Spreadtrum Communications, Inc. Announces First Quarter 2010 Fiscal Results

SHANGHAI, May 17 — (PRNewswire) — 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.

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