| INDUSTRY AND MARKET |
| Q1: How is the China telecommunications industry? |
| A: According to China's Ministry of Information Industry (MII),
China's telecom industry recorded total revenue of RMB906.61 billion in the first five months of 2008, up
26.8% year-on-year. Telecom operation revenue was up 9.6% to RMB330.55 billion and telecom fixed-asset
investment was up 2.75% to RMB75.05 billion.
Mobile telecom revenue hit recorded RMB176.85 billion, up 16.5%, while fixed-line phone and
data services (broadband Internet) generated revenue of RMB122.59 billion and RMB30.72 billion,
respectively. China lost 6.5 million fixed-line phone subscribers in the first five months of
the year to reach 359 million subscribers and added 44.8 million handsets users to reach 592 million
users at the end of May 2008.
China added 7.9 million broadband subscribers to reach a total of 74.448 million users. China
sent 287.26 billion SMS for the same period, up 24.6% year-on-year.
After the recent restructuring of telecom operators in China, there are a total of
three telecommunications operators remain in China. Competition among the three operators
is fierce, so they are forced to continue to expand network coverage and improve service
quality to remain competitive.
The upcoming large-scaled network constructions projects in China will provide GrenTech
great opportunities to maintain business growth. |
| Q2: Could you please update us on the current situation of 3G license issuance and TD phase II network construction? |
|
A: Mr. Xiaobing Chang, Chairman of China Unicom, stated in the GSMA Mobile Asia Congress that there is
a possibility of issuing the 3G licenses by the end of 2008. It is anticipated that China Mobile will
be granted the TD-SCDMA license, while China Unicom will
receive the WCDMA license and China Telecom will receive the CDMA2000 license. Moreover, the 3G operations
of all three operators are expected to launch in the second or third quarter of 2009.
Currently, China Mobile has finished the bidding for main equipments such as base station for TD
phase II construction in 28 cities, the construction scale is 1.5 times larger than phase I, the
estimated investment may exceed RMB30 billion; China Telecom revealed that to upgrade the current
CDMA network to EV-DO network will only take them three months;
The new China Unicom has established a wholly-owned mobile network company which is responsible for
3G network operation.
All of the above are beneficial to our wireless coverage and base station RF businesses and
will continue to be our key growth drivers in the coming quarters.
|
| Q3: Could you please update us on the restructuring of China telecommunications operators? |
|
A: The CDMA network operation was officially transferred from China Unicom to China Telecom on October
1, 2008 and the actual transfer process is estimated to complete within approximately three months.
On October 15, 2008, the New Unicom was established, signifying the official merge of China Unicom
and China Netcom. To date, integration is still underway in terms of staff, organization structure a
nd departmental responsibilities.
The completion of restructuring in China Unicom and China Telecom will also conclude
the whole restructuring plan, as they are seen as the most complex processes.
|
| Q4: What will be the opportunities from China telecom restructuring? |
|
A: Additional opportunities arise from the telecom restructuring include:
China telecom¡¯s commencement of CDMA network construction, which is beneficial to our operating
and financial performances in the fourth quarter 2008 and throughout the first quarter 2009.
China Mobile is expanding its GSM network coverage, and is expected to start TD phase II construction
by end of 2008. Hence, our revenue from China Mobile will continue to increase.
Additional demand from the New Unicom will provide great support to our 2009 first quarter
revenue, as the operator is still in the process of restructuring and it is expected to delay its
investment plan until the beginning of 2009. |
| Q5:Who are the company's competitors? |
|
A: We believe our main competitors in wireless coverage products and services are Comba
Telecom Systems Holdings Limited, Centron Telecom International Holding limited, Wuhan Research
Institute of Posts and Telecommunications.
In terms of base station RF business, we mainly compete with Powerwave Technologies, Inc.,
Wuhan Fingu Electronic Technology Co., Ltd. and Mobi Antenna Technologies (Shenzhen) Co., Ltd.
in China. |
|
| BUSINESS AND OPERATION |
| Q6: What is GrenTech's mission? |
|
A: GrenTech's mission is to maintain our leading position in wireless coverage business by
developing innovative products and integrated wireless coverage solutions to meet and exceed
customer expectations; and to be the technology and market leader in RF business by developing
and increasing our RF product offerings and our sales to base station equipment manufacturers. |
| Q7: How does GrenTech make money? What is driving the company's growth? |
|
A: Our revenue is derived from providing wireless coverage products and services to
telecommunications operators in China, while supplying RF modules to base station manufacturers.
Our wireless coverage products enable telecommunication operators to expand the reach of their
wireless communication networks to areas with little or weak coverage, such as buildings, highways,
railways, tunnels and remote regions. Our wireless coverage products include indoor coverage products
and outdoor coverage products, as well as base station coverage extension products.
We have developed over 200 models of wireless coverage equipment. We provide most of our wireless
coverage products and services to local affiliates of the three leading wireless operators in China,
China Telecom, China Mobile and China Unicom.
According to Bayes Analysis, we were the second largest provider of wireless coverage products
and services in China in 2007 with an estimated market share of 8.7%. We believe that the
increasing capital expenditures from China telecommunications operators will continue to
provide us opportunities to grow our business in the wireless coverage market.
We also supply RF parts and components to base station equipment manufacturers. We are
a qualified supplier of RF parts and components to six major domestic and foreign base
station manufacturers: Huawei Technologies Co., Ltd., ZTE Corporation, Datang Mobile
Communications Equipment Co., Ltd. China Potevio Co., Ltd, Ericsson and Nokia Siemens Networks.
With rising production costs incurred by base station equipment manufacturers, more foreign base
station equipment manufacturers have chosen to procure base station RF parts and components mainly
in China in order to reduce their costs. We believe the demand for base station RF parts and
components will grow rapidly, and our revenues from base station RF modules will become another
major driver for our revenue growth in coming periods. |
| Q8:Who are your customers? |
|
A: We provide most of our wireless coverage products and services to the three wireless operators in
China, including the China Mobile, the China Unicom and the China Telecom and their local subsidiaries.
We also supply RF parts and components to six major domestic and foreign base station manufacturers:
Huawei, ZTE Corporation, Datang Mobile, China Potevio, Ericsson and Nokia Siemens Networks. We have
begun supplying base station RF modules to Huawei Technologies Co., Ltd., ZTE Corporation, Datang
Mobile and Potevio Corp. in bulk quantities, and begun trial supply for some of our overseas customers.
|
| Q9: Is your business affected by the financial crisis? What measures do you have in place to overcome the financial crisis? |
| A:We have not seen any major impact on the China
telecommunications sector. In the contrary, Chinese government¡¯s economic stimulation plan may
lead to additional investments in infrastructure projects, including telecommunication network
constructions. The increased spending will in turn present us with tremendous opportunities in
both wireless coverage and base station RF businesses in the near future.
At the same time, we cannot underestimate the possible impact from the global financial crisis.
To this end, we have committed to a few key business initiatives, such as selecting quality orders,
strengthening our balance sheet and improving our operational efficiency. Some of these measures
may potentially slow down our revenue growth or profitability in the short term. However, we
believe that they are essential elements for achieving profitable and sustainable long-term growth.
|
|
| PRODUCT AND SERVICES |
| Q10: What does GrenTech do? |
| A: We are a leading provider of wireless coverage products
and services in China. We believe that we are also a leading developer of radio frequency, or RF, technology
in China. RF is the fundamental technology that enables wireless communication products to transmit and
receive signals. Our core research and development efforts in RF technology and our integrated design,
engineering and production processes have allowed us to design, develop and produce in-house our two
main product lines, namely, wireless coverage products, which we supply to telecommunications operators,
and base station RF modules, which we supply to base station equipment manufacturers. |
| Q11: What are your products? |
| A:Leveraging our in-house RF technology, we design develop
and produce two main product lines, namely, wireless coverage products, which we supply to
telecommunications operators, and base station RF modules, which we supply to base station equipment
manufacturers. |
|
| FINANCIALS |
| Q12: When does GrenTech report earnings? |
|
A:We report earnings by quarter and by annual. |
| Q13: In what currency does GrenTech report earnings? |
| A: The Company¡¯s functional and reporting currency is Renminbi (¡°RMB¡±). RMB numbers include in earnings release will be translated into U.S. dollars solely for the convenience of the reader. |
| Q14: When does GrenTech¡¯s fiscal year end? |
|
A: Our fiscal year ended December 31 of each year. |
| Q15: How can I listen to the webcast for the earnings report? |
|
A: A webcast replay of the earnings report is available on the investor relations page of GrenTech¡¯s website at www.grentech.com.cn. |
| Q16:How can I download and view the quarterly and annual reports online? |
| A: Please go to Here to download our quarterly and annual reports. |
| Q17: What is your revenue mix? |
A:
¡¡ |
2007 Full Year Revenue |
RMB'000 |
US$'000 |
% of Revenue |
Wireless Coverage Products |
China Mobile |
317,735 |
43,558 |
32.4 |
China Unicom |
377,785 |
51,790 |
38.6 |
China Telecom |
49,636 |
6,804 |
5.1 |
China Netcom |
20,515 |
2,812 |
2.1 |
Overseas |
11,591 |
1,589 |
1.2 |
Non-operators |
28,495 |
3,906 |
2.9 |
Subtotal |
805,757 |
110,459 |
82.3 |
RF Products |
OEMs |
173,545 |
23,791 |
17.7 |
Total |
979,302 |
134,250 |
100 |
|
| Q18: What is your guidance for the full year 2008 results? |
|
A: We estimate the 2008 full year revenue will remain flat versus 2007 due to the temporary suspension
of network constructions during the Beijing Olympic Games and the restructuring of China
telecommunication operators.
|
| Q19: What is your current cash position? Is your cash position sufficient to support regular operation? |
| A: As of September 30, 2008, GrenTech had a total of
RMB200.0 million (US$29.4 million) in cash and cash equivalents, and pledged time deposits; along
with the cash from sales and bank loan facilities, it provides sufficient support to our regular operations. |
| Q20: What is your strategy to improve profit margins? |
| A: Our strategy to improve profit margins starts with our
priority to select quality orders. It also includes our plan to reevaluate the production process and
implement more stringent measurement to rationalize cost of goods sold. In addition, we intend to enhance
our operating efficiency through optimizing operating process, streamlining business procedures and
managing operating expenses such as sales and marketing, and general and administration costs.
Furthermore, as the implementation of centralized bidding policy by Chinese telecom operators
separates equipment procurement from integrated services, it also increases our integrated service
revenue, which has a relatively higher margin. As a result, we believe it will have a positive impact
on our overall gross profit margin.
We also intend to expand our RF business with overseas customers who generally offer a higher profit
margin than the domestic customers.
|
| Q21: How will you improve your account receivable account? |
| A: The management is committed to reduce accounts receivable.
In particular, we will implement stronger initiatives to speed up collection time and offer discounts to
customers that commit to shorter collection schedules. At the same time, we will also reassess
the receivables which may be affected by the operator restructuring and may write off probable
uncollectible bad debts if necessary. |
| Q22: Will the restructuring affect GrenTech¡¯s accounts receivables? If so, what are your countermeasures? How much uncollectable bad debt do you plan to write off? |
| A:The restructuring of China¡¯s telecommunications operators
and the subsequent CDMA network transfer from China Unicom to China Telecom may affect the collection of
a portion of our receivables. However, we are in the process of carefully reassessing the collection
risks involved according to the restructuring progress.
To reduce our account receivables, we will offer discounts to customers that commit
to shorter collection schedules and write off the probable uncollectable items as bad
debt if necessary.
The actual amount of write offs will depend on the results of our reassessment. Thus, we will be
in a better position to provide more details about our write off plan at the end of the fourth quarter
2008. The write offs may hurt our P/L in the short term but our prompt decision will benefit our
company in the long term. |
| Q23: How will you improve your inventory level? |
| A: Improving inventory turnover is one of our key business
priorities. We plan to improve inventory turnover by reducing raw material inventory levels, shortening
raw material delivery periods. We will also try our best to shorten the installed finished goods revenue
recognition cycle by urging customers to speed up the contract conclusion and inspection process. |
|
| GROWTH DRIVERS AND OPPORTUNITIES |
| Q24: What are the growth drivers for GrenTech¡¯s wireless coverage business? |
| A: The upcoming large-scale network construction will present
GrenTech with tremendous opportunities in both the wireless coverage and base station RF businesses in
China. Specifically, the opportunities in wireless coverage include:
In the fourth quarter, China Mobile has accelerated its GSM network construction and is
anticipated to initiate its TD Phase II network construction in 28 cities.
China Telecom commenced large-scale construction of its CDMA network, with indoor coverage being one
of the most heavily invested projects.
China Unicom¡¯s network construction may be postponed through the fourth quarter, due to
uncertainties surrounding its personnel integration and organizational restructuring. However,
it is expected to resume network constructions in the first quarter 2009.
We are well positioned to capture the aforementioned opportunities:
GrenTech won centralized bidding for wireless coverage equipment from both China Mobile and
China Unicom Also won China Telecom¡¯s wireless coverage equipment centralized bid
Obtained qualification as an integration services provider for China Mobile, China Unicom and
China Telecom¡¯s provincial subsidiaries |
| Q25: What are the growth catalysts for GrenTech¡¯s base station RF business? |
| A: We believe there are three growth catalysts for our
RF business:
The growing demand for our products from overseas manufacturers. Actually, we have already entered
into the trial production stage for two overseas manufacturers.
There are also enormous opportunities arise from the construction of TD Phase II and CDMA network expansion,
which are expected to launch shortly.
The third catalyst comes from the business growth of our key customers, ZTE and Huawei. The growth
in their business will subsequently increase the demand for our products and services. In fact,
we have already received large orders for RF modules from major base station manufacturers.
|
|
| GRENTECH STOCK |
| Q26: On what exchange does GrenTech trade and what is its ticker symbol? |
| A: GrenTech is trade on the Nasdaq National Market under symbol ¡°GRRF¡± |
| Q27: How many shares of GrenTech are outstanding? |
| A: There are 609,553,400 ordinary shares, or 24,382,136 American Depositary Shares outstanding as of September 30, 2008. |
| Q28: Who is the depositary bank for GrenTech? |
| A: Citibank, N.A. is the depositary bank for GrenTech. Citibank¡¯s depositary offices are located at 388 Greenwich Street, New York, New York 10013 |
| Q29: Can you update us on the Company¡¯s share buy-back plan? |
| A:GrenTech announced its stock buy-back plan in September 2007, which allows the Company to purchase up to US$8 million in shares. We have already bought back some shares and will continue to evaluate market conditions and take appropriate steps accordingly to best serve the Company¡¯s interest and that of its shareholders. |
| Q30: What steps is the management taking to increase shareholder value? |
| A:GrenTech's shareholders are of the highest importance to us,
and each decision we make from a strategic standpoint is geared toward growing the business and maximizing
shareholder value.
In order to capture upcoming large-scale network construction opportunities and be vigilant in
preparations for potential impacts from the global financial crisis and economic downturn, the management
has committed to the following key business initiatives:
Select quality orders
Reduce accounts receivable
- Offer discounts to customers that commit to shorter collection schedules
- Reassess the receivables which may be affected by the operator restructuring and may write off
probable uncollectible bad debts
- Implement stronger initiatives to speed up collection time
Improve inventory turnover
- Reduce raw materials inventory levels
- Shorten raw materials delivery period
- Urge customers to speed up the contract conclusion and inspection process in order
to shorten the installed finished goods revenue recognition cycle
Reevaluate the production process and implement more stringent measurement to rationalize cost
of goods sold
Enhance operating efficiency:
- Optimize operating process
- Streamline business procedures
- Manage operating expenses such as sales and marketing, and general and administration costs
Although some of the above activities may slow down the Company¡¯s revenue growth or profitability
in the near term, we believe these measures will effectively place the Company in a stronger position
to capture future market opportunities for mid- to long-term business growth.
|
|
| CORPORATE INFORMATION |
| Q31: How did GrenTech begin? |
| A: The Company was incorporated on December 3, 2003 in the
Cayman Islands as an exempted company with limited liability under the Cayman Islands Companies Law.
The Company holds, through its wholly owned subsidiary, GrenTech (BVI) Limited, or GrenTech BVI, 100%
of the equity interest of Shenzhen GrenTech. Shenzhen GrenTech was formed on July 5, 1999 by Mr. Yingjie
Gao and Professor Kunjie Zhuang, as a domestic limited liability company in China. Subsequent to its
incorporation, the Company converted Shenzhen GrenTech into a wholly foreign-owned enterprise under PRC
law in order to benefit from various tax and other incentives available to foreign-invested enterprises
in China. |
| Q32: Where is GrenTech located? |
| A: Our principal executive offices are located in Floor 15,
Block A, Guoren Building, Keji Central 3rd Road, Hi-Tech Park, Nanshan District, Shenzhen, P.R.C. 518057,
and our telephone number is (86 755) 2650 3007. |
| Q33: Where can I find all of GrenTech's SEC filings? |
| A: For more about GrenTech¡¯s SEC filings, please go to SEC website or click the below link: Here |
| Q34: Who is GrenTech¡¯s Independent Accountant? |
| A: KPMG (Hong Kong, China) is GrenTech¡¯s independent accountant. |
|
| RECENT DIVESTMENT OF LAKE COMMUNICATION AND LAKE MICROWAVE |
|
On January 5, 2009, China GrenTech Corporation Limited (¡°China GrenTech¡± or ¡°the Company¡±) announced
that it had sold two of its wholly owned subsidiaries: Quanzhou Lake Communication Company Limited ("Lake
Communication") and Quanzhou Lake Microwave Company Limited ("Lake Microwave"). We have prepared a list
of frequently asked questions and answers to provide further details regarding the divestment. |
| Q35: What are the reasons for selling the two subsidiaries? |
| A: The disposals of Lake Communication and Lake Microwave will
help to reduce our future cash outflow in light of the current economic slowdown, as our account payable to
the two subsidiaries has been cancelled and we will not need to repay the debt obligations of the subsidiaries
nor fund their ongoing operations. In addition, our plan to gradually transfer all RF module productions
for network coverage to our own facilities in Shenzhen will help to increase our overall operating efficiency
by achieving economy of scale, streamlining distribution activities and reducing general and administration
expenses and research and development cost.
|
| Q36: What did the two subsidiaries do for China GrenTech before the divestment? What will change after the divestment? |
| A: For Lake Communications - The principle business has been
the supplier of wireless coverage RF modules to Grentech in Shenzhen.
For Lake Microwave, the principle business has been to supply such RF modules in small quantities to
companies other than Shenzhen GrenTech. Neither Lake Communication nor Lake Microwave produces base station
RF parts or components.
While our Shenzhen facilities ramp-up their capacities, we intend to continue to procure RF modules from
Lake Communication and Lake Microwave in the short term to ensure our existing operations and supply
continue to run smoothly.
|
| Q37: How will the divestment of the two subsidiaries benefit the Company¡¯s cash flow? |
| A: With the disposal of Lake Communication and Lake Microwave,
the account payable to these two subsidiaries would be cancelled and the buyers will take on the debt
obligation of these two subsidiaries. Thus, China GrenTech will be free from the debt obligations and
ongoing funding needs of their operations. This in turn, will further reduce cash outlay and improve our
overall cash position. |
| Q38: Why did the company sell to an affiliated person instead of an independent third party? |
| A: Since the two subsidiaries¡¯ fair value was assessed by an
independent appraisal company, it is indifferent who the buyer is. We choose to sell the two companies to
Mr. Haifan Zhuang, because he had agreed to pay the fair value due to his strong confidence in these two
companies, while others hesitated to do so. In addition, by selling to Haifan, we are able to retain close
business partnership with the two companies after disposal as Haifan¡¯s father was not only the founder
of both subsidiaries, but also a director of China GrenTech for many years. The strong ties between
the companies add extra benefit to China GrenTech as we continue to source RF modules from these two
companies in the near term. |