CNTF

China TechFaith Wireless Communication Technology Limited (CNTF)

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China Techfaith Wireless Comm. Tech. Ltd. (CNTF)

Q2 2009 Earnings Call

August 18, 2009 7:00 pm ET

Executives

David Pasquale - Global IR Partners

Defu Dong - Chief Executive Officer

Yuping Ouyang - Chief Financial Officer

Jay Jie - Senior Vice President

Analysts

Jimmy Tan - Matrix Brand Communications

Mike Tenenberg - Analyst

Mark Hicks - Hicks Capital Management

Michael Yang - Analyst

Patrick Macow - Analyst

Presentation

Operator

Welcome to the Trina Solar second quarter 2009 conference call. (Operator Instructions) I would now like to turn the call over to Mr. David Pasquale, Global IR Partners.

David Pasquale

Thank you, Operator. Welcome, everyone to China Techfaith's second quarter 2009 results conference call. Joining us from the company today are the company’s Chairman and CEO, Mr. Defu Dong; Chief Financial Officer, Yuping Ouyang; and SVP, Jay Jie.

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 that this call will contain forward-looking statements. These statements are made under the Safe Harbor provisions under the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intend, plans, believes, estimates, and similar statements. Among other things, the business outlook and quotations from management today on the call, as well as the company’s strategic and operational plans contain forward-looking statements. Techfaith may also make written or oral forward-looking statements in its period reports to the U.S. Securities and Exchange Commission on Forms 20-F, 6-K, et cetera, and in its annual report to shareholders and press releases, and in other written materials and in oral statements made by the officers, directors, 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 Techfaith’s limited operating history, Techfaith’s ability to effectively manage its rapid expansion, loss of Techfaith’s customers and claims against Techfaith due to defects in its designs or other reasons, Techfaith’s limited insurance coverage and its exposure to product liability and product recall, Techfaith’s ability to retain existing or attract additional domestic and international customers, Techfaith’s earnings or margin decline, failure to compete against new and existing competitors, mobile handset brand owners discontinuation or reduction of the use of independent design houses, and other risks outlined in Techfaith’s 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 the United States of America and references to the lawful currency of the United States of America.

Before turning the call over for formal comments, please note that Techfaith’s management will be in the United States for investor meetings in September. If you are interested in a one-on-one meeting, please email your contact information and availability to investor relations using the email cntf@globalirpartners.com.

I would like to now turn the call over to SVP, Jae Jie. Please go ahead, sir.

Jay Jie

Thank you, David and welcome all to our second quarter 2009 financial results conference call. Results came at the high-end of prior guidance in what is not typically a seasonally strong quarter. We continue to gain traction in our core business area as we further improve and build out our long-term strategy by leveraging our ODP business, our branded mobile phone business, and our online and PC gaming business.

Demand in our core ODP cell phone business is being lapped by the China domestic 3G market, as well as the EVDO and HSDPA data card business, and the [inaudible] feature phone sales. And while growth in the 3G rollout has been strong for the past few quarters, based on forecasts we and many others expect an easing in Q3 as consumers and business digest already available inventory.

We expect the domestic China 3G growth will rebound on a long-term basis. However, given the considerable pent-up demand in China and executive market growth worldwide.

Looking at Q2, revenue from the ODP business was $48 million, similar to Q1. Smartphone revenue was $23 million in Q2, or 46% of total revenue. This compares to $27 million in Q1, or 46% of total revenue. We shipped 148,000 smartphone units in Q2 compared to 104,000 units shipped in Q1.

Smartphone ASP was above $156 in Q2, compared with $261 in Q1. The ASP drop in smartphone selling price and revenues was mainly due to a higher mix and division from smartphone [inaudible] shipped into the domestic China market, which have lower ASP than the final product.

In case you did not see, according to the latest data from research firm Gartner, following the smartphone sales grew 27% year over year in the second quarter, surpassing 40 million units and representing the fastest growing segment in the mobile phone developed market.

Volumes are expected to continuing growing, led by exciting new applications ranging from Apple and BlackBerry to other third parties like Techfaith. Importantly, the demand is giving the segment very favorable ASPs compared to other mobile segments. In terms of our feature phone revenue sales, Q2 revenue was $60 million or 32% of total revenue in Q2. This compares to $20 million in Q1, or 41% of total revenue in Q1. We shipped a total of 108,000 features phones in Q2 compared with 160,000 units in Q1. The average feature phone ASP was $148, compare with $126 in the previous quarter. The ASP increase was mainly due to a higher volume of 3G product sales in China.

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