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Event - ARR enter into JV with China TechFaith Wireless
· ARR has entered in a JV with China TechFaith Wireless Communication Technology Limited (NASDAQ: CNTF)
· ARR will provide the JV with funding for operations in exchange for a majority ownership
· China TechFaith will provide product engineers, working facilities, testing equipment and intellectual property
· The two parties will jointly develop handsets with specific functions and features to meet both cost and performance requirements for the world's emerging wireless handset markets such as India, China and the Middle East
· China TechFaith produces phone handsets with GSM/GPRS, CDMA1X, EVDO, WCDMA/UTMS, HSDPA and TD-SCDMA capabilities
· Simon Cao, CEO of ARR stated: the JV "will allow ARR to become a leader in those wireless communications markets over the next several years"
· Defu Dong, CEO of China TechFaith stated: "the JV will penetrate the market (India) quickly and attain significant market share
Impact
ARR provides the JV with a well-positioned distribution platform into the South East Asian, Indian and Middle Eastern markets Note that the Middle East has been mentioned for the first time in an ARR release here CNTF provides the JV with phone handsets CNTF has a market cap of US$238m We expect the JV to generate 9-digit US$ revenue in its first year at a reasonable margin - with such revenue continually expected to ramp up through FY08 ARR's funding for the JV's operations is below ARR's materiality for disclosure - so is less than US$5m Hence the JV can be considered to be eps accretive for ARR in its first year alone The JV also increases the usage of wireless communications in ARR's key markets These in turn increase the demand for wireless networks in these key markets ARR's (high margin) wireless and wireline technologies are sold to customers to develop these wireless networks So the strategic benefit of the JV to ARR, is to sell its wireless and wireline technology into these expanding markets - similar to the phone and modem deals announced in India Despite now making seven significant announcements since 5 March as well as raising A$34m additional capital, ARR has not upgraded its revenue or profit guidance for FY07 We retain our A$8.80 valuation and BUY recommendation
