Spreadtrum Communications, Inc. Announces Third Quarter 2012 Financial Results

Spreadtrum Communications, Inc. Announces Third Quarter 2012 Financial Results

PR Newswire

SHANGHAI, Nov. 8, 2012

SHANGHAI, Nov. 8, 2012 /PRNewswire-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 third quarter ended September 30, 2012.

THIRD QUARTER 2012 FINANCIAL SUMMARY:

  oTotal revenue increased 8.5% quarter-over-quarter and 1.7% year-over-year
    to US$187.9 million, exceeding the Company's previously guided range of
    US$178 - US$186 million.
  oGross profit was US$70.1 million compared to US$64.2 million in the
    previous quarter and US$77.2 million in 3Q11. Gross margin was 37.3%
    compared to 37.1% in the previous quarter and 41.8% in 3Q11.
  oCash flows from operations were US$45.7 million, compared with US$16.8
    million in the previous quarter and US$30.5 million in 3Q11.
  oGAAP net income was US$23.2 million, compared with US$21.0 million in the
    previous quarter and US$39.3 million in 3Q11.
  oGAAP net income per basic and diluted ADS was US$0.50 and US$0.44,
    respectively, an increase from US$0.45 and US$0.41 per basic and diluted
    ADS, respectively, in 2Q12 and a decrease from US$0.84 and US$0.75 per
    basic and diluted ADS, respectively, in 3Q11.
  oNon-GAAP net income was US$29.3 million, compared to US$29.6 million in
    2Q12 and US$43.5 million in 3Q11. Non-GAAP net income per diluted ADS was
    US$0.56, a decrease from US$0.58 per diluted ADS in 2Q12 and US$0.83 per
    diluted ADS in 3Q11.

BUSINESS HIGHLIGHTS:

  oExceeded top end of revenue guidance with accompanying improvement in
    gross margin;
  oRecognized sales of 11 million 1GHz TD-SCDMA & EDGE Android smartphone
    chipsets;
  oQualified 40nm GPRS/GSM baseband with Samsung, now commercially shipping
    in Samsung 2.5G handsets starting in the fourth quarter;

Commenting on the results, Spreadtrum's Chairman and CEO, Dr. Leo Li said,
"This quarter, we exceeded our revenue guidance as a result of very strong
demand for our TD-SCDMA and EDGE smartphone chipsets. Our smartphone products
are fueling the growth of a new ultra-low cost retail segment in China and in
overseas markets, making smartphones more affordable and attractive to the
first time smartphone buyer. We expect shipments to continue to grow in the
fourth quarter.

"In the 2.5G segment, we have begun commercially shipping our 40nm SC6530 GPRS
chipset to Samsung. In doing so, we are the first Asia-based baseband chipset
provider to qualify GPRS/GSM baseband chipsets with a global first tier
handset maker. This opens up a larger addressable market for our products and
validates the maturity and quality of our solutions.

"Looking ahead to 4Q12, we expect revenue to be in the range of US$189 million
to US$196 million, which is a sequential increase of 0.6% to 4.3%, with a flat
gross margin relative to the third quarter. "This quarter we are expanding our
product portfolio to include WCDMA chipsets, dual-core smartphone chipsets,
and integrated connectivity which will help drive further growth in 2013."

Further commenting on the 3Q12 financial results, Shannon Gao, Spreadtrum's
CFO added, "The strong ramp in smartphone products this quarter helped drive
an increase in gross margin and we expect to see continuing improvement in
product mix as smartphones scale in large volume in 2013. In Q4, we anticipate
continuing increases in R&D spendings as we bring new products to market and
expand our portfolio to new technologies. In the short term, we expect that
our operating margin will remain stable."

THIRD QUARTER 2012 FINANCIAL REVIEW:

Revenue

Revenue in 3Q12 totaled US$187.9 million, up from US$173.1 million in 2Q12 and
from US$184.8 million in 3Q11.

In 3Q12, smartphone products accounted for 37% of chipset revenue, and feature
phone and other products accounted for 63% of chipset revenue.

Gross Profit and Margin

Gross profit for the quarter was US$70.1 million, up 9.1% from US$64.2 million
in 2Q12 and down 9.2% from US$77.2 million in 3Q11. Gross margin for the
quarter was 37.3%, up from 37.1% in 2Q12 and down from 41.8% in 3Q11. Non-GAAP
gross margin, adjusted to exclude share-based compensation, was 37.4%, up from
37.2% in 2Q12 and down from 41.9% in 3Q11.

Cost of revenue in 3Q12 totaled US$117.8 million, an increase of 8.1% from the
previous quarter and 9.5% from 3Q11.

Operating Expense and Margin

The Company's operating margin for the quarter was 13.4%, in line with
previous quarter and down from 21.4% in 3Q11. The year-over-year decrease in
operating margin was primarily due to a lower gross margin and higher
operating expenses as a percentage of revenue. Non-GAAP operating margin,
adjusted to exclude share-based compensation expense was 16.6% in 3Q12,
compared to 18.5% in 2Q12 and 23.7% in 3Q11.

Total operating expenses in 3Q12, including research and development (R&D)
expenses and selling, general and administrative (SG&A) expenses, were US$44.9
million, an increase from US$40.8 million in 2Q12 and from US$37.6 million in
3Q11.

R&D expenses increased 9.3% sequentially and 26.4% year-over-year to US$36.5
million in 3Q12. The sequential increase in R&D expenses was primarily due to
lower recognized R&D subsidies and higher intangible amortization expenses,
partially offset by a decrease in new product development engineering
expenses. The year-over-year increase in R&D expenses was primarily due to an
increase in new product development engineering expenses, employee
compensation expenses including share-based compensation, and depreciation and
amortization expenses, partially offset by non-recurring bonuses recorded in
3Q11.

SG&A expenses increased 14.4% sequentially and decreased 3.4% year-over-year
to US$8.5 million in 3Q12. The sequential increase in SG&A expenses was
primarily due to non-recurring legal expenses. The year-over-year decrease in
SG&A expenses was primarily due to a non-recurring consulting fee recorded in
3Q11, partially offset by non-recurring legal expenses and increases in
employee compensation expenses including share-based compensation.

Non-Operating Income

In 3Q12, the Company recorded interest income of US$1.5 million, down from
US$1.7 million in the previous quarter and US$1.6 million in 3Q11. Interest
expense in 3Q12 was US$1.1 million, up from US$0.8 million in the previous
quarter and down from US$1.2 million in 3Q11. The sequential increase was due
to the borrowing of bank loans in 3Q12. Other income (net) in 3Q12 was a loss
of US$0.2 million, compared to a loss of US$0.7 million in 2Q12 and a gain of
US$5.2 million in 3Q11. Other income (net) mainly represented net foreign
exchange gains and losses. 

Net Income

The Company's net income totaled US$23.2 million in 3Q12, compared to US$21.0
million in 2Q12 and US$39.3 million in 3Q11. The sequential increase in net
income was primarily due to the increase in gross profit. Net margin was
12.4%, up from 12.1% in 2Q12 and down from 21.3% in 3Q11. Basic and diluted
income per ADS were US$0.50 and US$0.44, respectively, in 3Q12, compared to
US$0.45 and US$0.41, respectively, in 2Q12, and US$0.84 and US$0.75,
respectively, in 3Q11.

Excluding share-based compensation expenses, the Company's non-GAAP net income
for 3Q12 was US$29.3 million, down from a non-GAAP net income of US$29.6
million in 2Q12 and down from US$43.5 million in 3Q11. Diluted non-GAAP net
income per ADS in 3Q12 was US$0.56, compared with US$0.58 per ADS in the prior
quarter and US$0.83 per diluted ADS in 3Q11.

Balance Sheet and Cash Flow

As of September 30, 2012, the total balance of cash and cash equivalents and
term deposit with maturity dates over 90 days was US$190.0 million, compared
to US$161.8 million as of June 30, 2012. The total balance of short-term and
long-term restricted cash pledged to banks for short-term and long-term loans
was US$81.2 million, compared with $77.2 million as of June 30, 2012. In 3Q12,
the Company generated US$45.7 million in cash from operating activities and
used US$5.4 million in cash on property and equipment, US$6.1 million on
intangible assets, US$10.5 million on equity investments and US$4.7 million to
pay a quarterly dividend. We repaid short-term bank loans of US$36.7 million
that were due in 3Q12 and borrowed new long-term loans of US$50.0 million in
the quarter. 

Accounts receivable increased by US$11.4 million from US$7.9 million as of
June 30, 2012 to US$19.3 million as of September 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,
increased sequentially from 4 days to 7 days. Inventory as of September 30,
2012 was US$124.5 million, an increase of US$26.2 million from June 30, 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, increased from 67 days in 2Q12 to 86 days in
3Q12. 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$18.9 million as of June 30, 2012 to US$16.2 million as of
September 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 September 30, 2012 were US$676.4 million, up US$90.4
million from US$586.0 million as of June 30, 2012. The increase in total
assets was primarily attributable to increases of US$28.1 million in cash,
US$26.2 million in inventory, US$11.3 million in accounts receivable, US$11.2
million in equity investment and US$9.1 million in property and equipment.

Current liabilities increased from US$221.9 million as of June 30, 2012 to
US$238.0 million as of September 30, 2012, primarily due to an increase of
US$41.5 million in accounts payable and US$15.7 million in advances from
customers, partially offset by a US$36.7 million decrease in short-term loan
and a US$3.9 million decrease in accrued expense. Long-term liabilities as of
September 30, 2012 were US$82.5 million, compared to US$32.3 million as of
June 30, 2012, primarily due to an increase of US$50.0 million in long-term
loan.

BUSINESS OUTLOOK:

Looking ahead, Spreadtrum expects revenue for the fourth quarter of 2012 to be
in the range of US$189 million – US$196 million with a flat gross margin
relative to the third quarter.

WEBCAST OF CONFERENCE CALL:

The Company's senior management will host a conference call at 8:00 pm
(Eastern) / 5:00 pm (Pacific) on Thursday, November 8, 2012, which is 9:00 am
(Hong Kong) on Friday, November 9, 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 November 16,
2012 at (US Toll / International) +1 718 354 1232, passcode: 49032301.

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
                         September 30 June 30    September 3Q12 change from
                                                  30
                         2011          2012       2012       2Q12    3Q11
Revenue from third       184,783       171,072    185,505    8.4%    0.4%
parties
Revenue from a related   -             2,058      2,367      15.0%   -
party
Total revenue            184,783       173,130    187,872    8.5%    1.7%
Cost of revenue          107,625       108,934    117,810    8.1%    9.5%
Gross profit             77,158        64,196     70,062     9.1%    -9.2%
Operating expenses
Research & development   28,852        33,344     36,461     9.3%    26.4%
Selling, general and     8,776         7,408      8,475      14.4%   -3.4%
administrative
Total operating expenses 37,628        40,752     44,936     10.3%   19.4%
Operating income         39,530        23,444     25,126     7.2%    -36.4%
Non-operating income
(expense)
Interest income          1,597         1,650      1,530      -7.3%   -4.2%
Interest expense         (1,239)       (849)      (1,058)    24.6%   -14.6%
Other income(expense),   5,195         (742)      (196)      -73.6%  -103.8%
net
Total non-operating      5,553         59         276        367.8%  -95.0%
income
Income before income tax
and equity in loss of    45,083        23,503     25,402     8.1%    -43.7%
affiliates
Income tax expense       (5,172)       (2,706)    (2,288)    -15.4%  -55.8%
Equity in loss of        (639)         (55)       (119)      116.4%  -81.4%
affiliates, net of taxes
Net income               39,272        20,742     22,995     10.9%   -41.4%
Net loss attributable to -             209        241        15.3%   -
non-controlling interest
Net income attributable
to Spreadtrum            39,272        20,951     23,236     10.9%   -40.8%
Communications, Inc.
Income per ADS, basic    0.84          0.45       0.50
Income per ADS, diluted  0.75          0.41       0.44
Margin analysis:
Gross margin             41.8%         37.1%      37.3%
Operating margin         21.4%         13.5%      13.4%
Net margin               21.3%         12.1%      12.4%
Weighted average ADS
equivalent: ^ [1]
Basic                    47,007,964    46,253,967 46,876,567
Diluted                  52,643,649    51,625,730 52,412,164
ADS equivalent
outstanding at end of    46,677,518    46,457,352 47,280,006
period


[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)


                                  Nine Months ended
                                  September 30,     September 30,
                                  2011              2012             Change
Revenue from third parties        482,031           517,691          7.4%
Revenue from a related party      -                 4,425            -
Total revenue                     482,031           522,116          8.3%
Cost of revenue                   279,771           326,564          16.7%
Gross profit                      202,260           195,552          -3.3%
Operating expenses
Research &development             79,555            98,227           23.5%
Selling, general and              20,559            22,843           11.1%
administrative
Total operating expenses          100,114           121,070          20.9%
Operating income                  102,146           74,482           -27.1%
Non-operating income(expense)
Interest income                   4,250             5,410            27.3%
Interest expense                  (2,678)           (3,311)          23.6%
Other income(expense), net        9,505             (302)            -103.2%
Total non-operating income        11,077            1,797            -83.8%
Income before income tax and      113,223           76,279           -32.6%
equity in loss of affiliates
Income tax expense                (12,794)          (8,361)          -34.6%
Equity in loss of affiliates, net (1,129)           (229)            -79.7%
of taxes
Net income                        99,300            67,689           -31.8%
Net loss attributable to          -                 755              -
non-controlling interest
Net income attributable to        99,300            68,444           -31.1%
Spreadtrum Communications, Inc.
Income per ADS, basic             2.07              1.48             -28.7%
Income per ADS, diluted           1.83              1.32             -27.7%
Margin analysis:
Gross margin                      42.0%             37.5%
Operating margin                  21.2%             14.3%
Net margin                        20.6%             13.1%
Weighted average ADS equivalent:
^ [1]
Basic                             48,049,601        46,360,713
Diluted                           54,155,019        51,742,605


[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
                                       September 30, June 30, September 30,
                                       2011           2012      2012
ASSETS
Current assets
Cash and cash equivalents              183,250        129,385   157,441
Restricted cash                        70,852         67,236    17,849
Short-term deposit                     70,594         32,430    32,583
Accounts receivable, net               14,611         7,926     19,261
Inventories                            100,185        98,292    124,466
Deferred cost                          93,454         18,862    16,202
Deferred tax assets                    1,740          3,154     3,147
Prepaid expenses and other current     18,264         18,650    16,989
assets
Total current assets                   552,950        375,935   387,938
Property and equipment, net            39,545         41,280    50,373
Acquired intangible assets, net        59,405         69,736    74,451
Equity investment                      10,065         39,322    50,538
Deferred tax assets                    811            818       818
Goodwill                               36,208         38,908    38,908
Long-term restricted cash              -              10,000    63,343
Indemnification assets                 5,567          5,567     5,567
Other long-term assets                 580            4,471     4,461
Total assets                           705,131        586,037   676,397
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term loans and current portion   111,222        50,798    14,113
of a long-term loan
Accounts payable                       87,687         92,026    133,568
Advances from customers                135,836        12,694    28,383
Income tax payable                     18,362         13,933    13,356
Accrued expenses and other current     60,887         52,409    48,536
liabilities
Total current liabilities              413,994        221,860   237,956
Long-term loan                         -              20,000    69,949
Other long-term obligations            5,323          5,113     5,349
Long-term tax liabilities              5,567          5,567     5,567
Deferred tax liabilities               1,612          1,612     1,612
Total long term liabilities            12,502         32,292    82,477
Total liabilities                      426,496        254,152   320,433
Non-controlling shareholder interest   2,692          2,450     1,617
Shareholders' equity                   275,943        329,435   354,347
Total liabilities and shareholders'    705,131        586,037   676,397
equity



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
                                       September 30, June 30, September 30,
                                       2011           2012      2012
Cost of revenue                       107,625        108,934   117,810
Adjustment for share-based            (149)          (163)     (135)
compensation
Cost of revenue (non-GAAP)            107,476        108,771   117,675
Operating income                      39,530         23,444    25,126
Adjustment for share-based            149            163       135
compensation within: Cost of revenue
Research and development              2,857          6,785     4,404
Selling, general, and administrative  1,255          1,720     1,541
Operating income (non-GAAP)          43,791         32,112    31,206
Net income                            39,272         20,951    23,236
Adjustment for share-based            149            163       135
compensation within: Cost of revenue
Research and development              2,857          6,785     4,404
Selling, general, and administrative  1,255          1,720     1,541
Net income (non-GAAP)*                43,533         29,619    29,316
Net income per ADS, diluted           0.75           0.41      0.44
Adjustment for share-based            0.08           0.17      0.12
compensation
Net income per ADS, diluted           0.83           0.58      0.56
(non-GAAP)*
Gross margin                          41.8%          37.1%     37.3%
Adjustment for share-based            0.1%           0.1%      0.1%
compensation
Gross margin (non-GAAP)              41.9%          37.2%     37.4%
Operating margin                      21.4%          13.5%     13.4%
 Adjustment for share-based           2.3%           5.0%      3.2%
compensation
Operating margin (non-GAAP)*          23.7%          18.5%     16.6%
Net margin                           21.3%          12.1%     12.4%
Adjustment for share-based             2.3%           5.0%      3.2%
compensation
Net margin (non-GAAP)*                23.6%          17.1%     15.6%
Operating expenses                    37,628         40,752    44,936
Adjustment for share-based
compensation:
Research and development              (2,857)        (6,785)   (4,404)
Selling, general and administrative   (1,255)        (1,720)   (1,541)
Operating expenses (non-GAAP)         33,516         32,247    38,991


* 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 smartphone products fueling the growth of a
new ultra-low cost retail segment in China and in overseas markets, the
Company's expectations with respect to shipments of smartphone products
continuing to grow in the fourth quarter, a larger addressable market for the
Company's products , the Company's expectations with respect to revenue in
4Q12 being in the range of US$189 million - US$196 million with a flat gross
margin relative to the third quarter, the Company's product portfolio
expansion being helping drive further growth in 2013, the Company's
expectations with respect to continuing improvement in product mix as
smartphones scale in large volume in 2013, the Company's anticipation on
continuing increases in R&D spendings, and the Company's expectations with
respect to its operating margin remaining stable in the short term. 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.



SOURCE Spreadtrum Communications, Inc.

Website: http://www.spreadtrum.com
Contact: Investor Relations at Spreadtrum, +1-650-308-8148, or
ir@spreadtrum.com
 
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