China Techfaith Wireless (NASDAQ:CNTF)

Third Quarter 2011 Results

• For the third quarter of 2011, TechFaith reported net revenue of US$80.6 million, a 17% increase compared to US$68.6 million in the third quarter of 2010
• Net income attributed to TechFaith for the third quarter of 2011 was US$3.3 million or US$0.06 per basic and diluted weighted average outstanding ADS, compared to US$4.5 million or US$0.09 per basic and diluted weighted average outstanding ADS in the third quarter of 2010

Ms. Ouyang Yuping, TechFaith's CFO, said, "We were able to achieve revenue above the high-end of our prior guidance in a weaker global economic environment and under the increased pricing pressure in several of the markets we serve. Higher demand levels for Android-based mobile phones and continued developments in our branded mobile phone business and motion gaming business helped us to partially offset the market pressure. We are pleased that we were able to keep our gross margin relatively stable at 24% despite such uncertain market conditions. This performance reflects the success of our higher margin branded mobile phone and motion gaming businesses. In addition, we remained focused on cost control and operating efficiencies, which helped us to further strengthen our balance sheet due to the continued healthy cash flow from our operations. We ended the third quarter of 2011 with US$4.46 per ADS in cash and cash equivalents compared to US$4.17 per ADS at the end of the second quarter of 2011."

Mr. Deyou Dong, President and COO of TechFaith, said, "We are pleased with the continued success we are having in various markets worldwide. Our ability to tailor mobile solutions in the enterprise and branded market is a competitive advantage for TechFaith, which led to additional orders for our leading Android-based smartphone models in South East Asia, Latin America, Japan and domestic China market. We further strengthened our product line-up with the launching of several innovative new models, including Titan, Tracker, PAD, Qphone and Eagle, in the third quarter of 2011. All are Android-based 3G smartphones. Additionally, we have leveraged the success of our TecFace-branded mobile phone business beyond China and extended into the international market with the well-received launching of new products and stronger marketing support. Our efforts have positioned TechFaith for long-term business success."

Fourth Quarter of 2011 Outlook

The fourth quarter 2011 outlook reflects TechFaith's current and preliminary view, which is subject to change. Based on current market conditions, the Company expects its revenue for the fourth quarter of 2011 to be in the range of US$78 million to US$81 million, with gross margin levels similar to those for the third quarter of 2011.

Mr. Defu Dong, Chairman and CEO of TechFaith, added, "We entered the fourth quarter in a very solid financial position which can help us navigate our course among continued market volatility. We continue to build momentum with customers in our mobile solutions business, branded mobile phone business and motion gaming business. We believe that our efforts would more readily translate to growth in our financial results when the broader market environment improves. We will remain conservative in our outlook and approach and maintain strict cost controls in light of the uncertain global economic environment. At the same time, we will continue to invest in the research and development and sales and marketing efforts that are critical to the support of our customers and brands while focusing on profitability. Strategic investments made in our business today will, we expect, fuel our growth when the market situation improves, as has happened in previous market cycles."

Second Quarter 2011 Results

• For the second quarter of 2011, TechFaith reported net revenue of US$82.8 million, a 26% increase compared to US$65.5 million in the second quarter of 2010
• Income from operations for the second quarter of 2011 was US$10.0 million, an 18% increase compared to US$8.5 million in the same quarter last year
• Net income attributed to TechFaith for the second quarter of 2011 was US$7.3million or US$0.14 per basic and diluted weighted average outstanding ADS, compared to US$7.5 million or US$0.16 per basic weighted average outstanding ADS and US$0.11 per diluted weighted average outstanding ADS in the second quarter of 2010, compared to US$13.8 million or US$0.26 per basic and diluted weighted average outstanding ADS in the first quarter of 2011

BEIJING, June 8, 2011 /PRNewswire-Asia/ -- China TechFaith Wireless Technology Limited (NASDAQ: CNTF) ("TechFaith") today announced it will launch six Android-based smartphones in the third quarter 2011 under its TecFace brand.

We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures for the next 12 months. We may, however, require additional cash resources beyond the next 12 months due to higher than expected growth in our business or other changing business conditions or future developments, including any possible investments or acquisitions.

Our capital expenditure plan for 2011 is US$3.1 million, which primarily consists of the purchase of license and equipment and construction of buildings in Hangzhou and Beijing.

First Quarter Results:

• For the first quarter of 2011, TechFaith reported net revenue of US$78.7 million, a 29% increase compared to US$60.9 million in the first quarter of 2010, and a 2% increase compared to US$76.9 million in the fourth quarter of 2010.
• Income from operations for the first quarter of 2011 was US$15.8 million, a 151% increase compared to US$6.3 million in the same quarter last year, and a 31% increase compared to US$12.1 million in the previous quarter.
• Net income attributed to TechFaith for the first quarter of 2011 was US$13.8 million or US$0.26 per basic and diluted weighted average outstanding ADS, compared to US$7.1 million or US$0.15 per basic weighted average outstanding ADS and US$0.07 per diluted weighted average outstanding ADS in the first quarter of 2010, compared to US$8.9 million or US$0.17 per basic and diluted weighted average outstanding ADS in the fourth quarter of 2010.

Ms Ouyang Yuping, TechFaith's CFO, said "This was another strong quarter for us. Our gross margin of 32% reflects the continued success in our sales of higher margin products to our ODP customers, growth in our branded mobile phone business and growth in our gaming business. Continued success in our brand name phone sales business was led by strong demand from customers in the China market. Importantly, we continue to strengthen our financial position in order to securely support the Company's future growth opportunities in the domestic China market and worldwide.  We ended the first quarter of 2011 with approximately US$4.06 per ADS in cash and cash equivalents."

The below forecast reflects TechFaith's current and preliminary view, which is subjected to change. TechFaith currently expects revenue for the second quarter of 2011 to be in the range of US$82.0 million to US$84.0 million, with gross margin levels similar to the first quarter of 2011.

BEIJING, May 16, 2011, /PRNewswire-Asia/ -- China TechFaith Wireless Technology Limited today announced it will establish a joint venture company with Beijing E-town International Investment and Development Co Ltd ("BEIID"), a PRC stated owned investment and financing company headquarter in Beijing Economic and Technological Development Area for a period of 30 years. This new joint venture arrangement replaces the previously announced contract between TechFaith and BEIID, signed in September 2010, under which BEIID was given an option to convert its interest in the convertible bonds into TechFaith ordinary shares over the next 5 years at the price of US$5.00 per ADS.

For this joint venture, TechFaith will invest RMB 300 million and BEIID will invest RMB 200 million for their previously announced the development of a 10 million-unit capacity smart phone production line in Beijing. TechFaith shall hold 60% of the shares and BEIID will hold the remaining 40% for the joint venture.

Mr. Li Xiao Ping, Executive Deputy General Manager of BEIID, commented, "We decided to replace the convertible bonds arrangement with a joint venture because we are looking more at the long term growth of the whole industry rather than short term gains, and a joint venture allows us to work more closely together for the long term. We believe with the increase coverage of 3G networks globally, the demand for smart phones will also increase."

Mr. Defu Dong, Chairman and CEO of TechFaith, said, "We appreciate the confidence and trust BEIID has expressed in Techfaith. The joint venture directly helps us in our goal of expansion and technology development. The additional capacity will also provide TechFaith a growth platform to meet the expected demand growth due to the fast increase in smart phone users globally. TecFace's rapid growth is in line with our expectations and we are confident that the smartphone business will continue to grow and become one of our major business segments."

BEIJING, April 7, 2011 /PRNewswire-Asia/ -- It was announced today that China TechFaith Wireless Technology Limited has received approval from the Beijing Daxing Government for the acquisition of approximately 140,000 square meters (approximately 34.5 acres) of land in XiHong Men, Daxing County for industrial purpose. The total value of the contract is value at approximately RMB 54 million (approximately US$8.25 million).

Mr. Defu Dong, Chairman and CEO of TechFaith, said, "Securing this additional tract of land gives us the flexibility needed to add to our state-of-the-art research and development capabilities, along with new trial production lines, and a sales and marketing center.  These expanded capabilities will help support the continued growth in our business as we continue to build TechFaith into a much larger company both domestically and internationally."

Fourth Quarter Highlights:

• For the fourth quarter of 2010, TechFaith reported net revenue of US$76.9 million, a 29% increase compared to US$59.8 million in the fourth quarter of 2009, due to strong growth of QIGI branded mobile sales, and strong growth in the Company's gaming business.
• Gross profit for the fourth quarter of 2010 was US$21.5 million, a 124% increase compared to US$9.6 million in the same quarter last year, due to the strong growth in the Company's QIGI branded mobile phone sales and its gaming business, both of which are higher gross margin businesses.
• As a result, gross margin for the fourth quarter of 2010 was 28.0% compared to 16.1% in the same quarter of 2009.
• Income from operations for the fourth quarter of 2010 was US$12.1 million -- a Company record level -- representing a 317% increase compared to US$2.9 million in the fourth quarter of 2009, due the above noted growth in the Company's higher gross margin businesses.
• Net income attributed to TechFaith for the fourth quarter of 2010 was US$8.9 million or US$0.17 per basic and diluted weighted average outstanding ADS, compared to US$3.1 million or US$0.07 per basic and diluted weighted average outstanding ADS in the fourth quarter of 2009.

Mr. Deyou Dong, President and COO of TechFaith in charge of the Company's mobile phone business, said, "We are pleased with the success of our mobile phone business. We continue to gain traction by supporting strong customer demand for our customized ODP mobile phones, QIGI branded phones for enterprise users and Disney phones for the consumer market. Of note, we are also seeing growth in diverse markets for our Android based smartphones, including China, India, Latin America, Europe and the United States."

The below forecast reflects typical seasonality in the first quarter and is TechFaith's current and preliminary view, which is subjected to change. TechFaith currently expects continued growth in its ODP, branded and gaming businesses, with total revenue in the first quarter of 2011 to be in the range of US$78.0 million to US$81.0 million.

BEIJING, Feb. 1, 2011 /PRNewswire-Asia/ -- China TechFaith Wireless Communication Technology Limited today announced that its wholly owned subsidiary, QiGi Future Technology Co., Ltd. (Beijing) ("QiGi") won an order from China Telecom and another order from the Jilin provincial police department. Initial units started shipping in January.

Under the first order, China Telecom selected QiGi for an EVDO-based mobile phone, specialized with infrared scanning capabilities for the enterprise customer segment. The first 5,000 units have been shipped to China Telecom. Under the second, initial shipments under the 12,550 unit order to the Jilin provincial police department started in January. The handset was jointly developed by QiGi and China Telecom.  The handset is customized for use by police departments, with state-of-the art capabilities, including finger print identification, identity card scanning, built-in printing and a payment function.

BEIJING,Jan. 6, 2011/PRNewswire-Asia/ -- China TechFaith Wireless Communication Technology Limited today announced that its Chairman and CEO, Mr.Defu Dong, purchased approximately 143,000 ADSs on the open market during the month ofDecember 2010.  As of December 31, 2010, Mr. Dong held ADS, ordinary shares and options exercisable to ordinary shares representing approximately 31.66% of the total outstanding ADS inChinaTechFaith Wireless.

Chairman and CEO, Mr. Dong, has indicated his intention to purchase additional ADSs through open market and privately negotiated transactions.  The timing and amount of such purchase transactions will depend on market conditions and corporate and regulatory considerations. 

Mr. Defu Dong, Chairman and CEO of TechFaith said, "I believe TechFaith is undervalued.  I decided to increase my ownership based on my confidence in the Company's market position and my belief in its continued growth prospects." 

On October 15, 2010, we issued an alert that we established a small position in China Techfaith Wireless @ $4.00.

As part of our diversification strategy, we are attempting to identify Chinese companies that may be able to avoid fraud "debates" initiated by short investors. Investing in once high profile ADR/ADS IPOs may be a way to approach this task.

In general, we have had little success investing in stocks similar to CNTF - those companies that design and manufacture private label cell phones sold to PRC and international OEM customers who offered products to the end customer.

Other ChinaHybrids that were in either the cell phone design or accessory business include faltering reverse merger firms T-Bay Holdings (OTC BB:TBYH) and Orsus Xelent Technologies (NYSE AMEX:ORS). Both of these companies never delivered sustained results. In fact, TBYH was the first pump and dump company we had encountered in the ChinaHybrid space. However, PRC based reverse merger firm Sinohub (NYSE AMEX:SIHI) claims to be making progress tackling this market by targeting demographics the big boys do not want.  On the U.S. side Forward Industries, Inc. (NASDAQ:FORD) made a few fleeting attempts to entice investors' appetites.

CNTF completed its initial public offering in May 2005 at around $16.00. Lackluster profit growth since its IPO led to a precipitous decline in its stock price to a low of $0.73 in November 2008.

The company's main revenue source was hit with a perfect storm of unfortunate circumstances.  Despite the high margins of its original design phone business (ODP), as evidenced by the 2005 data, opportunities did not materialize as expected.  The end result was a loss of customers and a deterioration in margins due the inability to cover expenses, something that its highly profitable segment was usually capable of.  CNTF also choose not to dramatically cut it employee head count.

Approximate non-GAAP Pre-tax Margins History:

• 2009: 6.4%
• 2008: 2.4%.
• 2007: loss
• 2006: loss
• 2005: 49.1%

So Why Are Some Investors Excited?

In response to its new reality, the company realized it needed a fresh way to drive revenues and revive margins, eventually leading to a decision to introduce its own line of branded phones. CNTF believes that this move will allow it to capture higher margins by selling upper end products directly to the customer. A heavy emphasis on smart phones also gives them exposure to an exploding market. We also learned that PRC consumers can use any carrier to activate their phones, thus creating market opportunities. The company will still maintain its private label business, but mainly for its international clients.

2009 20F Excerpts:

"In an effort to minimize the adverse effects of the global financial crisis and weakening economic conditions, we have strengthened our position through cooperation agreements with Beijing Huaqi Information Digital Technology Co., Ltd., or Beijing Huaqi, which owns “aigo”, a leading brand in consumer digital products market in China for the operator-tailored market in China, and with QIGI Technology for the smart phone business in China in 2008. These and similar strategic collaborations have helped and will continue to help promote our products in China and swiftly bring them to market. Under the strategic cooperation agreement with Beijing Huaqi, we will provide total solutions products, including CDMA1X/EVDO and UMTS/HSDPA, under the “aigo” brand name and through the sales channels of “aigo” for operator-tailored market in China."

"We put emphasis on the branding of our mobile handset products because branded products—especially products bearing well-known brands and images—offer a higher profit margin compared with other mobile handsets we sell. For instance, in the first quarter of 2010, we obtained control of QIGI Technology which becomes one of our variable interest entities. QIGI Technology is a company based in China and focused on the sale of smart phones. After the acquisition, QIGI Technology will operate largely independent of our existing operations; we intend to focus on promoting QIGI as an important Techfaith brand, with emphasis on QIGI brand smart phones."

"In February 2009, we launched, under the “aigo” brand name, nine new mobile phones designed specifically for the 3G network in China. The nine new models are from three different product lines which include dual mode GSM phones, modem card phones and DVDO phones. Of the five dual-mode GSM phones, three are WCDMA plus GSM phones designed for new China Unicom subscribers and two are CDMA plus GSM phones designed for China Telecom CDMA subscribers. There are two modem card phones, one of which utilizes a HSDPA modem card and the other uses an EVDO modem card. The final two models have GPS functionality and run on CDMA1X and EVDO. These nine different models cover CDMA1X, WCDMA, GSM and EVDO technologies and encompass a broad range of subscriber demands from the different telecom operators in China."

CNTF expects further growth from its 2008 entry into the mobile gaming business. Although this venture is not yet meaningful, it is expected to contribute to 2011 revenues.

"In 2008, we started to develop our online and mobile game business through One Net. One Net made significant progress in 2008, and set up Radiation studio, Star studio and Mythos studio to develop games. We also outsourced the development of online games to another independent studio and set up an in-house studio to design and develop mobile games. In 2009, we provided mobile game services and began to earn revenues in the fourth quarter of that year. We launched one MMORPG game in January 2010 and expect to launch more games during 2010. We expect an increasing portion of our revenues to come from this part of our business."

CNTF further believes that integrating mobile content into its phones will also increase the attractiveness to its commercial and retail customers.

So far, through the first nine months of 2010, financial results have begun to reap the benefits of restructuring efforts:

• Sales increased 26.2% to $195.0 million
• Adjusted earnings per ADS grew to $0.32 from $0.24.
• Adjusted pre-tax margins came in at 12.2%

Additional positives:

• Stock has held up in a challenging market 

• Sells below book value per share of $4.81

• Healthy cash per share of $3.70

• Entire company endorsing the company
  
  "China TechFaith Wireless Communication Technology Limited (Nasdaq: CNTF) ("TechFaith") today announced that 132 TechFaith employees, including directors and senior managers (the "Investors"), will invest a total of RMB 50 million in the company's games subsidiary, 798 Entertainment Limited. Mr. Defu Dong, Chairman and CEO of TechFaith and CEO of 798 Entertainment, said, "This investment reflects the high optimism and confidence our management team has in our games business strategy and future success. In addition, this direct investment in 798 Entertainment by our employees will further motivate our employees to achieve higher performance levels, as they will directly benefit from the success of 798 Entertainment."
  
• Investors show confidence:
  
  "IDG-Accel China Growth Fund II L.P. and IDG-Accel China Investors II L.P, holders of US$10 million aggregate principal amount of 8% senior secured convertible promissory notes issued by TechFaith's subsidiary Leo Technology Limited, now renamed 798 Entertainment Limited, in June 2009, have exercised their conversion rights under the Convertible Notes. Pursuant to the relevant investor rights agreement, each of the IDG Funds chose to convert 62.5% of its share of the principal amount of the Convertible Notes into TechFaith's ordinary shares, and the remaining 37.5% was converted into shares of 798 Entertainment Limited."
  
• Auditor: Deloitte Touche Tohmatsu

• Internal controls are in check

From our experience, the highest probability to capture gains with this type of story exists during the period of change, when a renewed focus leads to new sources growth. So, even if the plan fails long term, some investment gains can still be captured. But if growth continues as planned, maybe investors will assign a premium valuation to its shares on par with U.S. companies. Margins have a long way to go to approach historical levels which could lead to extended EPS gains as long as CNTF does not get dilution happy. Time will tell what the long-term future holds for CNTF, but given its current book value and cash per share, the story is worth tracking. The stock has a P/E of 8 on our expectations that it will report close to $0.50 for 2010. We still need to hammer out 2011 expectations.

Additional Considerations with the Help of GeoInvesting Member Rotobanco:

• Will CNTF now be competing against its OEM customers and will this impact relationships?

• Will there be an eventual patent infringement issue. The name of the new motion controller is 17wee.

• Why issue stock to buy Qigi? They had $120M in cash, their stock was selling in the 2 dollar range, and they bought the company with stock. The purchase price for QIGI was only $12.5M. So they could easily have paid cash. If the prior owners wanted stock in the new company that badly, they could have just bought it on the open market. Even more puzzling, the make good net income target for QIGI is $8M for 2010. Why did the owners sell this company for 1.56 times earnings with almost no cash in the deal?

• Due to the note conversion by IDG, CNTF will have an additional 6 million ADS shares outstanding.

• Bear in mind that they are a Chinese brand competing domestically. The Chinese consumers have choices such as Ericsson, Nokia, Apple, Blackberry. Why will they Choose "Qigi" in an environment where the Yuan is increasing in value, and higher-class foreign products are becoming cheaper in price.

• The existence of a $30 million convertible bond at 0.5% interest bond that converts at $5.00 anytime between now and 2015 could create some price resistance.  Note that it is with the government and the company has indicated it does not expect this to convert.

Short Q&A with management:

Q: From 2005 to 2009, there was an abrupt drop in earnings.

http://www.sec.gov/Archives/edgar/data/1316317/000114554907001176/h01318e20vf.htm

It appears that earnings still have not recovered to 2005 levels. What was the reason for that drop?

A: The main reason is because the market situation has changed from when we did a lot of design business which carries very high gross margins and in 2006 we lost our biggest customer (took up 70% of total revenues)- NEC which dropped the business in China. Overall, the design business from the big brand names were getting less and less.

Q: How much of the cell phones that you manufacture (both ODP and QIGI) end up in the hands of Chinese consumers as opposed to non-Chinese consumers?

A: From the revenues side: domestic market= 85.%; overseas market=15%

Q: In your power point from 1Q 2010, on page 13, the title says “QIGI – The Leading Smartphone Brand in China” Is that what your goal, or is that what is actually the situation right now? Is QIGI currently the leading smart phone brand in China?

A: It is our goal to be the leading brand in China. Currently, there are some resources to show that we are probably in the third place.

Q: You seem to carry a large cash balance. This has been true since the company went public. Does management plan to eventually deploy that cash balance? If so, how to they plan to deploy it?

A: The cash will strongly support our business future growth, such as for the ODP business cash flow for the smart phone business and our branded phone business. We may spend some of our cash on good potential M&A, marketing and sales activities. But we won't lower our cash position a lot.

For the third quarter of 2010, TechFaith reported 

• net revenue of US$ 68.6 million (RMB 464.3 million), a 30% increase compared to US$ 52.8 million (RMB 360.7 million) in the third quarter of last year.
• Gross margin for the third quarter of 2010 was 24% compared to 19% in the same quarter last year. Income from operations for the third quarter of 2010 was US$ 9.0 million (RMB 60.9 million), a 61% increase compared to US$ 5.6 million (RMB38.3 million) in the same quarter last year.
• Net income attributed to TechFaith for the third quarter of 2010 was US$ 4.3 million (RMB 29.1 million), compared to a loss of US$ 3.4 million (RMB 23.2 million) in the same quarter last year.
• Third quarter of 2010 results reflect the non-cash impact of a US$ 3.3 million loss due to IDG's conversion in the quarter of US$ 6.25 million convertible bonds into TechFaith ordinary shares and the remaining US$3.75 million into shares of TechFaith's gaming subsidiary 798 Entertainment, compared to a US$9.2 million non-cash loss in the same quarter last year as a result of change in fair value of derivatives associated with the convertible note.

• Non-GAAP EPS was $0.16 vs. $0.13

Ms. Ouyang Yuping TechFaith's CFO, said, "Revenue in the third quarter exceeded our prior guidance and reached another record level for TechFaith. In addition to the higher revenue levels, the successful implementation of our business strategy is resulting in a more stable gross margin. Continued growth in our branding business, QIGI, was led by strong demand for existing phone models, along with initial shipments of two new high end smartphone models into the China market. TechFaith remains in a position of operating strength with continued growth expected in each of our operating units, along with a continued strong balance sheet with approximately US$3.70 per ADS in cash and cash equivalents."

Mr. Deyou Dong, President and COO of TechFaith in charge of the company's mobile business said, "Our focus in the mobile business has been on market expansion and profitable unit growth.  To achieve this we have cooperated with global leading brands, built our enterprise business and acquired the QIGI branded phone business.   In the case of QIGI, total shipment volume increased 20% in the third quarter of 2010 compared to the second quarter of 2010. This improvement was driven by growth in the domestic smartphone market and demand from enterprise mobile phones users.  QIGI's fast growth is in line with our expectations and we expect our branded mobile phone business to become one of our major business segments.  To support the expected growth, we recently announced the planned addition of a major 10 million-unit capacity smartphone production line.  As for our ODP business, we expect continued stability in revenue and gross margin to continue from the China, India, South East Asia, Middle East and Latin America Markets."

Fourth Quarter 2010 Outlook

The below forecast reflects TechFaith's current and preliminary view, which is subjected to change. TechFaith currently expects revenue for the fourth quarter of 2010 to be in the range of US$ 74.0 million to US$ 77.0 million, with gross margin levels similar to the third quarter of 2010.

Looking forward, Mr. Defu Dong, Chairman and CEO of TechFaith added: "We expect further sequential growth based on the strength of our core ODP, branding and expanding gaming business, with increased business momentum in 2011."  

TechFaith currently expects revenue to be in the range of US$60 million to US$62 million for the first quarter of 2010. This forecast reflects TechFaith's current and preliminary view, which is subject to change.

The company reported first quarter 2008 sales of $48.7 million.

^a The above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

^a Company forecasts reflect the Company's current and preliminary view and are subject to change.

The above forecasts reflect the Company's current and preliminary view and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

Guidance Report:

The Company expects revenues in the fourth quarter of 2008 to be in the range of US$43 million to US$48 million. The Smartphone products in China are the major revenue drivers for the fourth quarter and the overseas markets including South East Asian, European Union and Latin America will continue to drive revenue. TechFaith expects operating costs to be significantly lower in the fourth quarter due to cost saving measures and the completion of the corporate restructuring.