Spreadtrum Looks Set to Soar After Q2


Fabless semiconductor manufacturer Spreadtrum Communications (NAS: SPRD) posted strong growth in its second quarter, helped by an improved presence in emerging markets and expanded product offerings. Shares of the Shanghai-based company jumped more than 9.5% the following day.

Let's take a look at what lies ahead for Spreadtrum and how the company is expected to perform for the rest of the year.

A look at the quarter
Quarterly revenue skyrocketed 124% to $160.2 million from $71.4 million in the year-ago quarter, helped by strong sales of its 2.5G and 3G products and expansion into new territories. Although costs increased sequentially due to withdrawal of subsidies by the government, an increase in sales covered up for the cost inflation. Still, even with rising expenses, operating income shot up by a staggering 98% to $33.9 million.

The company countered a fall in average selling prices with an increase in unit sales, and much of the credit goes to the TD-SCDMA-based chips offered by Spreadtrum. The company managed to secure market share of 50% on the TD-SCDMA handsets sold within China. The company called out particular strength at China Mobile (NYS: CHL) , the largest telecommunications company in China.

Product development efforts
Although the company has been in the business of manufacturing chips for GSM handsets, its focus has lately shifted toward the TD-SCDMA segment. Spreadtrum is looking to expand its foothold in the WCDMA segment in both the Chinese and international markets through the acquisition of a significant stake in MobilePeak. This acquisition should bear fruit in the coming year, generating more shipments and revenue.

Exploring new horizons
Spreadtrum is moving into emerging markets as its customers are expanding their base in India, Southeast Asia, Latin America, and Africa, directly affecting the demand for its chips. With such developments all around, the company is looking good for the rest of the year.

The Foolish bottom line
With unit sales rising sequentially quarter after quarter and plans to catapult the company to newer heights in place, it looks like good times are ahead for Spreadtrum. However, investors should take note that well-known short-seller Muddy Waters has questioned the company's accounting. Spreadtrum denies the allegations. In the end, this might be a good company for your watchlist. It's in a booming market niche, but further research and disclosures may be necessary before it's worthy of your investment dollars.

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At the time thisarticle was published Harsh Chauhan doesn't own any shares in the companies mentioned in this article.The Motley Fool owns shares of China Mobile. Motley Fool newsletter services have recommended buying shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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