During the period under review, the Group’s revenue dropped to HK$1,265.4 million (1H 2010: HK$2,015.1 million), mainly due to the reduction in customer demand of mid- to low-end solutions in the open market handset segment and the lack of high-end ODM shipment. Gross profit declined to HK$123.2 million (1H 2010: HK$243.2 million) while gross profit margin was 9.7% (1H 2010: 12.1%). The Group incurred a net loss of approximately HK$18.7 million (1H 2010: profit of HK$108.2 million), translating into basic loss per share of HK1.2 cents (1H 2010: earnings per share of HK7 cents).

Nevertheless, as at 30 June 2011, the Group continued to maintain a strong financial position with net cash balances amounting to HK$508 million (31 December 2010: HK$511 million). The Board of Directors is confident about the business growth in 2H 2011, thus declared payment of an interim dividend of HK1 cents per share for the six months ended 30 June 2011 (1H 2010: HK2.5 cents).

Affected by the drastic drop in demand from open market handset customers, revenue derived from the handsets and solutions segment decreased to HK$934 million (1H 2010: HK$1,583 million) with a gross margin at 8.2% (1H 2010: 10.7%). Though revenue of 2G/2.5G handset solutions dropped by 53% compared with the last corresponding period, that of 3G/3.5Gsolutions rose by 74% due to the increase in sales of WCDMA solutions for the China Unicom network and CDMA solutions for the China Telecom network. The Group launched 118 (1H 2010:100) handset models and 41 (1H 2010: 46) handset platforms during 1H 2011.

The wireless communication modules segmental revenue declined by 25.4% to HK$273 million (1H 2010: HK$365 million) due to the decrease in sales of TD-SCDMA modules, while gross profit margin was maintained at 18.6%. Although increases in sales of 2.5G modules partly offset the drop in TD-SCDMA modules, the higher average selling price of TD-SCDMA modules has still resulted in a revenue decrease for the segment. The Group’s new SIM900 family of wireless modules is smaller, faster and offers exceptional value and is expected to be a growth driver of the segment in the future. The SIM900 family of modules commanded a higher gross margin relative to other modules during the period.

The display modules segment recorded a revenue of HK$58 million (1H2010: HK$67 million). In anticipation of the strong growth of smart phones, the Group was phasing out the low-end display business and upgrading its factory equipment to produce high-end LCD modules to support the Group’s ODM handset business. The Group also increased its R&D resources and production capability for manufacturing capacity touch panel (CTP) in 1H 2011.

The Group is making steady progress towards the business transition and is confident about prospects in the second half year, primarily due to the high-end ODM projects to be launched in the coming months. For example, it has already passed through the Japanese operator’s audit of its manufacturing facility in preparation to launching its first model in the Japanese market. Indeed, the Group believes that the demand of the two Japanese and two domestic ODM customers enables it to achieve its handset business target in the said period. The Group will continue to invest in the most advanced technology including development of 4G and high-end 3Gsmart phones and tablets to facilitate its transition.

Mr. Cho-Tung Wong, Executive Director of SIM Technology, concluded, “We are firmly committed to the strategy of transitioning to become a high value added ODM. In fact the market has shown that only a differentiated business model can sustain long term profitable growth. Our ability to meet the tier one ODM customers’ uncompromising demand for excellence quality and service has set us apart from our competitors. We are confident that our successful execution will lead the Group to another phase of profit and business growth.”