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Spreadtrum account receivable problem

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(Spreadtrum A/R and inventory from 4Q 06 to 2Q 08, click to enlarge)

As shown in the picture above, their A/R (account receivable) jumped from $1.4 m on Mar 31 to 17.4 m June 30; inventory did not reduced much. This is also evident from its reduced cash postion. Read more details from its earning release if you are interested.

Source: my google spreadsheet, data from SPRD investor relation and SEC filings.

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Time to cut Spreadtrum SPRD loose

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I felt lucky I did sell some Spreadtrum (Nasdaq:SPRD) shares a short while ago when it exceeded $6 (a quick pop). But I don’t know why I bought some back couple days ago at $4.48. I did not bet on earning these days, but this one had dropped quite a bit from the pop, and the expectation is low. So I thought I am relatively safe. Remember margin of safety.

Well, it turns out semi-conductor stock has no MoF. Remember a while ago the star player nVidia (NVDA) fall out from the graphics chip quality problem? My small speculation player SPRD also fell off cliff. Here is the results.

To be honest, I think 2Q results was OK, but the 3Q forecast is disaster. Quote press release: Spreadtrum currently expects revenue in the third quarter to be approximately US$20 million, which represents a sequential decrease of approximately 50% from the US$40.2 million in the second quarter of 2008.

I am not going to do any fundamental or valuation analysis. It seems to me the management (that means Dr. Wu Ping and his associates) blew up badly on this one. The business itself probablly still has some value, but I lost a lot (blind) trust on management team. So I am going to sell all my shares tomorrow morning. Take a loss 🙁

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Speculating on Spreadtrum Communications SPRD

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Let me put up the negatives (risk, downside) first. If it still stands after all the beatings, it may work out eventually. We all know semi-conductor is a tough business, and as you may know making cell phone is a cutting throat competitive business in China.

SpreadTrum chip pic

SpreadTrum (Nasdaq:SPRD) supplies chips to domestic cell phone makers (Amoi, Lenovo, etc.). Recently the cheaper Shanzhaiji caused much trouble to the domestic brand makers, because Shanzhaiji are much cheaper with ok quality. You can read more about this Shanzhaiji thing from my bookmarks (articles in Chinese). I learned about Shanzhaiji from pacificepoch article by LiJing (yes, it’s in English).

Other percepted negatives include: SPRD bet on inferior domestic brewed 3G standard TD; co-founders leaving on Feb; consumer slowdown. But I view those more as glass half full, rather than glass half empty. Let me explain.

Continue reading Speculating on Spreadtrum Communications SPRD