THIRD QUARTER 2011 FINANCIAL SUMMARY:
- Total revenue increased 15.4% quarter-over-quarter and 92.0% year-over-year to US$184.8 million, exceeding the Company's previously guided range of US$172 - US$178 million.
- Gross profit was US$77.2 million compared to US$67.2 million in the previous quarter and US$42.5 million in 3Q10. Gross margin was 41.8% compared to 42.0% in the previous quarter and 44.1% in 3Q10.
- Cash flows from operations were US$30.5 million, compared with US$34.5 million in the previous quarter and US$67.0 million in 3Q10.
- GAAP net income was US$39.3 million, compared with US$32.5 million in the previous quarter and US$19.5 million in 3Q10.
- GAAP net income per basic and diluted ADS was US$0.84 and US$0.75, respectively, an increase from US$0.67 and US$0.60 per basic and diluted ADS, respectively, in 2Q11 and US$0.41 and US$0.37 per basic and diluted ADS, respectively, in 3Q10.
- Non-GAAP net income was US$43.5 million, compared to US$35.5 million in 2Q11 and US$22.9 million in 3Q10. Non-GAAP net income per diluted ADS was US$0.83, an increase from US$0.65 per diluted ADS in 2Q11 and US$0.43 per diluted ADS in 3Q10.
Commenting on the results, Spreadtrum's Chairman and CEO, Dr. Leo Li said, "We exceeded revenue guidance in 3Q 2011 as quarterly revenue grew in both our 3G and 2.5G product lines. In the TD-SCDMA market, we continued to gain market share with global and domestic handset manufacturers as a result of our breakthrough standby and talk time and high level of integration. Our basebands are powering the TD-SCDMA version of the Samsung Galaxy S II, which launched in the third quarter and was well received by consumers. The overall TD-SCDMA market has continued to grow at a good pace given the combination of continuously improving network coverage and compelling portfolio of low-cost feature phones and smartphones that are now available to consumers. In the fourth quarter, we are on track to introduce our low-cost 40nm-based smartphone solutions for both TD-SCDMA and EDGE/WiFi, which we believe will drive further growth in both markets going into 2012. Through improvement in product mix, we have been able to mitigate ASP pressure in low-end feature phones. Looking ahead to 4Q 2011, with continuing growth vectors in both the TD-SCDMA and 2.5G markets, we expect revenue to be in the range of US$188 million - US$194 million with a gross margin of approximately 41%."
Key business highlights include:
- Expanded Beyond 50% Market Share in TD-SCDMA: Spreadtrum expanded its market footprint with more than 30 customers with 72 handset models, including both global and domestic tier-1 handset manufacturers, by the end of September 2011. In the third quarter, Spreadtrum achieved a dominant market share position in both the feature phone and fixed wireless handset markets and entered the smartphone market with the Samsung Galaxy S II launch.
- Increased Product Footprint at Samsung to Basebands: The TD-SCDMA version of the Samsung Galaxy S II launched in China in the third quarter and is powered by Spreadtrum's RF and baseband solutions. This is Spreadtrum's first entry in the TD-SCDMA smartphone market as well as its first shipping baseband design win with a global tier-1 OEM. The successful engagement with Samsung lays the foundation for Spreadrum to engage with other global tier-1 manufacturers.
- Mitigated Price Pressure in 2.5G Markets with Improved Product Mix: With higher ASP products such as the ARM9-based SC6800H and TD product portfolio, Spreadtrum has been able to mitigate price pressure in the 2.5G feature phone market and maintain revenue growth and margin stability.
- Completed Majority Acquisition of WCDMA Vendor MobilePeak: Spreadtrum completed the acquisition of a majority 85.6% ownership stake in MobilePeak, in preparation for delivery of WCDMA/HSPA+ solutions by mid-2012.
Further commenting on the third quarter financial results, Shannon Gao, Spreadtrum's CFO, added, "In 3Q 2011 our inventory levels declined and we achieved both a stable gross margin and a stable operating margin. We declared our second quarterly cash dividend, distributing US$0.05 per ADS to shareholders on October 26, 2011, and have completed repurchase of approximately 5.4% of total outstanding shares before share repurchase, with 2.4% purchased in the third quarter. We expect to double our cash dividend distribution in the fourth quarter to US$0.10 per ADS.
"As of September 30, 2011, we consolidated the balance sheets of MobilePeak and Telegent. In the third quarter, non-recurring signing bonus and consulting fee expenses were offset by increased R&D subsidies. This resulted in a stable operating margin compared to the second quarter. Looking forward, we expect the operating margin to continue to be stable in 4Q11."
THIRD QUARTER 2011 FINANCIAL REVIEW:
Revenue in 3Q11 totaled US$184.8 million, up from US$160.2 million in 2Q11 and US$96.2 million in 3Q10.
Sales volume of 2G/2.5G baseband and radio frequency bundle semiconductors realized in 3Q11 increased 19.1% sequentially and 121.7% year-over-year. Sales volume of 3G bundle semiconductors realized in 3Q11 increased 17.8% sequentially and 101.1% year-over-year.
The average selling price per unit of 2G/2.5G bundle semiconductors in 3Q11 decreased 3.7% sequentially and 15.9% year-over-year. The average selling price per unit of 3G bundle semiconductors in 3Q11 decreased 0.2% sequentially and 16.7% year-over-year.
Gross Profit and Margin
Gross profit for the quarter was US$77.2 million, up 14.8% from US$67.2 million in 2Q11 and up 81.7% from US$42.5 million in 3Q10. Gross margin for the quarter was 41.8%, down from 42.0% in 2Q11 and 44.1% in 3Q10. Non-GAAP gross margin, adjusted to exclude share-based compensation, was 41.9%, down from 42.1% in 2Q11 and 44.3% in 3Q10.
Cost of revenue in 3Q11 totaled US$107.6 million, representing an increase of 15.8% from the previous quarter and up 100.2% from 3Q10 levels, which is generally in line with the increase in sales.
Operating Expense and Margin
The Company's operating margin for the quarter was 21.4%, compared to 21.2% in the previous quarter and 21.5% in 3Q10. Non-GAAP operating margin, adjusted to exclude share-based compensation expense was 23.7% in 3Q11, compared to 23.0% in 2Q11 and 25.1% in 3Q10.
Total operating expenses in 3Q11, including selling, general and administrative (SG&A) expenses and R&D expenses, were US$37.6 million, representing an increase from US$33.3 million in 2Q11 and an increase from US$21.7 million in 3Q10.
R&D expenses increased 7.8% sequentially and 73.5% year-over-year to US$28.9 million in 3Q11. The sequential increase in R&D expenses was primarily due to a non-recurring signing bonus to a newly appointed officer and a milestone achievement bonus related to new technology, partially offset by an increase in subsidies recognized in3Q11 and a decrease in engineering expense related to development of new product. The year-over-year increase in R&D expense was primarily attributable to a non-recurring signing bonus to a newly appointed officer, a milestone achievement bonus related to new technology, an increase in employee compensation including share-based compensation, engineering expense related to development of new product and depreciation and amortization expense, partially offset by an increase in recognized subsidies from the government and other parties.