Nov. 4, 2009 (PR Newswire) --

SHENZHEN, China, Nov. 4 /PRNewswire-FirstCall/ -- Cogo Group, Inc. (Nasdaq: COGO), a leading provider of customized design solutions for the technology manufacturing sector in China, today announced unaudited financial results for its third quarter of 2009. The Company posted quarterly revenue of $82.0 million, up 9.7% year-over-year, compared to $74.8 million reported in the third quarter of 2008.

Net income attributable to Cogo Group, Inc. for the third quarter of 2009 was $3.4 million, up 144.2% from $1.4 million in the same period last year, with Non-GAAP net income attributable to Cogo Group, Inc. of $6.7 million, up 24.5% over the same period last year. Earnings per share ("EPS") Diluted attributable to Cogo Group, Inc. on a U.S. GAAP basis was $0.09. Non-GAAP EPS Diluted attributable to Cogo Group, Inc. (which excludes share-based compensation expense and acquisition related costs, net including amortization, impairment and extraordinary gain of intangible assets, related deferred taxation and impairment loss of goodwill) was $0.18, up 28.6% from the third quarter of 2008.

Key Financial Indicators
(all numbers in USD thousands, except Earnings per share data)

Q3 2009(1)  Q3 2008(1) Percent Change
Net Revenue                           $82,042     $74,794         9.7%
Cost of Sales                         $70,201     $64,453         8.9%
Gross Profit                          $11,841     $10,341        14.5%
Net Operating Expenses                 $9,206     $10,200       (9.7%)
Income from Operations                 $2,635        $141      1768.8%
Net Income Attributable to Cogo
Group, Inc.(2)                        $3,363      $1,377       144.2%
EPS Diluted Attributable to Cogo
Group, Inc.                            $0.09       $0.04       125.0%
Non-GAAP EPS Diluted attributable
to Cogo Group, Inc.(2)                 $0.18       $0.14        28.6%

(1) The US dollar amounts are calculated based on the conversion rate of
US $1 to RMB 6.8262 as of September 30, 2009, US $1 to RMB 6.7899 as
of September 30, 2008.

(2) Included in the Q3 2009 net income attributable to Cogo Group, Inc.
was an amount of $2.2 million in respect of share-based compensation
expense in accordance with Accounting Standards Codification ("ASC")
718, Compensation - Stock Compensation and $1.1 million, net
acquisition related costs including amortization, impairment and
extraordinary gain of intangible assets and related deferred taxation.
Non-GAAP net income attributable to Cogo Group, Inc., excluding the
effects of share-based compensation expense and acquisition related
costs, was $6.7 million or $0.18 Non-GAAP EPS Diluted attributable to
Cogo Group, Inc. Included in the Q3 2008 net income was an amount of
$1.5 million for share-based compensation expense and $2.5 million
acquisition related costs (including amortization, impairment and
extraordinary gain of intangible assets and related deferred
taxation).

Recent Developments

In September, the Company announced a series of design wins within multiple Smartphone and Smartbook products on both Windows Mobile and Android platforms. The Company continued to experience sequential growth in the telecommunications equipment and combined digital media and handset businesses while aggressively pursuing new opportunities within the Industrial Applications business.

"Since Cogo's Industrial business was first introduced in the first quarter of 2008, it has grown to 13.5% of sales, and we expect that it will continue to grow much faster than the overall company through 2010 and beyond," said Jeffrey Kang, CEO and Chairman of Cogo. "Growth in our Industrial Applications business is being driven by the aggressive build-out of China's Smart Power Grid, high speed railways and roll-out of Smart Meters. We expect that the inclusion of new opportunities, like auto electronics, will only further accelerate our growth in this end-market."

Financial Results

Net revenue for the third quarter was $82.0 million, an increase of 9.7% compared to $74.8 million reported for the third quarter of last year. The net revenue breakdown is as follows: $11.1 million, or 13.5% of total revenue representing a 259.6% year-over-year increase, from component sales relating to industrial applications business, which includes industrial solutions targeted at the electrical grid and other sectors; $49.4 million, or 60.2% of total revenue for digital media end-market (including handset business), up 1.5% from the same period in 2008 and $20.3 million, or 24.7% of total revenue for telecommunications equipment, representing a 9.4% decrease year-over-year.. The Company's service business contributed $1.3 million in net revenues for the third quarter and accounted for approximately 1.6% of total net revenue.

Cost of sales, which includes the aggregate purchase cost of components from suppliers and the direct cost of services, was $70.2 million, compared to $64.5 million in the same period last year, representing an increase of 8.9% year-over-year. Gross profit for the third quarter was $11.8 million, up 14.5% compared to the $10.3 million during the third quarter of last year. Gross margin for the third quarter increased to 14.4%, compared to 13.8% reported during the third quarter of 2008. The increase in both gross profit and gross profit margin was primarily attributable to the increased revenue in industrial business end-market, which generally had a higher gross margin than that of the digital media and telecommunications equipment end-markets.

Selling, general and administrative expenses totaled $6.9 million, remained stable as compared to $6.9 million reported for the third quarter of last year. Research and development ("R&D") expenses increased by 7.7% to $2.3 million compared to $2.1 million in the third quarter of 2008. The increase was primarily attributable to an increase in share-based compensation costs of $0.7 million as a result of new stock awards granted to research staff in 2009.

Income from operations was $2.6 million as compared to $0.1 million for the third quarter of 2008. Operating margin for the third quarter was 3.2% versus 0.2% for the third quarter of 2008. Excluding the effects of share-based compensation and acquisition-related costs including amortization of intangible assets, operating margin would have been 8.7% for the third quarter of 2009, compared to 6.1% for the same period in 2008. Noncontrolling interests' share of income was $0.3 million, an increase of 200.9% as compared to $0.1 during the same period in 2008.

Net income attributable to Cogo Group, Inc. for the third quarter was $3.4 million or EPS Diluted attributable to Cogo Group, Inc. of $0.09 on a U.S. GAAP basis, compared to net income attributable to Cogo Group, Inc. of $1.4 million, or EPS Diluted attributable to Cogo Group, Inc. of $0.04 in the third quarter of 2008. Included in the third quarter 2009 net income attributable to Cogo Group, Inc. was $2.2 million for share-based compensation expenses, $1.1 million, net for acquisition-related costs (including amortization, impairment and extraordinary gain of intangible assets and related deferred taxation). Excluding the share-based compensation expenses and acquisition-related costs (including amortization, impairment and extraordinary gain of intangible assets and related deferred taxation), the Company would have reported net income attributable to Cogo Group, Inc. of $6.7 million, or $0.18 Non-GAAP EPS Diluted attributable to Cogo Group, Inc. for the third quarter, as compared to $0.14 for the third quarter of 2008. The weighted average number of shares used in the calculation of diluted EPS attributable to Cogo Group, Inc. was 37.7 million compared to 39.2 million in the third quarter of 2008.

For the nine-month period ended September 30, 2009, the Company reported revenue of $219.0 million, an increase of 6.4% compared to $205.9 million reported during the same period of 2008. Gross profit was $31.3 million, a decrease of 10.1% compared to $34.9 million reported during the nine-month period ended September 30, 2008. Gross margin was 14.3% of sales, compared to a gross margin of 16.9% for the same period last year.