Comtech Group, Inc. Subsidiary to Expand Its Location-Based Wireless Search Service in China With New China Netcom Partnership21 December 2005
Comtech Group, Inc. (Nasdaq: COGO), a leading provider of customized module design solutions for more than 200 technology product manufacturing companies based in China, today announced that it has successfully completed the model design and production of the location based kids phone to deliver to its partner China Telecom. Comtech's subsidiary Comtech Wireless Ltd. receives revenues from this relationship in two forms: 1) Through the sale of the handsets which are embedded with its proprietary software which carry a retail price of approximately $40 per unit and 2) Through a nearly even split of the subscription based service revenue which is offered to customers at a price point that varies depending upon region but averages approximately $1.50 per month. The Company expects to book revenues for handset sales during the fourth quarter, which will contribute gross margins of approximately 25 to 30 percent, and expects to begin earning its share of the subscription revenue during the first quarter of fiscal 2006. Subscription revenue is anticipated to carry a higher gross margin than the original manufacturing of the phone. In addition, Comtech is currently in the process of securing approval to launch this service in other cities, with the goal of being live in over fifty cities throughout China by the end of 2006.
Comtech is currently in the final stages of negotiating an agreement with a second partner, China Netcom, who will offer location-based wireless search to multiple cities in Northern China. Specifically, it is anticipated that this relationship will focus on expanding the offering into the Jiling Province, which has nine target cities with an estimated 1.6 million subscribers. The Company expects to make a more formal announcement in early 2006.
As part of the initial product launch, Comtech has completed the design of its own branded kids phone, under the Comloca brand name, which will be outsourced for production. Pictures of the kids phone can be found on the Comtech website. The initial phones are designed for children ages 6-12, with bright colors and a streamlined interface, including buttons programmed to call each parent, the home phone and two other programmable buttons. As long as the child is in possession of the phone, parents can use the location-based search service to locate their geographic position to within approximately 90 meters. Parents can access the service by using their own cell phone, by calling an 800-number or logging onto the Internet. The Company plans to introduce other phones to target various age groups and seniors in 2006. The engine behind this service is the Company's proprietary software which provides the foundation for the location-based search engine platform. Comtech has filed for patent protection for both its hardware design and search engine software in the near term.
Jeffrey Kang, Chairman and Chief Executive Officer of Comtech Group, commented, "We are pleased with the initial feedback and our partners execution on this significant product launch. We expect to receive initial subscription revenues from China Telecom in the first quarter of 2006, and are moving expeditiously to roll this service out in our initial markets while preparing for additional cities and regions next year. The new partnership with China Netcom will allow Comtech to address the northern portion of China and essentially double the existing addressable market size. As the product launch continues we are optimistic that the location based services will drive incremental revenue growth and profitability for Comtech."
About Comtech
Comtech Group, Inc. is a leading provider of customized module design solutions in China, serving as a gateway to leading international and domestic electronics manufacturers in China. Comtech's core business has historically focused on the mobile handset and telecom equipment end-markets, but has recently expanded its market to include the digital consumer electronics end-markets. Comtech has worked with more than 200 customers. Comtech's customer base includes a majority of the largest and most well-known manufacturers in the mobile handset and telecom equipment end-markets in China.
Safe Harbor Statement
This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include statements about our plans and objectives for future expansion, including into our location based search application; expectations for the location based search application related market, domestic mobile handset, telecom end-markets in China; anticipated margins for our solutions; general and cyclical economic and business conditions, and, in particular, those in China's mobile handset, telecom equipment and consumer electronics industries; our ability to enter into and renew key corporate and strategic relationships with China Telecom; changes; and other statements containing forward looking terminology such as "may," "expects," "believes," "anticipates," "intends," "expects," "projects," "looking forward" or similar terms, variations of such terms or the negative of such terms. Such information is based upon various assumptions made by, and expectations of, our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions which are subject to change. Accordingly, there can be no assurance that actual results will meet expectations and actual results may vary (perhaps materially) from certain of the results anticipated herein. For a further description of these and other risks and uncertainties see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.
Source: prnewswire
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