or employees to third parties.

Statements that are not historical facts, including statements about Techfaith’s beliefs and expectations are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements.

Potential risks and uncertainties include but are not limited to those outlined in Techfaith filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F.

Techfaith does not undertake any obligation to update any forward-looking statement except as required under applicable law. All information provided on today’s conference call is as of today’s date.

References to U.S. GAAP are to generally accepted accounting principles as practiced in United States of America and references to dollars are to the lawful currency of United States of America.

At this time, I’d like to now turn the call over to SVP, Mr. Jay Ji. Please go ahead, sir.

Jay Ji

Thank you, David. And welcome to our third quarter 2012 financial results conference call. I hope that everyone had a chance to review our press release. Overall, the third quarter developed as expected.

This is encouraging to us given the volatility and steep decline we experienced at the start of the year, and while we are encouraged, we do not expect business levels to improve dramatically over the near-term.

The reason is that, the broader environment remains challenging environment and we are not certain, if the market will remain stable as we move through December. We expect continued pricing pressure and high competition on smartphone and gaming areas of our business. But we also expect revenue levels and margins in the niche and enterprise segments we are targeting to have some degree of stability.

Longer term basis, we remained confident in our ability to successfully navigate through this period based on our ability to do so in prior years. It is hard to say, where we are at in the cycle but we have now gone through three quarters of one of the toughest declines we have seen in long time. That would lead us to believe we should start to see some improvement as we move through in 2013 absent any further drop off in the global economy.

In terms of Q3, our revenue for the third quarter came in at US$31.5 million. As noted, this was in line with our prior guidance between the range of US$30 million to US$35 million.

The stability in our enterprise and niche market segments is reflected in our gross margin for Q3, which improved to 22.8% from 22.6% in Q2 on the slightly lower revenue level. Favorable product mix combined with operating efficiencies helped us improve gross margins and generated net income US$900,000.

In terms of segments in Q3, our ODP business contributed 42.2%, our gaming business contributed 21.9% and our branding business brought us 35.9%. We remain focused on building brand awareness, on developing unique Android smartphones for the enterprise outdoor and healthcare markets.

We are also looking to further expand our user base for our gaming business and working to further strengthen our international sales. One example of our strategy and success is seen in our ruggedized devices, Jungle and TITAN, which have been well received by customers in the European Union, South Africa, Russia, Latin America, Hong Kong and more.

We also continued to expand our presence overseas by participating in various other divisions, such as the Consumer Electronic Show in Las Vegas, 3GSM in Barcelona, GITEX in Dubai and CommunicAsia in Singapore. These high visibility events are important platforms for us to reach both existing and potential customers.

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