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Handset Maker TechFaith Struggles in Shadow of Giants

The mobile phone maker, struggling with declining profit since 2011, showed its worst figures in its 2017 financials since pre-IPO years.

Anna Vodopyanova
    Apr 29, 2018 5:10 AM  PT
Handset Maker TechFaith Struggles in Shadow of Giants

It was a tough year for China TechFaith Wireless Communication Technology Ltd. (Nasdaq: CNTF), a Beijing-based mobile phone company, which on Friday reported its annual revenue for last year – the lowest since it began trading in New York 13 years ago.

TechFaith started as a software and hardware designer for handsets in 2002 and later launched its original products, including a brand-name phone and, in its profitable years, motion gaming devices.

It was backed early by one of the most successful China venture firms, IDG Ventures, which funded some of the top Chinese U.S.-listed companies, including Internet service giant Baidu Inc. (Nasdaq:BIDU), and Ctrip.com International Ltd. (Nasdaq:CTRP), a travel and tourism services agency.

TechFaith went public on Nasdaq in May 2005 and raised $141 million, selling 8.7 million shares at $16.25 per American depositary share.

For several years, the company exhibited strong growth, doubling revenue to $90 million in its first year, then jumping over the $200 million mark in 2008 and over $300 million by 2011.

At the same time, flush from its early years of profits and responding to fierce competition in the phone sector, the company began diversifying, purchasing land and investing in real estate construction. Over the years, several technological parks sprang up under its name in Hangzhou, Shenyang, and Beijing, intended for the company's research and development, and manufacturing.

But by 2012, the company began to slide. In 2015, in an attempt to stay afloat, TechFaith began to operate and lease commercial real estate units across China, fighting competition from bigger fish like Wanda Group, Capital Land, R&F Properties, and Soho China.  

Its business never recovered, however. The company's annual revenue in 2017 sat at just $46.8 million, a 23 percent decrease from the year before, and a plunge of 86 percent from its height six years earlier.

Losses also mounted. The net loss in 2017 was $9.3 million, or a loss of 1 cent per ADS, compared with the net income of $10.1 million in the previous year.

Indeed, the company has lost money in each year since 2012, with the only exception coming in 2016 when it enjoyed a large gain by resorting to the sale of the Beijing facilities.

The main cause for the decline was competition, TechFaith said. The company experienced a large decrease in phone sales, though it attempted to climb back up by lowering prices, on average, by 56 percent, from $200 to below $90 per unit.

"The mobile handset market is intensely competitive and highly fragmented," TechFaith said in a recent filing. Several Chinese mobile technology giants like ZTE Corp, Huawei, Lenovo, and Xiaomi, in addition to global competitors like Apple and Samsung, dominate the market, posing difficulties for smaller businesses like TechFaith, which does three-quarters of its business in China.

The mobile phone business has remained the main source of revenue for TechFaith, accounting for about 95 percent of the company's revenue for the past three years.

It seems that TechFaith is stuck in a can of bigger fish. The company might or might not ever recover in the face of fierce competition from the giants. Perhaps it might try yet another sector as the company announced today that its CEO, Deyou Dong, will also take over as chairman. 

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The shares of TechFaith are at its lowest since the company went public in 2005. 

On Friday, after releasing its annual report, TechFaith closed at $2.16 per share, down 5 percent. (Source: Thomson Reuters Eikon)


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