SHANGHAI, August 10, 2012 /PRNewswire-Asia-FirstCall/ -- Spreadtrum Communications, Inc. (Nasdaq: SPRD; "Spreadtrum" or the "Company"), a leading fabless semiconductor provider in China with advanced technology in 2G, 3G and 4G wireless communications standards, today announced its unaudited financial results for the second quarter ended June 30, 2012.
SECOND QUARTER 2012 FINANCIAL SUMMARY:
BUSINESS HIGHLIGHTS:
Commenting on the results, Spreadtrum's Chairman and CEO, Dr. Leo Li said, "This quarter, we achieved a strong ramp of our 1GHz Android smartphone products, with customers launching handsets through both China Mobile and open market distribution channels. Many are targeting a newly created 500-700RMB retail segment, making 1GHz smartphone performance more affordable and attractive to the mass market consumer. The demand for our smartphone products is very strong, and we now expect to ship more than 10 million smartphone chipsets in the third quarter.
"Looking ahead to 3Q12, we expect revenue to be in the range of US$178 million to US$186 million, which is a sequential increase of 2.8% to 7.5%, with a flat gross margin relative to Q2. In the short term, our 2.5G outlook is constrained by a shortage of some handset components. For TD-SCDMA business, we expect strong shipment growth in smartphones to be partly tempered by a drop in market demand for TD-SCDMA feature phones, reflecting shifting consumer preferences towards low-cost smartphones as they become more affordable. In the coming quarters, we expect our smartphone products, which carry a higher gross margin and ASP than our feature phone products, to continue to grow rapidly and more than offset this shift in the TD-SCDMA market."
Further commenting on the 2Q12 financial results, Shannon Gao, Spreadtrum's CFO added, "With the ramp in smartphone product shipments we have now stabilized our gross margins. Our operating expenses increased slightly this quarter as expected, with much of the increase in non-recurring cash bonus and share-based compensation recorded on the achievement of a final milestone in our WCDMA program related to the MobilePeak acquisition last year. We are continuing to invest in research and development in dual-core and quad-core smartphone platforms, as well as WCDMA, LTE and connectivity technologies, which will expand our addressable market in both China and overseas regions. In Q3, we expect our operating margins to be similar to the second quarter."
SECOND QUARTER 2012 FINANCIAL REVIEW:
Revenue
Revenue in 2Q12 totaled US$173.1 million, up from US$161.1 million in 1Q12 and from US$160.2 million in 2Q11.
Sales volume of 2G/2.5G baseband and radio frequency bundle semiconductors recognized as revenue in 2Q12 increased 32.4% sequentially and 52.1% year-over-year. Sales volume of 3G bundle semiconductors recognized as revenue in 2Q12 decreased 28.1% sequentially and increased 22.5% year-over-year.
The average selling price per unit of 2G/2.5G bundle semiconductors in 2Q12 decreased 9.5% sequentially and 23.4% year-over-year. The average selling price per unit of 3G bundle semiconductors in 2Q12 decreased 2.8% sequentially and 21.0% year-over-year.
Gross Profit and Margin
Gross profit for the quarter was US$64.2 million, up 4.7% from US$61.3 million in 1Q12 and down 4.5% from US$67.2 million in 2Q11. Gross margin for the quarter was 37.1%, down from 38.0% in 1Q12 and 42.0% in 2Q11. Non-GAAP gross margin, adjusted to exclude share-based compensation, was 37.2%, down from 38.1% in 1Q12 and 42.1% in 2Q11.
Cost of revenue in 2Q12 totaled US$108.9 million, an increase of 9.1% from the previous quarter and up 17.2% from 2Q11.
Operating Expense and Margin
The Company's operating margin for the quarter was 13.5%, compared to 16.1% in the previous quarter and 21.2% in 2Q11. The sequential and year-over-year decrease in operating margin was primarily due to a lower gross margin and higher research and development (R&D) expenses as a percentage of revenue. Non-GAAP operating margin, adjusted to exclude share-based compensation expense was 18.5% in 2Q12, compared to 19.2% in 1Q12 and 23.0% in 2Q11.
Total operating expenses in 2Q12, including selling, general and administrative (SG&A) expenses and R&D expenses, were US$40.8 million, representing an increase from US$35.4 million in 1Q12 and from US$33.3 million in 2Q11.
R&D expenses increased 17.3% sequentially and increased 24.6% year-over-year to US$33.3 million in 2Q12. The sequential increase in R&D expenses was primarily due to an increase in engineering expenses related to the development of new products and non-recurring cash bonus and share-based compensation that was recorded in 2Q12 as a result of achievement of WCDMA development milestones related to the MobilePeak acquisition, offset in part by an increase in recognized R&D subsidies. The year-over-year increase in R&D expenses was primarily due to the aforementioned reasons, as well as an increase in depreciation and amortization expenses and employee compensation expenses including share-based compensation.
SG&A expenses increased 6.4% sequentially and 13.5% year-over-year to US$7.4 million in 2Q12. The year-over-year increase in SG&A expenses were primarily due to an increase in employee compensation expenses including share-based compensation.
Non-Operating Income
In 2Q12, the Company recorded interest income of US$1.7 million, down from US$2.2 million in the previous quarter and up from US$1.4 million in 2Q11. The sequential decrease was due to the decrease of cash balance while the year-over-year increase was due to investment of a higher balance of cash. Interest expense in 2Q12 was US$0.8 million, down from US$1.4 million in the previous quarter and up slightly from US$0.7 million in 2Q11. The sequential decrease was due to the repayment of bank loans in 2Q12. Other income (net) in 2Q12 was a loss of US$0.7 million, compared to a gain of US$0.6 million in 1Q12 and a gain of US$2.6 million in 2Q11. Other income (net) mainly represented net foreign exchange gains and losses.
Net Income
The Company's net income totaled US$21.0 million in 2Q12, compared to US$24.3 million in 1Q12 and US$32.5 million in 2Q11. The sequential decrease in net income was primarily due to the increase in R&D expenses as well as the decrease in non-operating income. Net margin was 12.1%, down from 15.1% in 1Q12 and 20.3% in 2Q11. Basic and diluted income per ADS were US$0.45 and US$0.41, respectively, in 2Q12, compared to US$0.53 and US$0.47, respectively, in 1Q12, and US$0.67 and US$0.60, respectively, in 2Q11.
Excluding share-based compensation expenses, the Company's non-GAAP net income for 2Q12 was US$29.6 million, up from a non-GAAP net income of US$29.3 million in 1Q12 and down from US$35.5 million in 2Q11. Diluted non-GAAP net income per ADS in 2Q12 was US$0.58, compared with US$0.57 per ADS in the prior quarter and US$0.65 per diluted ADS in 2Q11.
Balance Sheet and Cash Flow
As of June 30, 2012, the total balance of cash and cash equivalents and term deposit with maturity dates over 90 days was US$161.8 million, compared to US$233.1 million as of March 31, 2012. The total balance of restricted cash pledged to banks for short-term loans was US$67.2 million, compared with $70.0 million as of March 31, 2012. In 2Q12, the Company generated US$16.8 million in cash from operating activities and used $5.3 million in cash on property and equipment, US$11.4 million on intangible assets, US$15.7 million on equity investments and US$4.6 million to pay a quarterly dividend. We repaid bank loans of US$60.9 million that were due in 2Q12 and borrowed new long-term loans of US$20 million.
Accounts receivable increased by US$0.6 million from US$7.3 million as of March 31, 2012 to US$7.9 million as of June 30, 2012. Average accounts receivable days, calculated based on quarterly average accounts receivable divided by quarterly revenue and multiplied by number of days in the quarter, decreased sequentially from 5 days to 4 days. Inventory as of June 30, 2012 was US$98.3 million, an increase of US$35.4 million from March 31, 2012. Inventory days, calculated based on quarterly average inventory (excluding deferred cost) divided by quarterly cost of goods sold and multiplied by number of days in the quarter, decreased from 71 days in 1Q12 to 67 days in 2Q12. Deferred cost, which consists of products that have shipped to customer where the rights and obligations of ownership have passed to customers but revenue has not yet been recognized due to pending customer acceptance, decreased from US$55.8 million as of March 31, 2012 to US$18.9 million as of June 30, 2012. The decrease is due to the gradual phase-out of the customer acceptance program as the high quality of the Company's products over the last couple of years has helped firmly establish customer confidence. Total assets as of June 30, 2012 were US$586.0 million, down US$42.2 million from US$628.2 million as of March 31, 2012. The decrease in total assets was primarily attributable to a US$74.1 million decrease in cash and US$37.0 million decrease in deferred costs, partially offset by a US$35.4 million increase in inventories, US$15.4 million increase in equity investment, US$10.0 million increase in long-term restricted cash and US$9.8 million increase in acquired intangible assets.
Current liabilities decreased from US$309.3 million as of March 31, 2012 to US$221.9 million as of June 30, 2012, primarily due to a decrease of US$60.9 million in short-term loans, US$50.4 million in advance from customers and US$7.7 million in income tax payable, partially offset by a US$34.2 million increase in accounts payable. Long-term liabilities as of June 30, 2012 were US$32.3 million, compared to US$12.2 million as of March 31, 2012, primarily due to an increase of US$20.0 million in long-term loan.
BUSINESS OUTLOOK:
Looking ahead, Spreadtrum expects revenue for the third quarter of 2012 to be in the range of US$178 million - US$186 million with a flat gross margin relative to Q2.
WEBCAST OF CONFERENCE CALL:
The Company's senior management will host a conference call at 9:00 pm (Eastern) / 6:00 pm (Pacific) on Thursday, August 9, 2012, which is 9:00 am (Hong Kong) on Friday, August 10, 2012 to discuss the financial results and recent business activities. The conference call may be accessed by calling:
Toll | |
- United States/International | +1 718 354 1231 |
- Hong Kong | +852 2475 0994 |
- Singapore | +65 672 39381 |
- United Kingdom | +44 20 3059 8139 |
Participant Passcode | "SPRD" or "Spreadtrum" |
A telephone replay will be available shortly after the call until August 17, 2012 at (US Toll / International) +1 718 354 1232, passcode: 11970452.
A live webcast of the conference call and replay, along with an accompanying quarterly results presentation, 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 and other non-recurring items. 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 provides the presentation of non-GAAP gross margin, non- GAAP operating margin, non-GAAP net income, and non-GAAP diluted earnings per ADS, all excluding share-based compensation expenses. The Company believes that these non-GAAP financial measures provide 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 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 | ||||||||
June 30 | March 31 | June 30 | 2Q12 change from | |||||
2011 | 2012 | 2012 | 1Q12 | 2Q11 | ||||
Revenue from third parties | 160,177 | 161,114 | 171,072 | 6.2% | 6.8% | |||
Revenue from a related party | - | - | 2,058 | |||||
Total revenue | 160,177 | 161,114 | 173,130 | 7.5% | 8.1% | |||
Cost of revenue | 92,976 | 99,821 | 108,934 | 9.1% | 17.2% | |||
Gross profit | 67,201 | 61,293 | 64,196 | 4.7% | -4.5% | |||
Operating expenses | ||||||||
Research & development | 26,754 | 28,422 | 33,344 | 17.3% | 24.6% | |||
Selling, general and administrative | 6,525 | 6,960 | 7,408 | 6.4% | 13.5% | |||
Total operating expenses | 33,279 | 35,382 | 40,752 | 15.2% | 22.5% | |||
Operating income | 33,922 | 25,911 | 23,444 | -9.5% | -30.9% | |||
Non-operating income (expense) | ||||||||
Interest income | 1,374 | 2,230 | 1,650 | -26.0% | 20.1% | |||
Interest expense | (740) | (1,404) | (849) | -39.5% | 14.7% | |||
Other income(expense), net | 2,597 | 636 | (742) | -216.7% | -128.6% | |||
Total non-operating income | 3,231 | 1,462 | 59 | -96.0% | -98.2% | |||
Income before income tax and equity in loss of affiliates | 37,153 | 27,373 | 23,503 | -14.1% | -36.7% | |||
Income tax expense | (4,185) | (3,367) | (2,706) | -19.6% | -35.3% | |||
Equity in loss of affiliates, net of taxes | (475) | (55) | (55) | - | -88.4% | |||
Net income | 32,493 | 23,951 | 20,742 | -13.4% | -36.2% | |||
Net loss attributable to non-controlling interest | - | 305 | 209 | -31.5% | - | |||
Net income attributable to Spreadtrum Communications, Inc. | 32,493 | 24,256 | 20,951 | -13.6% | -35.5% | |||
Income per ADS, basic | 0.67 | 0.53 | 0.45 | |||||
Income per ADS, diluted | 0.60 | 0.47 | 0.41 | |||||
Margin analysis: | ||||||||
Gross margin | 42.0% | 38.0% | 37.1% | |||||
Operating margin | 21.2% | 16.1% | 13.5% | |||||
Net margin | 20.3% | 15.1% | 12.1% | |||||
Weighted average ADS equivalent:(1) | ||||||||
Basic | 48,686,506 | 45,945,184 | 46,253,967 | |||||
Diluted | 54,257,201 | 51,108,873 | 51,625,730 | |||||
ADS equivalent outstanding at end of period | 47,447,391 | 46,028,101 | 46,457,352 | |||||
(1) Assumes all outstanding ordinary shares are represented by ADSs. Each ADS represents three ordinary shares. | ||||||||
Spreadtrum Communications, Inc. Condensed Consolidated Income Statements (in thousands of US dollars, except per share data and percentages) (unaudited)
| |||
Six Months ended | |||
June 30, | June 30, | ||
2011 | 2012 | Change | |
Revenue from third parties | 297,249 | 332,186 | 11.8% |
Revenue from a related party | - | 2,058 | |
Total revenue | 297,249 | 334,244 | 12.4% |
Cost of revenue | 172,146 | 208,755 | 21.3% |
Gross profit | 125,103 | 125,489 | 0.3% |
Operating expenses | |||
Research &development | 50,703 | 61,766 | 21.8% |
Selling, general and administrative | 11,783 | 14,368 | 21.9% |
Total operating expenses | 62,486 | 76,134 | 21.8% |
Operating income | 62,617 | 49,355 | -21.2% |
Non-operating income(expense) | |||
Interest income | 2,653 | 3,880 | 46.2% |
Interest expense | (1,439) | (2,253) | 56.6% |
Other income(expense), net | 4,310 | (106) | -102.5% |
Total non-operating income | 5,524 | 1,521 | -72.5% |
Income before income tax and equity in loss of affiliates | 68,141 | 50,876 | -25.3% |
Income tax expense | (7,622) | (6,073) | -20.3% |
Equity in loss of affiliates, net of taxes | (490) | (110) | -77.6% |
Net income | 60,029 | 44,693 | -25.5% |
Net loss attributable to non-controlling interest | - | 514 | - |
Net income attributable to Spreadtrum Communications, Inc. | 60,029 | 45,207 | -24.7% |
Income per ADS, basic | 1.24 | 0.98 | -20.6% |
Income per ADS, diluted | 1.10 | 0.88 | -19.6% |
Margin analysis: | |||
Gross margin | 42.1% | 37.5% | |
Operating margin | 21.1% | 14.8% | |
Net margin | 20.2% | 13.5% | |
Weighted average ADS equivalent:(1) | |||
Basic | 48,579,052 | 46,099,951 | |
Diluted | 54,806,954 | 51,331,322 | |
(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) (unaudited)
| ||||||
As of | ||||||
June 30, | March 31, | June 30, | ||||
2011 | 2012 | 2012 | ||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | 167,510 | 192,308 | 129,385 | |||
Restricted cash | 14,735 | 70,047 | 67,236 | |||
Short-term deposit | 87,367 | 40,825 | 32,430 | |||
Short-term loan to an associate | 9,763 | - | - | |||
Accounts receivable, net | 2,225 | 7,270 | 7,926 | |||
Inventories | 124,230 | 62,907 | 98,292 | |||
Deferred cost | 78,470 | 55,830 | 18,862 | |||
Deferred tax assets | 1,709 | 2,917 | 3,154 | |||
Prepaid expenses and other current assets | 29,291 | 19,114 | 18,650 | |||
Total current assets | 515,300 | 451,218 | 375,935 | |||
Property and equipment, net | 33,828 | 46,009 | 41,280 | |||
Acquired intangible assets, net | 36,517 | 59,929 | 69,736 | |||
Equity investment | 35,018 | 23,934 | 39,322 | |||
Long-term loan to an associate | 2,045 | - | - | |||
Deferred tax assets | 803 | 820 | 818 | |||
Goodwill | 2,000 | 36,208 | 38,908 | |||
Long-term restricted cash | - | - | 10,000 | |||
Indemnification assets | - | 5,567 | 5,567 | |||
Other long-term assets | 540 | 4,560 | 4,471 | |||
Total assets | 626,051 | 628,245 | 586,037 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current liabilities | ||||||
Short-term loans and current portion of a long-term loan | 59,656 | 111,740 | 50,798 | |||
Accounts payable | 108,393 | 57,817 | 92,026 | |||
Advances from customers | 140,156 | 63,047 | 12,694 | |||
Income tax payable | 15,642 | 21,610 | 13,933 | |||
Accrued expenses and other current liabilities | 49,397 | 55,073 | 52,409 | |||
Total current liabilities | 373,244 | 309,287 | 221,860 | |||
Long-term loan | - | - | 20,000 | |||
Other long-term obligations | 5,277 | 5,048 | 5,113 | |||
Long-term tax liabilities | - | 5,567 | 5,567 | |||
Deferred tax liabilities | - | 1,612 | 1,612 | |||
Total long term liabilities | 5,277 | 12,227 | 32,292 | |||
Total liabilities | 378,521 | 321,514 | 254,152 | |||
Non-controlling shareholder interest | - | 1,760 | 2,450 | |||
Shareholders' equity | 247,530 | 304,971 | 329,435 | |||
Total liabilities and shareholders' equity | 626,051 | 628,245 | 586,037 | |||
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 | |||
June 30, | March 31, | June 30, | |
2011 | 2012 | 2012 | |
Cost of revenue | 92,976 | 99,821 | 108,934 |
Adjustment for share-based compensation | (120) | (158) | (163) |
Cost of revenue (non-GAAP) | 92,856 | 99,663 | 108,771 |
Operating income | 33,922 | 25,911 | 23,444 |
Adjustment for share-based compensation within: Cost of revenue | 120 | 158 | 163 |
Research and development | 2,085 | 3,519 | 6,785 |
Selling, general, and administrative | 759 | 1,345 | 1,720 |
Operating income (non-GAAP) | 36,886 | 30,933 | 32,112 |
Net income | 32,493 | 24,256 | 20,951 |
Adjustment for share-based compensation within: Cost of revenue | 120 | 158 | 163 |
Research and development | 2,085 | 3,519 | 6,785 |
Selling, general, and administrative | 759 | 1,345 | 1,720 |
Net income (non-GAAP)* | 35,457 | 29,278 | 29,619 |
Net income per ADS, diluted | 0.60 | 0.47 | 0.41 |
Adjustment for share-based compensation | 0.05 | 0.10 | 0.17 |
Net income per ADS, diluted (non-GAAP)* | 0.65 | 0.57 | 0.58 |
Gross margin | 42.0% | 38.0% | 37.1% |
Adjustment for share-based compensation | 0.1% | 0.1% | 0.1% |
Gross margin (non-GAAP) | 42.1% | 38.1% | 37.2% |
Operating margin | 21.2% | 16.1% | 13.5% |
Adjustment for share-based compensation | 1.8% | 3.1% | 5.0% |
Operating margin (non-GAAP)* | 23.0% | 19.2% | 18.5% |
Net margin | 20.3% | 15.1% | 12.1% |
Adjustment for share-based compensation | 1.8% | 3.1% | 5.0% |
Net margin (non-GAAP)* | 22.1% | 18.2% | 17.1% |
Operating expenses | 33,279 | 35,382 | 40,752 |
Adjustment for share-based compensation: | |||
Research and development | (2,085) | (3,519) | (6,785) |
Selling, general and administrative | (759) | (1,345) | (1,720) |
Operating expenses (non-GAAP) | 30,435 | 30,518 | 32,247 |
* There is no tax effect resulting from these adjustment items. | |||
ABOUT SPREADTRUM COMMUNICATIONS, INC.
Spreadtrum Communications, Inc. (NASDAQ:SPRD; "Spreadtrum") is a fabless semiconductor company that develops mobile chipset platforms for smartphones, feature phones and other consumer electronics products, supporting 2G, 3G and 4G wireless communications standards. Spreadtrum's solutions combine its highly integrated, power-efficient chipsets with customizable software and reference designs in a complete turnkey platform, enabling customers to achieve faster design cycles with a lower development cost. Spreadtrum's customers include global and China-based manufacturers developing mobile products for consumers in China and emerging markets around the world. For more information, visit www.spreadtrum.com.
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 expectations with respect to shipping more than 10 million smartphone chipsets in the third quarter; the Company's expectations with respect to revenue of 3Q12 being in the range of US$178 million to US$186 million with a flat gross margin relative to Q2; the Company's expectations with respect to strong shipment growth in TD-SCDMA smartphones being partly tempered by a drop in market demand for TD-SCDMA feature phones; the Company's expectations with respect to its smartphone products continuing to grow rapidly and more than offsetting this shift in the TD-SCDMA market in the coming quarters; the effectiveness of the Company's continuous investment in research and development in smartphone platforms, WCDMA, LTE and connectivity technologies in expanding its addressable market in both China and overseas regions; and the Company's expectations with respect to its operating margins in 3Q12 being similar to the second quarter. 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 market adoption of TD-SCDMA technology will grow; the demand for the Company's smartphone products; the state of and any change in the Company's relationship with its major domestic and international customers and Chinese government agencies; 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 April 10, 2012 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.
