Sinohub (NYSE AMEX:SIHI)

First Quarter 2012 Financial Highlights

• Total net sales increased 62.7% year-over-year to US$61.8 million in the first quarter of 2012 compared toUS$38.0 million in the first quarter of 2011.
• Gross profit was US$1.6 million compared to US$7.7 million in the same quarter in 2011. Gross margin was 2.6% compared to 20.3% in the first quarter of 2011.
• Cash provided by operations was US$1.8 million, compared with US$4.4 million in the first quarter of 2011.
• There was a net loss of US$2.2 million in the first quarter of 2012, compared to net income of US$3.5 million in the first quarter of 2011.
• Net loss per basic and diluted share were both US$0.07, compared to net income of US$0.12 per basic and diluted share, in the first quarter of 2011.

Business Highlights:

Commenting on the results, Sino Hub's CEO, Mr. Harry Cochran said, "Our results for the quarter demonstrate both the continuing challenges that we face following the loss of our largest ICM customer in the second quarter of 2011 and the progress that we have made in the strategic repositioning of Sino Hub as a custom mobile device manufacturer operating on a global basis. Our top line grew significantly in the first quarter but our bottom line continued to be impacted by the lower-margin business we accepted in order to utilize our capacity in the wake of the loss of certain higher margin business we had originally expected. This continues to be a challenge for us. Market conditions in our ECSS business are also challenging as margins have continued to suffer from intense competition and fewer profitable arbitrage opportunities. With the growth in sales and the resulting growth in receivables in the first quarter in a challenging economic environment, we assessed our accounts receivable and increased our bad debt reserve, which was the primary contributor to our loss for the quarter. However, we are pleased to see the continued expansion of our ICM customer base and significant growth in ICM revenue. ICM accounted for approximately 77.6% of our total net revenues for the first quarter, a significant increase on a sequential and year-over-year basis. As we have previously announced, we are strategically realigning our business by de-emphasizing the ECSS business segment due to the long-term structural challenges in that market, while placing greater focus on the development of our ICM segment, the global market for which is expected to continue growing at a healthy rate. We believe that a key challenge for us is to generate sales opportunities and scale which will allow us to improve our margins.

"A key element of this strategic realignment is our planned expansion into new markets in Braziland the Americas. As previously announced, we signed a Joint Venture Agreement with Ciao Telecom, Inc. on February 13, 2012 to build a factory to manufacture mobile phones and tablets in Brazil. While our efforts to acquire all necessary approvals and secure funding for the factory project are ongoing, we have already commenced our marketing efforts in Brazil for imported mobile phones and tablets manufactured at our facility in Shenzhen, PRC and hope to generate sales in the coming months. We continue to work with our joint venture partner and the local government authorities in Brazil to move the manufacturing facility construction project forward, and are optimistic on the long-term prospects for this new initiative. At the same time, we are working to further expand our customer base in ICM, especially for higher margin custom mobile phones and tablets in our core markets in Southeast Asia. While we expect to face continuing near-term headwinds as we effectuate our strategic realignment and work to sign higher margin and higher value ICM customers, we believe that our competitive advantages in ICM and the growth in the worldwide market for white-box mobile devices present us with attractive opportunities to deliver increasing value to our shareholders over time."

Business Outlook

SinoHub remains focused on the expansion of its ICM business segment by broadening and deepening its customer base in Southeast Asia and by entering new markets (primarily North and South America). The Company continues to work on the development of its joint venture Ciao Hub in Brazil, and intends to build a factory there to produce mobile phones and tablets, subject to receipt of sufficient financing. In the meantime, the Company will continue its ongoing marketing efforts in Brazil with its partner Ciao Telecom for imported mobile phones manufactured by Sino Hub in China.

FOURTH QUARTER 2011 FINANCIAL HIGHLIGHTS

• Total net sales increased year-over-year to US$65.3 million in the fourth quarter of 2011 compared toUS$58.5 million in the fourth quarter of 2010.
• Gross profit was US$5.7 million compared to US$13.0 million in the same quarter in 2010. Gross margin was 8.7% compared to 22.2% in the fourth quarter of 2010.
• Cash provided by operations was US$7.2 million, compared with US$4.2 million in the fourth quarter of 2010.
• There was a net loss of US$0.5 million in the fourth quarter of 2011, compared to net income ofUS$6.8 million in the fourth quarter of 2010.
• Net loss per basic and diluted share were both US$0.01, down from net income of US$0.24 per basic and diluted share, in the fourth quarter of 2010.

"In 2011, we faced a challenging environment in our ECSS segment due to a number of structural issues. While the overall fragmented nature of the market for electronics components in China provides a business opportunity for SinoHub, the increasing maturity of the 2G chip set market, which better enables potential customers to match supply and demand, and the lack of a clear market leader in the 3G chip set market has resulted in limited arbitrage opportunities and thereby constrained our ability to grow revenue in the ECSS segment. This contrasts with the plentiful arbitrage opportunities that existed in the past in the 2G market when MediaTek had a dominant position and the technology was changing very rapidly. In addition, our planned transition of the ECSS business to a brokerage model was impacted by the intense competition in the market. We will continue to work to align this business segment with the prevailing market environment inChina in an effort to build a more stable and profitable model going forward. This will mean a decrease in investment in ECSS in favor of placing more focus on ICM.

"As we look ahead to 2012, we remain cautiously optimistic about our prospects to regain our growth momentum based on the continuing demand for our ICM products. We are pleased with the progress we have made in transitioning SinoHub into a mobile device communications company, and we believe the significant investments we have made in support of this effort have helped us to build a more sustainable and growth-oriented platform.

"For the full year 2011, our business mix was 46% ICM and 54% ECSS as compared to 31% ICM and 69% ECSS in 2010, which is in line with our strategy to develop the ICM segment into our primary growth driver. We expect ICM to provide a significant majority of our revenue in 2012. We continue to see significant growth opportunities in our core markets in developing markets in Asia, and we are working towards creating new revenue streams with our planned Brazil joint venture business. While we continue to face a challenging operating environment in the near term, we believe our competitive advantages and the underlying growth in demand for private label mobile communication devices on a worldwide basis present us with an attractive opportunity to deliver increasing shareholder returns in the coming years."

BUSINESS OUTLOOK

SinoHub is focused on expanding our ICM business segment by gaining new customers in Southeast Asiawhere we started and by entering new markets (primarily North and South America). We have formed a joint venture company, CiaoHub, in Brazil and, subject to receipt of sufficient financing by CiaoHub, CiaoHub will be building a factory there to produce mobile phones and tablets, which we expect will be open this year. In the meantime, we have already commenced sales efforts in Brazil of mobile communication devices made inChina working with our joint venture partner, Ciao Telecom.

We are is still working toward fielding our own "house brand" of mobile phones and tablets in China which we intend to sell on an opportunistic basis without any significant investment of capital in our brand unless and until we gain meaningful customer traction.

Third Quarter 2011 Results

• Total net sales declined year-over-year to US$52.0 million in the third quarter of 2011 compared to US$55.8 million in the third quarter of 2010.
• Net income per basic and diluted share were both US$0.08, down from US$0.21 per basic and diluted share, in the third quarter of 2010.

FIRST QUARTER 2011 FINANCIAL HIGHLIGHTS

• Total net sales declined slightly year-over-year to US$38.0 million in the first quarter of 2011 versus US$38.6 million in the first quarter of 2010.
  
• Gross profit was US$7.7 million compared to US$7.1 million in the same quarter in 2010. Gross margin was 20.3% compared to 18.4% in the first quarter of 2010.
  
• Cash used in operations was US$4.4 million, compared with US$38,000 in the first quarter of 2010.
  
• Net income was US$3.54 million, representing a slight increase from US$3.45 million in the first quarter of 2010.
  
• Net income per basic and diluted shares were both US$0.12, down from US$0.13 per basic share and unchanged from US$0.12 per diluted share, in the first quarter of 2010.

BUSINESS HIGHLIGHTS:

Commenting on the results, SinoHub's CEO, Mr. Harry Cochran said, "We are pleased with the continued growth of our ICM business and improving gross margins. As the Company evolves, it is important to maintain focus on the evolution of the mobile device market and on our ability to deliver on orders for new products and in new geographies. As such, we continued to strategically shift our focus to the long-term development of the ICM business. Our top-line performance was impacted by a decrease in sales from our ECSS business segment related to our strategic shift towards a greater ICM focus, and a challenging year-over-year comparable as the first quarter of 2010 was uncharacteristically strong. The startup year for our factory (April 2010 – April 2011) went well, but we still recorded losses for that subsidiary, resulting in increased income tax expense compared to the first quarter of 2010. This impact is a function of the investments made in support of our new growth initiative, and a normal part of starting up a manufacturing operation. More importantly, the strong growth of our ICM business confirms the value of our business model to deliver custom designed mobile phones to distributors and operators that give them a competitive advantage in their local markets using our joint design process. In 2011, to further capitalize on growth opportunities from our ICM segment, we plan to begin production of our own brand of mobile phones for sale in China."

BUSINESS OUTLOOK 

SinoHub has begun a strategic initiative to develop its own mobile phone brand in China, the world's largest mobile phone market. There are several examples of companies, the most notable being Tianyu in Beijing, that have executed this strategy successfully. The Company will continue to make and sell private label, custom design mobile phones for distributors and operators elsewhere. We believe the strategy to create our own brand in China, where a marketable brand name is necessary for success, combined with our strategy of using our joint design process to create mobile devices that give our customers competitive advantage in their local markets, will expand our market opportunity, help drive margin improvement and create a more defensible position for our Company.

SHENZHEN, China, April 8, 2011 /PRNewswire-Asia/ -- SinoHub, Inc. (NYSE Amex: SIHI), an electronics company whose major growth driver is manufacturing and distributing custom, private-label mobile phones, today announced that it has added three substantial new mobile phone design houses as supply chain management ("SCM") customers, namely, Tianlong Shenzhen, Gaophone Shanghai and Henzong Hong Kong.  These new customers are expected to generate additional profits for the electronic sales and services ("ECSS") business segment. Transactions with these new customers will strengthen the Company's robust database of information available to support electronic component purchasing in its ECSS and integrated contract manufacturing ("ICM") business segments.  Furthermore, SinoHub will have the opportunity to seek to engage these new SCM customers as suppliers of new reference designs for mobile phones in the ICM segment.  These new clients are major Chinese design houses, similar to SinoHub's largest SCM client, Huaqin, which is now also an ICM supplier.

In light of the strong growth opportunities in SinoHub's ICM business segment and its strengthened working capital position as a result of its recently reported $11 million equity raise and existing bank facilities, SinoHub remains confident in the firm's fundamentals, strategy, and prospects. The Company has thus far not seen any significant impact on its business as a result of the recent earthquake in Japan and, as such, reaffirms its 2011 full year revenue guidance of 30% growth to $255 million as well as its target of producing and selling 3 million mobile phones for 2011, representing year-over-year growth of 160% in terms of handsets sold. SinoHub does not expect it will require further equity financing for the foreseeable future.

Summary Financials

For full fiscal year 2011, SinoHub is providing revenue guidance of $255 million, representing anticipated year-over-year growth of 30% over 2010.

Business Outlook for 2011

In April 2010, SinoHub commenced operations at its new 104,400 sq. ft. manufacturing facility located in the Bao'an district of Shenzhen, China, to launch its new custom design mobile phone business unit. By operating its own manufacturing facility, the Company has been able to manage product quality more efficiently, enable the timely delivery of phones for both initial and rush orders, and generate higher operating margins.

SinoHub produced approximately 1.15 million mobile handsets in 2010. The Company recently expanded its production facility from 4 assembly lines, adding four more in the third quarter of 2010 for a total of 8 lines with annual output capacity of approximately 3.6 million handsets, or 300,000 handsets per month, to support future growth. The Company started with 3 high speed surface mount (SMT) lines and added four in the fourth quarter of 2010, ending the year with 7 high speed lines with production capacity of over 630,000 mobile phone motherboards per month.

During its first year of operations, the ICM business generated $61.2 million of revenues, with gross margins of 18.9%. Management expects ICM margins to benefit as it makes further improvements in operating efficiencies and product mix, including increased smart phone production, while decreasing contract printed circuit board assembly production work in favor of utilizing motherboard production for its products. We also expect that over time, and in product cycles, these benefits may be offset somewhat by competitive pricing pressures.

"During the past year I have led the sales efforts for our ICM business and am convinced that we entered the market at an opportune time," stated President Lei Xia. "With a higher handset replacement rate in developing countries and private label phone manufacturers continuing to gain market share, we believe we are well positioned to participate in the robust growth currently taking place in the emerging markets. Securing our first smart phone orders was a significant milestone and provides us the opportunity to fully leverage the online joint design capabilities we developed for our clients, while producing higher priced, higher margin phones. We secured orders from customers such as China Unicom, which had 166 million subscribers, including 12.8 million 3G subscribers, at the end of 2010, and HT Mobile in Indonesia, which sells between 500,000 and 600,000 phones per month, which we believe validates our business model and puts us on a path to secure much larger orders and drive incremental growth during 2011."

SHENZHEN, China, Jan. 31, 2011 /PRNewswire-Asia/ -- SinoHub, Inc. today announced that it sold approximately 1.15 million mobile phones in 2010, its first full year of operations with this fast growing mobile phone manufacturing and sales business unit. In order to align the name with its business operations, the Company also renamed its mobile phone manufacturing and sales business to "Integrated Contract Manufacturing (ICM)."

SinoHub is also  introducing to customers its new online reference design selection system which enables a reference design to be selected as a starting point for its unique joint design process based on the desired hardware platform, appearance, chipset and software platform. Having a turnkey solution for the entire design process will make it significantly easier and more efficient for customers to work with SinoHub to create handsets with features and functionality targeted at their local markets. The company will be adding about twenty new reference designs each month that will be deemed best-of-breed from products made by its design house suppliers.

SinoHub has built up substantial capacity in its ICM factory in anticipation of increased sales in 2011. From a starting point of four assembly lines in April 2010, the company added four more assembly lines in Q3 2010. Each assembly line is capable of producing 37,500 phones per month on average, giving SinoHub the capacity to manufacture 300,000 phones per month. After installing its first three high-speed surface mount technology (SMT) lines to make motherboards and a medium-speed line that is primarily used for setup and testing in July 2010, SinoHub added four more high-speed SMT lines in the fourth quarter of 2010. Each high-speed SMT line is capable of producing approximately 90,000 motherboards per month, thus giving the company the capacity to produce over 630,000 motherboards per month.

"We are seeing tremendous growth in our mobile phone manufacturing and sales business", said Harry Cochran, CEO of SinoHub. "Our ability to provide strategic support through our online joint design process and our online order tracking is extremely appealing to a wide variety of customers. The new name for this division more precisely portrays the value proposition we offer. With an established customer base that is purchasing more phones, the recent contracts we have announced and a growing pipeline of new customers, we expect growth in our ICM business to accelerate from the second quarter through the end of 2011. We expect to sell approximately 3 million phones in 2011, a 160% increase over last year."

"Our strong third quarter sales results were led by record shipments and revenue from our custom design mobile phone contract manufacturing business. We produced approximately 320,000 handsets for the third quarter, up from 250,000 in the second quarter, with sales being strongest in Indonesia and India. With growing adoption of our unique new business model which allows us to provide strategic support for handset distributors, we are optimistic in maintaining our positive momentum in VCM," said Harry Cochran, Chief Executive Officer of SinoHub. "We are also very pleased that ECP experienced growth as business volume increased and, more importantly, the gross margin in ECP improved substantially to 15.6% from 12.2% in the second quarter of 2010."

Full year 2010 Guidance

Based on the strong results through the first nine months of 2010, Management is raising FY 2010 revenue guidance to $192 million from the prior guidance of $180 million, representing anticipated year-over-year growth of approximately 50% over 2009.

• Total revenues for second quarter 2010 grew 39.9% to $43.9 million from $31.4 millionfor the second quarter of 2009.
  
• Net income for the second quarter of 2010 fell 9.4% to $2.9 million, or $0.10 per fully diluted share, compared to $3.2 million, or $0.13 per fully diluted share, in the second quarter of 2009, based on 28.8 million and 25.2 million weighted average, diluted shares outstanding, respectively.

"We are pleased to report a solid first half of the year, as sales from our new virtual contract manufacturing (VCM) business exceeded our expectations. We produced about 250,000 handsets in the second quarter, up from roughly 200,000 during the first quarter, while our sales pipeline continues to improve. As we bring on additional capacity to support our fast growing VCM business, we expect this segment to contribute meaningfully to top and bottom line growth during the second half of the year. Revenues from our ECP business unit were up 31% year to date and we expect measured growth for the balance of the year as we expand our customer base and overall volumes," said Harry Cochran, Chief Executive Officer of SinoHub. "While margins were impacted by the product mix during the quarter, we expect our relationships with large design houses to boost overall volume and growth rates within our ECP business."

Full-year 2010 Revenue Guidance

For full fiscal year 2010, SinoHub reaffirmed revenue guidance of $180 million, representing anticipated year-over-year growth of 40% over 2009. Guidance includes approximately $50 million in anticipated sales from its virtual contract manufacturing (VCM) business.

We are pleased with our strong financial results for the first quarter of 2010, as sales from our recently launched virtual contract manufacturing (VCM) business exceeded our expectations and contributed to gross margin expansion over fourth quarter 2009, and as we generated continued strong growth in our electronic component purchasing (ECP) business unit," said Harry Cochran, Chief Executive Officer of SinoHub. "While sales declined for our SCM business, this unit remains pivotal to our overall business model as we leverage proprietary information gained through our SCM software platform to add new ECP and VCM customers, and as our world-class SCM solutions benefit electronics manufacturers in the growing China marketplace by substantially decreasing their production cycles and inventory levels while improving their working capital position."

For full fiscal year 2010, SinoHub reaffirmed revenue guidance of $180 million, representing anticipated year-over-year growth of 40% over 2009. 2010 guidance provided assumes a substantial increase in sales from its new virtual contract manufacturing (VCM) business.