- Published: 18 May 2010
- Written by Editor
Spreadtrum Communications, Inc. Announces First Quarter 2010 Fiscal Results
Spreadtrum Communications, Inc. (Nasdaq: SPRD; "Spreadtrum" or the "Company"), one of China's leading wireless baseband chipset providers, today announced its unaudited financial results for the first quarter ended March 31, 2010.
FIRST QUARTER 2010 FINANCIAL SUMMARY:
-- Total revenue increased 23% quarter-over-quarter and 534% year-over-year to US$52.1 million, exceeding the Company's previously guided range of US$40-43 million.
-- Gross profit was US$23.7 million compared to US$17.8 million in the previous quarter and US$1.6 million in 1Q09. Gross margin was 45.5% compared to 42.2% in the previous quarter and 19.4% in 1Q09.
-- Cash flows from operations were US$28.7 million, compared with
US$9.5 million in the previous quarter, and compared with
US$-0.5 million in 1Q09.
-- GAAP net income was US$6.6 million, compared with US$1.4 million in the
previous quarter and a net loss of US$8.3 million in 1Q09.
-- GAAP net income per basic and diluted ADS was US$0.14 and US$0.13,
respectively, an improvement from US$0.03 per basic and diluted ADS in
4Q09 and a loss of US$0.19 per basic and diluted ADS in 1Q09.
-- Non-GAAP net income was US$8.7 million, compared to US$2.9 million in
4Q09 and a net loss of US$7.7 million in 1Q09. Non-GAAP net income per
diluted ADS was US$0.17, an improvement from US$0.06 per diluted ADS in
4Q09 and a loss of US$0.18 per diluted ADS in 1Q09.
BUSINESS HIGHLIGHTS:
Commenting on the results, Spreadtrum's President and CEO, Dr. Leo Li said, "Our performance this quarter demonstrates our ability to consistently execute on our key objectives and drive business from both new and existing customers. Revenues for the first quarter grew a very impressive 534% year-over-year to $52.1 million, surpassing our initial guidance. In the first quarter, our ongoing improvements to product quality and customer service helped us gain market share in both 2G and 3G markets. I am confident that our robust and continuously expanding product portfolio will allow us to build on this positive momentum going forward.
For the second quarter, we anticipate revenue to be in the range of $65-68 million with maintained margin performance. Our recent strong performance gives us confidence in our ability to deliver continued growth in 2010. We are cognizant of the toughening competitive environment, capacity constraints, market uncertainty and growing pressures on ASPs. We will remain committed to executing on our strategic initiatives to overcome these challenges."
Further commenting on the Q1 financial results, Shannon Gao, Spreadtrum CFO, also said, "In addition to this top-line expansion, net income reached $6.6 million, marking a third consecutive quarter of profitability, and gross margin climbed to 45.5%, a clear sign of our success in improving our product mix, maintaining pricing power, and controlling costs."
FIRST QUARTER FISCAL YEAR 2010 FINANCIAL REVIEW:
Revenue
Revenue in 1Q10 totaled US$52.1 million, up from US$42.3 million in 4Q09 and US$8.2 million in 1Q09.
Unit shipments of baseband semiconductors in 1Q10 increased 17.6% sequentially and more than tripled on a year-over-year basis. Unit shipments of RF semiconductors in 1Q10 increased 35.3% sequentially and more than fivefold from 1Q09.
The average selling price per unit of baseband semiconductors in 1Q10 increased 2.2% sequentially and was up 34.8% year-over-year. The average selling price per unit of RF semiconductors in 1Q10 decreased 1.0% sequentially and increased 15.7% year-over-year.
Gross Profit and Margin
Gross profit for the quarter was US$23.7 million, up 33% from US$17.8 million in 4Q09 and up from US$1.6 million in 1Q09. Gross margin for the quarter was 45.5%, up from 42.2% in 4Q09 and up from 19.4% in 1Q09. Non-GAAP gross margin, adjusted to exclude share-based compensation, was 45.7%, a sequential increase from 42.4% in 4Q09 and a year-over-year increase from 20.5% in 1Q09.
Cost of revenue in 1Q10 totaled US$28.4 million, representing an increase of 16% from the previous quarter and more than three times from 1Q09 levels, attributable to an increase in sales across all major product lines.
Operating Margin
The Company's operating margin for the quarter was 14.3%, compared to 5.9% in the previous quarter and negative 116.4% in 1Q09. The sequential and year-over-year improvements in operating margin were primarily driven by an increase in sales and gross profit, partially offset by increases in employee compensation expense and share-based compensation expense. Non-GAAP operating margin, adjusted to exclude share-based compensation expense was 18.3% in 1Q10, up from 9.4% in 4Q09 and negative 108.6% in 1Q09.
Total operating expenses in 1Q10, including selling, general and administrative (SG&A) expenses and research and development (R&D) expenses, were US$16.2 million, representing an increase from US$15.3 million in 4Q09 and an increase from US$11.2 million in 1Q09. The sequential and year-over-year rises in operating expenses were primarily due to increases in employee compensation expense and share-based compensation expense, partially offset by an increase in earned government subsidies, which were recorded as a reduction of R&D expenses.
R&D expenses increased 4.6% sequentially and increased 54.0% year-over-year to US$12.0 million in 1Q10. The sequential increase was primarily attributable to a rise in employee compensation expense, partially offset by an increase in earned government subsidies, which were recorded as a reduction of R&D expenses. The year-over-year increase was mainly due to increases in employee compensation expense, share-based compensation attributable to R&D expenses and tape-out cost, partially offset by an increase in earned government subsidies, which were recorded as a reduction of R&D expenses.
SG&A expenses increased 10.0% sequentially and increased 26.0% year-over-year to US$4.3 million in 1Q10. The sequential increase resulted mainly from a rise in employee compensation expense. The year-over-year increase was also driven primarily by an increase in employee compensation expense, as well as a rise in share-based compensation attributable to SG&A expenses.
Non-Operating Income
In 1Q10, the Company recorded interest income of US$0.6 million, up from both the previous quarter and 1Q09 as a result of investing a higher balance of cash. Other income (net) in 1Q10 was a loss of US$0.1 million, compared to a loss of US$0.03 million in 4Q09 and a gain of US$0.4 million in 1Q09. The sequential and year-over-year decreases were primarily due to a decline in foreign exchange gain.
Net Income/Loss
The Company's net income totaled US$6.6 million in 1Q10, compared to US$1.4 million in 4Q09 and a net loss of US$8.3 million in 1Q09. The sustained profitability was the result of increased sales of product lines with higher margins. Net profit margin was 12.6%, up from 3.4% in 4Q09 and up from negative 101.1% in 1Q09. Basic and diluted income per ADS was US$0.14 and US$0.13, respectively, in 1Q10, compared to US$0.03 per basic and diluted ADS in 4Q09 and a loss of US$0.19 per basic and diluted ADS in 1Q09.
Excluding share-based compensation expenses, the Company's non-GAAP net income for 1Q10 was US$8.7 million, up from a non-GAAP net income of US$2.9 million in 4Q09 and up from a non-GAAP net loss of US$7.7 million in 1Q09. Diluted non-GAAP income per ADS in 1Q10 was US$0.17, compared with US$0.06 per ADS in the prior quarter and a non-GAAP diluted loss per ADS of US$0.18 in 1Q09.
Balance Sheet and Cash Flow
As of March 31, 2010, the total balance of cash and cash equivalents, term deposit with maturity dates over 90 days and restricted cash, which is available to use when the related expenses occurred and appropriate obligations are satisfied, (collectively, "cash") was US$133.9 million, an increase of US$20.2 million from US$113.7 million as of December 31, 2009. The increase primarily resulted from a rise in advances from customers and 1Q10 net profit, partially offset by an increase in inventory. In 1Q10, the Company generated US$28.7 million in cash from operating activities and used $0.9 million cash on property and equipment as well as US$2.1 million toward intangible asset acquisitions.
Accounts receivable and notes receivable (collectively, "A/R") decreased by US$4.6 million from US$8.4 million as of December 31, 2009 to US$3.8 million as of March 31, 2010. Average A/R days decreased sequentially from 21 days to 11 days as a result of shorter cash collection period upon customer acceptance. Inventory as of March 31, 2010 was US$37.0 million, an increase of US$11.5 million from December 31, 2009. This increase resulted from a rise in deferred costs, which 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. Inventory days were 99 days based on the average inventory amount of this quarter as a result of the higher inventory balance, partially offset by higher sales. Total assets as of March 31, 2010 were US$247.6 million, up US$28.5 million from US$219.1 million as of December 31, 2009. The increase in total assets was primarily attributable to increases of US$20.2 million in cash, US$11.5 million in inventory and US$6.4 million in equity investment, partially offset by a decrease in other long-term assets due to refund of RMB 46.5 million (approximately $6.8 million) deposit for the land use rights paid by the Company in 2007.
Current liabilities increased from US$55.1 million as of December 31, 2009 to US$73.1 million as of March 31, 2010, as a result of increases of US$15.3 million in advance from customers, US$1.2 million in accounts payable and US$0.6 million in income tax payable. Long-term liabilities as of March 31, 2010 were US$49.3 million, compared to US$49.4 million as of December 31, 2009.
BUSINESS OUTLOOK:
Spreadtrum currently expects revenue in the second quarter of 2010 to be in the range of US$65-68 million. The Company also estimates that gross margin for the second quarter of 2010 will remain in line with the first quarter of 2010.
The Company filed its Annual Report on Form 20-F for the year ended December 31, 2009 with the U.S. Securities Exchange Commission on May 7, 2010 and has made its Annual Report available online at http://www.spreadtrum.com . The Company will also furnish a hard copy of the Annual Report to shareholders free of charge upon request.
WEBCAST OF CONFERENCE CALL:
The Company's management team will conduct a conference call at 9:00 pm (Eastern) on Monday, May 17, 2010. A webcast of the conference call will be accessible on the Company's web site at http://www.spreadtrum.com . The conference call can also be accessed via the following telephone numbers:
Toll Free Toll
United States 1-866-804-6923 1-857-350-1669
China 10-800-130-0399
South China
China Telecom 10-800-130-0399
China Netcom 10-800-852-1490
North China
China Telecom 10-800-152-1490
Hong Kong 800-96-3844
United Kingdom 00-800-280-02002
Participant Passcode Spreadtrum or SPRD
A telephone replay will be available shortly after the call until May 24, 2010 at (US Toll Free) 1-888-286-8010 or (US Toll) 1-617-801-6888. Passcode: 43676534.
A live webcast of the conference call and replay 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. 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 believes that the presentation of non-GAAP gross margin, non-GAAP operating margin, non-GAAP net income (loss), and non- GAAP diluted earnings per ADS provides 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 (loss) by the US GAAP weighted average diluted shares outstanding.
Spreadtrum Communications, Inc.
Condensed Consolidated Income Statements
(in thousands of US dollars, except per share data and percentages)
(unaudited)
Three months ended
March 31, December 31, March 31, Change from
2009 2009 2010 1Q09 4Q09
Revenue $8,216 $42,257 $52,113 534% 23%
Cost of revenue 6,622 24,444 28,410 329% 16%
Gross profit 1,594 17,813 23,703 1387% 33%
Operating expenses
Research & development 7,784 11,459 11,990 54% 5%
Selling, general &
administrative 3,373 3,865 4,251 26% 10%
Total operating expenses 11,157 15,324 16,241 46% 6%
Operating income (loss) (9,563) 2,489 7,462 (178%) 200%
Non-operating income
(expense)
Interest income 244 511 609 150% 19%
Interest expense (43) (710) (696) 1519% (2%)
Other income (expense),
net 416 (32) (124) (130%) 288%
Total non-operating
income (expense) 617 (231) (211) (134%) (9%)
Income (loss) before tax
and equity in (loss)
earnings of affiliates (8,946) 2,258 7,251 (181%) 221%
Income tax
expense(benefit) (641) 809 583 (191%) (28%)
Equity in (loss) of
affiliates, net of taxes -- -- (82) -- --
Net income (loss) (8,305) 1,449 6,586 (179%) 355%
Income (loss) per ADS,
basic (0.19) 0.03 0.14 (174%) 367%
Income (loss) per ADS,
diluted (0.19) 0.03 0.13 (168%) 333%
Margin analysis:
Gross margin 19.4% 42.2% 45.5%
Operating margin (116.4%) 5.9% 14.3%
Net margin (101.1%) 3.4% 12.6%
Weighted average ADS
equivalent: (1)
Basic 44,108,981 45,523,939 46,539,706
Diluted 44,108,981 49,123,120 50,424,925
ADS equivalent
outstanding at end of
period 44,247,916 46,030,473 46,722,120
(1) Assumes all outstanding ordinary shares are represented by ADSs. Each
ADS represents three ordinary shares.
Spreadtrum Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands of US dollars)
As of
September December 31, March 31,
30, 2009 2009 2010
(unaudited) (unaudited) (unaudited)
Cash and cash equivalents $47,832 $37,809 $33,908
Restricted cash $5,741 $11,496 $18,677
Short term deposits $7,322 $20,504 $37,384
Notes receivable $1,356 $1,383 $266
Accounts receivable, net $9,591 $7,008 $3,569
Inventories $20,562 $25,541 $37,038
Deferred tax assets $2,085 $1,347 $1,347
Prepaid expenses and other current
assets $5,596 $5,562 $8,870
Total current assets $100,085 $110,650 $141,059
Property and equipment, net $27,405 $27,090 $26,568
Acquired intangible assets, net $27,088 $26,621 $25,208
Equity Investment $713 $1,001 $7,428
Deferred tax assets $1,060 $570 $570
Goodwill $2,000 $2,000 $2,000
Long term deposits $43,930 $43,935 $43,948
Other long term assets $7,055 $7,227 $819
Total assets $209,336 $219,094 $247,600
Accounts payable $22,098 $19,498 $20,727
Advances from customers $5,848 $14,667 $29,929
Income tax payable $3,487 $3,071 $3,655
Current deferred income tax
liabilities $53 $-- $--
Accrued expenses and other current
liabilities $17,871 $17,888 $18,780
Total current liabilities $49,357 $55,124 $73,091
Long term loan $43,930 $43,935 $43,948
Other long-term obligations $6,476 $5,464 $5,379
Total long term liabilities $50,406 $49,399 $49,327
Total liabilities $99,763 $104,523 $122,418
Shareholders' equity $109,573 $114,571 $125,182
Total liabilities & shareholders'
equity $209,336 $219,094 $247,600
Spreadtrum Communications, Inc.
Supplemental Information
(in thousands of US dollars, except percentages)
Revenue 2Q08 3Q08 4Q08 1Q09
Baseband and RF Semiconductor $38,713 $18,765 $9,298 $8,007
Turnkey Solutions $1,514 $1,212 $937 $209
Total $40,227 $19,977 $10,235 $8,216
As % of Total Revenue
Baseband Semiconductor 96.2% 93.9% 90.8% 97.5%
Turnkey Solutions 3.8% 6.1% 9.2% 2.5%
Gross Margin 45.2% 43.7% -26.8% 19.4%
Revenue 2Q09 3Q09 4Q09 1Q10
Baseband and RF Semiconductor $16,071 $38,349 $42,118 $52,107
Turnkey Solutions $147 $30 $139 $6
Total $16,218 $38,379 $42,257 $52,113
As % of Total Revenue
Baseband and RF Semiconductor 99.1% 99.9% 99.7% 100.0%
Turnkey Solutions 0.9% 0.1% 0.3% 0.0%
Gross Margin 23.6% 39.0% 42.2% 45.5%
Spreadtrum Communications, Inc.
Reconciliation of GAAP to Non-GAAP Results
(in thousands of US dollars, except per share data and percentages)
(unaudited)
Three months ended
March 31, December 31, March 31,
2009 2009 2010
Cost of revenue $6,622 $24,444 $28,410
Adjustment for share-based
compensation (29) (83) (102)
Cost of revenue (non-GAAP) $6,593 $24,361 $28,308
Operating income (loss) $(9,563) $2,489 $7,462
Adjustment for share-based
compensation within: Cost of
revenue 29 83 102
Research and development 312 801 1,200
Selling, general, and administrative 300 575 776
Operating income (loss) (non-GAAP) (8,922) 3,948 9,540
Net income (loss) (8,305) 1,449 6,586
Adjustment for share-based
compensation within: Cost of
revenue 29 83 102
Research and development 312 801 1,200
Selling, general, and administrative 300 575 776
Net income (loss) (non-GAAP)* (7,664) 2,908 8,664
Income (loss) per ADS, diluted (0.19) 0.03 0.13
Adjustment for share-based
compensation 0.01 0.03 0.04
Income (loss) per ADS, diluted (non-
GAAP)* (0.18) 0.06 0.17
Gross margin 19.4% 42.2% 45.5%
Adjustment for share-based
compensation 1.1% 0.2% 0.2%
Gross margin (non-GAAP) 20.5% 42.4% 45.7%
Operating margin(loss) (116.4%) 5.9% 14.3%
Adjustment for share-based
compensation 7.8% 3.5% 4.0%
Operating margin(loss) (non-GAAP) (108.6%) 9.4% 18.3%
Net margin(loss) (101.1%) 3.4% 12.6%
Adjustment for share-based
compensation 7.8% 3.5% 4.0%
Net margin(loss) (non-GAAP)* (93.3%) 6.9% 16.6%
Operating expenses $11,157 $15,324 $16,241
Adjustment for share-based
compensation:
Research and development (312) (801) (1,200)
Selling, general, and administrative (300) (575) (776)
Operating expenses (non-GAAP) $10,545 13,948 $14,265
* The non-GAAP adjustment does not take into consideration the impact of
taxes.
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 its 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.
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 Company's consistent execution on its key objectives, the Company's ability to consistently drive business from the customers, the effectiveness of the Company's product portfolio in helping expanding the Company's market share in the 2G and 3G markets, the Company's ability to overcome the challenges as the toughening competitive environment, capacity constraints, market uncertainty and growing pressures on ASPs, and the Company's expectations with respect to revenue being in the range of US$65-68 million in the second quarter of 2010 with flat gross margin as compared to the first quarter of 2010. 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; market acceptance of products utilizing TD-SCDMA technology; the Company's ability to sustain recent rates of growth; the state of and any change in the Company's relationship with its major customers and Chinese government agencies; the Company's ability to successfully complete the projects of the Chinese TD-SCDMA operator; 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 May 7, 2010, 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.
For further information, please contact:
Investor Relations
Tel: +86-21-5080-2727
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Web: http://www.spreadtrum.com
