Spreadtrum: Nice Story, Now Let’s See the Numbers 展讯要靠业绩取信投资者

By newsdoug on March 15, 2012

I’ve become something of a fan of cellphone chip designer Spreadtrum (Nasdaq: SPRD), which has convinced me it has found a nice niche as a developer of low-cost chips for cellphones in developing markets through a well-focused public relations campaign in that direction. But investors are clearly growing skeptical of that story, based on reaction to its latest announcement, and are clearly less willing to buy into the story until the company starts to show some top and bottom line impact from its efforts. In its latest announcement on its developing market aspirations, Spreadtrum announced it has partnered with India’s Micromax to develop new low-cost handsets for the Indian and other developing markets. (company announcement) This announcement follows a series of similar ones from the past year, which are part of the company’s strategy to focus on chips for the low-cost, high-performance cellphones preferred by many price-sensitive consumers in developing markets like China and India. While reaction to some of the earlier announcements was quite positive, investors have greeted this latest news with mostly indifference, bidding up Spreadtrum shares less than 1 percent after the announcement, largely in line with a small gain for the broader market. That indifference seems to reflect a longer-term trend that has seen Spreadtrum shares lose about half of their value from highs reached back in November, even as many other beaten-down China tech stocks have rallied over that period. Perhaps investors are starting to tire a bit of Spreadtrum’s hype, and are focusing more on its actual results which have yet to show too much excitement from the new initiatives. The company’s revenue grew 54 percent in its latest reporting quarter, but the figure was up only 4 percent quarter-on-quarter and, equally important, profit grew just 17 percent in the fourth-quarter from a year earlier — hardly eye-popping figures for a company with such big plans. (results announcement) Some may recall that Spreadtrum was the target of a short-seller attack last year that questioned some of its high inventory levels. The company successfully defended itself in that instance, and actually saw its shares surge afterwards. (previous post) I’m still a believer in this company based on its strategy, but clearly others might be starting to wonder if perhaps there was some truth to the short seller report that Spreadtrum successfully dismissed by saying the growing inventory levels reflected a build-up of chips as it expanded its product offerings. Look for the stock to remain under pressure in its current range until the company can start to show some solid results from its well-articulated developing market strategy.

Bottom line: Investors are growing wary of Spreadtrum’s ongoing PR campaign about its developing market aspirations, and won’t be convinced until it starts to show some stronger results.

Enjoy this blog? Please spread the word :)