SMIC Announcement of 2004 Annual Results

SHANGHAI, China, March 29 /Xinhua-PRNewswire-FirstCall/ -- The Directors of Semiconductor Manufacturing International Corporation (the "Company") are pleased to announce the audited consolidated results of the Company and its subsidiaries (the "Group") for the year ended 31 December, 2004 as follows:

BUSINESS REVIEW

2004 was a year marked with significant achievements for SMIC. In January 2004, we completed the acquisition of our Fab 7, an 8-inch wafer fab located in Tianjin, China, and commenced mass production there in May 2004. In March 2004, we successfully completed our initial public offering on the New York Stock Exchange and the Hong Kong Stock Exchange, raising approximately US$1 billion for the Company. We commenced pilot production at our Fab 4, which is China's first 12-inch fab, in July 2004. By December 31, 2004, approximately four years after commencing construction of our Fab 1, we reached sales revenue nearing US$1 billion and achieved our first year of profitability.

Overview of Business Developments

Our success in 2004 has been characterized by our commitment to increasing our capacity and expanding our portfolio of leading edge process technology. The speed of our capacity ramp-up represents one of the fastest in the semiconductor industry. Our wafers shipped and sales increased from 476,451 wafers and US$365.8 million in 2003 to 943,463 wafers and US$974.7 million in 2004, representing a 98.0% and 166.4% increase respectively. Our monthly wafer capacity reached 120,417 8-inch wafer equivalents as of the end of 2004. As a result of our rapid expansion and growth, we have become the third largest foundry in the world by increasing our market share by approximately 3%, the largest increase among all foundries in the world.

In addition to our rapidly increasing capacity, we also have the most advanced process technology among foundries in China by providing semiconductor fabrication services using 0.35mm down to 0.10mm process technology. We are the first fab in China to introduce copper technology on a 0.13mm production line, and in 2004, 68.5% of our wafer sales were from products that utilized advanced technology of 0.18mm and below. Some of the highlights from this year include our offering of 0.13mm wafer fabrication process technology, our pilot production of 0.11mm DRAM at our 12-inch fab in Beijing, and our internal development of a 90nm prototype SRAM chip. We are scheduling to offer 90 nanometer process technology for logic devices by the end of 2005.

With our gross profit reaching US$253.3 million this year, a key factor influencing our profit margins has been our capacity utilization. Because a high percentage of our cost of sales is of a fixed nature, operations at or near full capacity have a significant positive effect on output and profitability. In both 2002 and 2003, our wafer fabs had an average annual utilization rate of 94% and in 2004, our wafer fabs had an average annual utilization rate of 98%. Factors affecting utilization rates are our ability to manage the production facilities and product flows efficiently, the percentage line yield of wafers during the fabrication process, the complexity of the wafer produced, and the actual product mix.

Our Fabs

In January 2004, we acquired our Tianjin fab, which we refer to as Fab 7, from Motorola (China) Electronics Limited ("MCEL"), a wholly-owned subsidiary of Motorola, Inc. ("Motorola"). Fab 7, located in the Xiqing Economic Development Area, has a total floor space of 73,182 square meters, including approximately 8,492 square meters of production clean room area. As of December 31, 2004, Fab 7 had increased its capacity to 14,182 wafers per month. We are scheduling to have wafer fabrication capacity of 15,000 wafers per month by the end of 2005.

Our Fab 4 is the first 12-inch fab in production in China. We recently completed construction at our Fab 5 and Fab 6C which will also be 12-inch fabs. All of these fabs are located in the Beijing Economic and Technological Development Area. 12-inch wafers have a surface area that is 2.25 times larger than the current industry standard 8-inch wafers, thereby enabling us to manufacture more integrated circuits on each wafer with lower per die costs. Fab 6C is being situated between the two wafer fabs, Fab 4 and Fab 5, and will provide copper interconnects for the 0.13 micron and below logic wafers produced by both these fabs. This design is intended to prevent metal line contamination to the wafer fabrication processes while achieving greater flexibility in production. Our Beijing fabs have a total floor space of 179,858 square meters, 17,998 square meters of which will consist of production clean room area. We commenced pilot production in Fab 4 in July 2004 and expect to commence commercial production in the first half of 2005. Fab 4 will initially produce advanced high speed lower power 512Mb DDR2 DRAM using 0.11 micron and 0.10 micron manufacturing processes and then commence production for 90 nanometer logic devices. As of December 31, 2004, Fab 4 had a capacity of 7,027 8-inch wafer equivalents per month, and we plan to have wafer fabrication capacity of 29,000 8-inch wafer equivalents per month by the end of 2005.

Customers and Markets

Our goal has been to establish our position as one of the leading semiconductor foundries in the world, and to maintain our leadership position in China. We believe that by establishing our company as a key foundry partner to local semiconductor companies at an early stage of their development, we will be well positioned to take advantage of the potential semiconductor growth in China. According to the China Center for Information Industry Development (CCID), the Chinese integrated circuit industry in terms of overall sales will increase to US$76.3 billion in 2008 from US$25.1 billion in 2003, representing a compound annual growth rate of 24.9%. As a result, China's share of the worldwide integrated circuit market is expected to increase from 15.4% in 2003 to 29.2% in 2008. However, China's domestic integrated circuit manufacturing capacity would represent only approximately 5% of the estimated worldwide integrated circuit market of US$311 billion in 2008.

With over 463 fabless semiconductor companies and design centers in China, and the majority of these potential customers located around the Greater Shanghai and Beijing metropolitan areas both of which are in the vicinity of our existing fabs, we are committed to offering them best-in-class services and solutions that are customized for their particular technological capabilities. We have already established foundry relationships with approximately 50 leading local fabless semiconductor companies in China 6 of which are among the 10 largest fables companies in China based on their revenues in 2003, according to CCID. While many of them are still using more mature technologies, we are cultivating our relationships with them by helping them migrate from 0.35 micron technology down to 0.18 micron technology and below. For example, in August 2004, we successfully developed 0.18 micron high voltage devices and process technology specifically targeted towards these customers. We're working closely with our customers to implement this technology within their product offerings, which will enable them to reap economies of scale at the lower technology nodes. As a result of our domestic efforts, the Asia Pacific region (excluding Japan) accounted for 43.5% of our revenue during the fourth quarter of 2004, surpassing North America for the first time as our largest region of revenue. The Greater China region alone grew and accounted for over 10% of our total revenues during the fourth quarter of 2004. As the Chinese IC industry continues to develop and work on more advanced technologies, our plan is to engage more domestic companies by providing them with advanced technology and manufacturing solutions at home.

We also have a strong global customer base consisting of leading IDMs, fabless semiconductor companies, and systems and other companies. For 2004, our revenue by region was led by North America at 40.2%, then Asia Pacific (excluding Japan) at 33.2%, then Japan at 13.9%, and Europe at 12.7%. We believe these customers have high growth potential and business plans that are directed towards utilizing our manufacturing services and solutions. We intend to maintain a diversified customer mix in terms of end-market applications, processes, and geographical focus in order to manage our exposure to each market segment.

We generate our sales primarily from fabricating semiconductors. We also derive a relatively small portion of our sales from the mask-making and wafer probing services that we perform for third parties separately from our foundry services.

Capacity Expansion Plans

We intend to maintain our strategy of expanding capacity and improving our process technology to meet both the capacity requirements and the technological needs of our customers.

The semiconductor industry is characterized by substantial capital expenditures. This is particularly true for our company as we have recently constructed and equipped fabs and are continuing to construct and equip new fabs. Our capital expenditures in 2004 were US$2,000 million, and we recorded depreciation and amortization costs of US$457.0 million. We currently expect that our capital expenditures in 2005 will be approximately US$1,000 million. We plan to use this capital expenditure mainly to ramp up our fabs in Beijing, Shanghai, and Tianjin. We anticipate by the end of 2005, our monthly capacity will be 147,000 8-in wafer equivalents per month.

Research and Development

The semiconductor industry is also characterized by rapid changes in technology, frequently resulting in obsolescence of process technologies and products. As a result, our research and development efforts are essential to our overall success. We spent approximately US$78.2 million in 2004 on research and development expenses, which represented 8.0% of our sales. Our research and development costs in 2004 include non-recurring engineering costs associated with the ramp-up of Fab 4 and Fab 7. We employ over 600 research and development personnel, combining experienced semiconductor engineers with advanced degrees from leading universities around the world with top graduates from the leading universities in China. We believe this combination has enabled us to quickly bring our technology in line with the semiconductor industry roadmap and ensures that we will have skilled personnel to lead our technology advancement in the future. We are also developing our 90 nanometer technology in house and successfully produced our first prototype SRAM device in 2004. We are scheduling to begin to offer 90 nanometer process technology for logic devices by the end of 2005.

Joint Ventures

We also will seek to participate in strategic partnerships to meet the demands of our customers. In July 2004, we entered into an agreement with Toppan Printing Co., Ltd., to establish Toppan SMIC Electronics (Shanghai) Co., Ltd., a joint venture in Shanghai for the manufacture of color filters and micro-lenses for CMOS image sensors. We hold a 30% equity interest in Toppan SMIC Electronics (Shanghai) Co., Ltd. These products are increasingly being used in consumer products such as mobile phone cameras, digital-still cameras, and automobile and home security applications. In 2004, we commenced construction of Fab 9, which we will lease to Toppan SMIC Electronics (Shanghai) Co., Ltd. We understand that Toppan SMIC Electronics (Shanghai) Co., Ltd. plans to commence pilot production by the end of 2005.

Also in July 2004, we entered into an agreement to establish an assembly and testing facility in Chengdu, China. We anticipate that this assembly and testing facility will serve as an additional assembly and testing partner to us. We expect that this facility will commence production in the second half of 2005.

Material Litigation

On January 30, 2005 we resolved pending patent and trade secret litigation with Taiwan Semiconductor Manufacturing Company ("TSMC"). Under the terms of the settlement the two parties will cross license to each other's patent portfolio through December 2010 and we will pay TSMC US$175 million, payable in installments over six years (US$30 million in each of the first five years and US$25 million in the sixth year). The agreement also provides for the dismissal of all pending legal actions without prejudice between the two companies in the U.S. Federal District Court, the California State Superior Court, the U.S. International Trade Commission, and the Taiwan District Court. In the settlement agreement, TSMC covenants not to sue SMIC for itemized acts of trade secret misappropriation as alleged in the complaints, although the settlement does not grant a license to use any of TSMC's trade secrets. The patent cross license and settlement agreement are terminable upon a breach by SMIC, which may result in the reinstitution of the legal proceedings and acceleration of the outstanding payments under the settlement agreement.

Outlook for 2005

Our strategy for 2005 will remain in line with the business goals that we have held thus far:

-- Capitalize on our early mover advantage to capture semiconductor growth opportunities in China -- Target a diversified global customer base -- Maintain leading edge technology and innovation through internal research and development and strategic alliances and partnerships -- Provide high quality customer service -- Shift product mix to logic wafers while maintaining expertise in DRAM technology

While 2005 looks to be a year of flat growth for the semiconductor industry with demand improving as the year progresses, we will continue to aggressively pursue new customers both globally and domestically by offering them leading edge foundry services. During the last quarter of 2004, we increased our number of domestic clients to account for over 10% of our revenues. Despite what may be a period of industry softness in 2005, we believe that the Greater China region will continue to exhibit strong demand and growth. As a result, we expect to have the Greater China region account for 15% of our revenues by the end of 2005.

We will also continue to expand technology offerings to attract even more global customers. During the first half of 2005, we will expect to see 0.11 micron and 0.10 micron DRAM in commercial production at our 12-inch fab in Beijing. By the second half of 2005, we will expect to use 90nm process technology to manufacture 12-inch logic wafers for a leading U.S. IDM. Meanwhile, we will also be supporting our clients as they migrate to more advanced technologies, with a particular emphasis on our domestic clients as they migrate from 0.35 micron down to 0.18 micron process technology.

We will also continue to consider other strategic alliances and partnerships that will enable us to leverage our unique position in China to maximize shareholder return. We believe that 2005 will be another milestone year for SMIC as we continue to broaden our customer base and expand our technology offerings.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Sales. Sales increased by 166.4% from US$365.8 million for 2003 to US$974.7 million for 2004, primarily as a result of the increase in our manufacturing capacity and our ability to use such capacity to increase sales. The number of wafers we shipped increased by 98.0%, from 476,451 8-inch wafer equivalents to 943,463 8-inch wafer equivalents, between these two periods. The average selling price of the wafers we shipped also increased by 33.5% from US$733 per wafer to US$979 per wafer, while the average selling price of the logic wafers we shipped increased by 19.0% from US$896 per wafer to US$1,066 per wafer. The percentage of wafers shipped that used 0.18 micron and below process technology also increased from 43.6% to 68.5% between these two periods.

Cost of sales and gross profit (loss). Cost of sales increased by 98.6% from US$363.2 million for 2003 to US$721.4 million for 2004. This increase was primarily due to the significant increase in sales volume, manufacturing labor expenses and depreciation. Other factors included an increase in the amount of direct and indirect materials purchased corresponding to the increase in wafers shipped. In addition, deferred stock compensation expenses relating to employees involved in the manufacturing of wafers increased to US$11.6 million in 2004 from US$5.5 million in 2003 primarily due to additional stock options granted and restricted share units awarded to new and existing employees involved in this activity. We amortize the deferred stock compensation expense using the straight-line method over the applicable resting periods, which is typically four years.

We had gross profit of US$253.3 million for 2004 compared to gross profit of US$2.6 million in 2003. Gross margins improved to 26.0% in 2004 from 0.7% in 2003. The increase in gross margins was primarily due to an increase in the average selling price per wafer, a shift in production to more logic and less DRAM wafers, migration towards more advanced and higher margin process technology and a lower average cost per wafer resulting from our ability to leverage fixed costs over a greater number of wafers manufactured.

Operating expenses and loss from operations. Our operating expenses increased by 126.8% from US$75.3 million for 2003 to US$170.9 million for 2004 due to the increase in research and development expenses, general and administrative expenses, amortization of deferred stock compensation and the litigation settlement. Our research and development expenses increased by 143.7% from US$32.1 million for 2003 to US$78.2 million for 2004. This increase in research and development expenses resulted primarily from non- recurring startup engineering costs associated with the ramp-up of Fab 4 and the commencement of commercial production at Fab 7, 90 nanometer research and development activities and an increase in depreciation and amortization expenses. Furthermore, as a part of the settlement with TSMC, we have allocated US$23.2 million of the total settlement amount to litigation settlement costs in 2004. General and administrative expenses increased by 64.9% to US$46.0 million for 2004 from US$27.9 million for 2003, primarily due to an increase in personnel and legal fees. Selling and marketing expenses decreased by 13.9% from US$9.4 million for 2003 to US$8.1 million for 2004, primarily due to a decrease in engineering material costs relating to sales activities. In addition, our deferred stock compensation expenses relating to employees involved in research and development, general and administrative and selling and marketing increased from US$5.9 million to US$15.4 million between these periods primarily due to additional stock options granted and restricted share units awarded to new and existing employees involved in these activities. The Company amortizes the deferred stock compensation expense over the applicable resting periods, which is typically four years.

As a result, our income from operations increased to US$82.4 million in 2004 from a loss of US$72.7 million in 2003. Our operating margin was 8.5% and negative 19.9%, respectively, for these two years.

Other income (expenses). Our other income (expenses) increased 14.3% from US$6.6 million in 2003 to US$7.5 million in 2004. This increase was primarily attributable to the increase in interest income from US$5.6 million in 2003 to US$10.6 million in 2004 and foreign currency exchange gains from US$1.5 million in 2003 to US$8.2 million in 2004. This interest income was primarily derived from bank deposits on the proceeds received from the global offering.

Net income (loss). Due to the factors described above, we had net income of US$89.7 million in 2004 compared to a net loss of US$66.1 million for 2003.

Deemed dividends on preference shares. In 2004, we recorded aggregate deemed dividends on preference shares of US$18.8 million, representing the difference between the sale and conversion price of warrants to purchase Series D convertible preference shares issued in the first quarter of 2004 and their respective fair market values. In 2003, we recorded deemed dividends on preference shares of US$35.2 million, representing the difference between the sale and conversion prices of warrants to purchase Series C convertible preference shares we issued in the third and fourth quarters of 2003 and their respective fair market values. We also recorded deemed dividends on preference shares of US$1.9 million in 2003, representing the difference between the sale and conversion prices of warrants to purchase Series D convertible preference shares we issued in the fourth quarter of 2003 and their respective fair market values. All of these warrants expired unexercised upon the completion of our global offering.

Bad debt provision. We determine our bad debt provision based on our historical experience and the relative aging of receivables. We provide bad debt provision based on the age category of receivables. A fixed percentage of the total amount receivable is applicable to receivables in each past due age category, ranging from 1% for the shortest past due age category to 100% for the longest past due age category. Any receivables deemed non-collectible will be written off against the relevant amount of provision. Our bad debt provision made (reversed) in 2002, 2003, and 2004 amounted to US$0.2 million, US$(0.1 million) and US$1.0 million, respectively. We review, analyze and adjust bad debt provisions on a monthly basis.

CONSOLIDATED STATEMENTS OF OPERATIONS (in US dollars) Year ended December 31, 2004 2003 2002 Sales $974,664,696 $365,823,504 $50,315,345 Cost of sales 709,805,644 357,701,498 103,110,116 Cost of sales - Amortization of deferred stock compensation 11,595,131 5,539,275 2,127,822 Gross profit (loss) 253,263,921 2,582,731 (54,922,593) Operating expenses: Research and development 78,167,336 32,070,123 37,459,380 General and administrative 46,015,039 27,911,791 17,781,998 Selling and marketing 8,129,592 9,446,819 4,371,243 Litigation settlement 23,153,105 - - Amortization of deferred stock compensation* 15,415,947 5,900,239 1,769,105 Total operating expenses 170,881,019 75,328,972 61,381,726 Income (loss) from operations 82,382,902 (72,746,241) (116,304,319) Other income (expense): Interest income 10,587,244 5,615,631 10,980,041 Interest expense (13,697,894) (1,424,740) (176,091) Foreign currency exchange gain 8,217,567 1,522,661 247,407 Others, net 2,441,057 888,189 2,650,049 Total other income, net 7,547,974 6,601,741 13,701,406 Income (loss) before income tax 89,930,876 (66,144,500) (102,602,913) Income tax - current 186,044 - - Net income (loss) 89,744,832 (66,144,500) (102,602,913) Deemed dividends on preference shares 18,839,426 37,116,629 - Income (loss) attributable to holders of ordinary shares $70,905,406 $(103,261,129) $(102,602,913) CONSOLIDATED STATEMENTS OF OPERATIONS (in US dollars) Year ended December 31, 2004 2003 2002 Income (loss) per share, basic $0.01 $(1.14) $(1.27) Income (loss) per share, diluted $0.00 $(1.14) $(1.27) Shares used in calculating basic income (loss) per share 14,199,163,517 90,983,200 80,535,800 Shares used in calculating diluted income (loss) per share 17,934,393,066 90,983,200 80,535,800 * Amortization of deferred stock compensation related to: Research and development $5,138,402 $2,842,775 $794,506 General and administrative 8,023,343 1,793,185 569,419 Selling and marketing 2,254,202 1,264,279 405,180 Total $15,415,947 $5,900,239 $1,769,105 CONSOLIDATED BALANCE SHEETS (in US dollars) December 31, 2004 2003 2002 ASSETS Current assets: Cash and cash equivalents $607,172,570 $445,276,334 $91,864,301 Short-term investments 20,364,184 27,164,603 27,709,258 Accounts receivable, net of allowances of $1,105,165 in 2004, $114,473 in 2003 and $236,851 in 2002 169,188,287 90,538,517 20,110,115 Inventories 144,017,852 69,923,879 39,825,934 Prepaid expense and other current assets 12,842,994 15,387,319 5,557,196 Assets held for sale 1,831,972 32,591,363 - Total current assets 955,417,859 680,882,015 185,066,804 Land use rights, net 39,197,774 41,935,460 49,354,292 Plant and equipment, net 3,311,924,599 1,523,564,055 1,290,909,507 Acquired intangible assets, net 77,735,299 41,120,465 14,747,500 Investments held to maturity - 3,004,724 - TOTAL ASSETS $4,384,275,531 $2,290,506,719 $1,540,078,103 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $364,333,613 $211,762,334 $154,208,515 Accrued expenses and other current liabilities 82,857,551 33,298,915 9,979,342 Short-term borrowings 91,000,000 - 3,624,597 Redeemable convertible promissory note - 15,000,000 - Current portion of long-term debt 191,986,372 - - Note payable to stockholder - 27,018,043 50,000,000 Deposit received from stockholders - 38,351,407 45,842,551 Income tax payable 152,000 - - Total current liabilities 730,329,536 325,430,699 263,655,005 Long-term liabilities: Redeemable convertible promissory note - - 14,204,721 Long-term debt 544,462,074 479,960,575 391,226,808 Total long-term liabilities 544,462,074 479,960,575 405,431,529 Total liabilities 1,274,791,610 805,391,274 669,086,534 December 31, 2004 2003 2002 Commitments (Note 19) Stockholders' equity: Series A convertible preference shares, $0.0004 par value, nil, 1,000,000,000 and 1,000,000,000 shares authorized in 2004, 2003 and 2002, shares issued and outstanding nil in 2004, 954,977,374 in 2003 and 953,750,786 in 2002 - 381,990 381,499 Series A-1 non-convertible preference shares, $0.00001 par value, nil, 1,000,000,000 and 1,000,000,000 shares authorized in 2004, 2003 and 2002, shares issued and outstanding nil in 2004, 219,499,674 in 2003 and 2002 - 2,195 2,195 Series A-2 convertible preference shares, $0.0004 par value, nil, 42,373,000 and 42,373,000 authorized in 2004, 2003 and 2002 shares issued and outstanding and nil in 2004, 42,373,000 in 2003 and 2002 - 16,949 16,949 Series B convertible preference shares, $0.0004 par value, nil, 50,000,000 and 50,000,000 authorized in 2004, 2003 and 2002, shares issued and outstanding nil in 2004, 2,350,000 in 2003 and 2002 - 940 940 Series C convertible preference shares, $0.0004 par value, nil, 215,285,714 and nil authorized in 2004, 2003 and 2002, shares issued and outstanding nil in 2004, 181,718,858 in 2003 and nil in 2002 - 72,688 - Series D convertible preference shares, $0.0004 par value, nil, 122,142,857 and nil authorized in 2004, 2003 and 2002, shares issued and outstanding nil in 2004, 7,142,857 in 2003 and nil in 2002 - 2,857 - Ordinary shares, $0.0004 par value, 50,000,000,000 shares authorized, shares issued and outstanding 18,232,179,139 in 2004, 242,595,000 in 2003 and 241,435,500 in 2002 7,292,872 97,038 96,570 Warrants 32,387 37,839,931 - Additional paid-in capital 3,289,724,885 1,835,820,085 1,139,760,359 Subscription receivable from stockholders - (105,420,031) (107,430,000) Notes receivable from stockholders (391,375) (36,026,073) (36,994,608) Accumulated other comprehensive income 387,776 199,827 30,004 Deferred stock compensation (51,177,675) (40,582,596) (20,843,113) Accumulated deficit (136,384,949) (207,290,355) (104,029,226) Total stockholders' equity 3,109,483,921 1,485,115,445 870,991,569 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,384,275,531 $2,290,506,719 $1,540,078,103 Net current (liabilities) assets $225,088,323 $355,451,316 $(78,588,201) Total assets less current liabilities $3,653,945,995 $1,965,076,020 $1,276,423,098 Preference shares Series A Series A-1 Series A-2 convertible non-convertible shares convertible shares shares Share Amount Share Amount Balance at January 1, 2002 802,463,670 $320,985 219,499,674 $2,195 Issuance of Series A convertible preference shares 99,450,994 39,780 - - Issuance of Series A-2 convertible preference shares - - - - Exercise of employee stock options 30,154,250 12,062 - - Repurchase of restricted shares (818,350) (328) - - Issuance of Series B convertible preference shares - - - - Exercise of Series A convertible preferred options to investors 22,500,222 9,000 - - Collection of subscription receivables from stockholders - - - - Deferred stock compensation, net - - - - Net loss - - - - Foreign currency translation adjustments - - - - Unrealized gain on short-term investments - - - - Balance at December 31, 2002 953,750,786 381,449 219,499,674 2,195 Issuance of warrants to a service provider - - - - Issuance of Series C convertible preference shares and warrants (net of share issuance costs of $800,000) - - - - Issuance of Series C convertible preference share to employees - - - - Issuance of Series D convertible preference share and Series D warrant for license agreements - - - - Exercise of employee stock options 2,467,900 987 - - Repurchases of restricted shares (1,241,312) (496) - - Collection of subscription receivables from stockholders - - - - Deferred stock compensation, net - - - - Deemed dividend on preference shares - - - - Net loss - - - - Foreign currency translation adjustments - - - - Unrealized gain on short-term investments - - - - Balance at December 31, 2003 954,977,374 381,990 219,499,674 2,195 Issuance of Series D convertible preference shares and Series D warrants to Motorola and MCEL - - - - Issuance of Series D preference shares in exchange for software licenses - - - - Issuance of series B convertible preference shares in exchange for intangible assets - - - - Issuance of Series B convertible preference shares to a service provider - - - - Conversion of preference share to ordinary shares upon initial public offering (954,922,624) (381,968) - - Issuance of ordinary shares upon initial public offering (net of issuance cost of US$37,007,406) - - - - Redemption of Series A-1 preference shares - - (219,499,674) (2,195) Shares and warrants issued to a service provider - - - - Issuance of ordinary shares in exchange for equipment - - - - Exercise of stock options - - - - Repurchase of restricted ordinary shares - - - - Repurchase of restricted preference shares (54,750) (22) - - Collection of subscription receivable from stockholders - - - - Collection of note receivables from employees - - - - Deferred stock compensation, net - - - - Deemed dividend on preference shares - - - - Net income - - - - Foreign currency translation adjustments - - - - Unrealized gain on investments - - - - Balance at December 31, 2004 - $- - $- Preference shares Series A Series B Series C convertible convertible shares convertible shares shares Share Amount Share Amount Balance at January 1, 2002 - $- - $- Issuance of Series A convertible preference shares - - - - Issuance of Series A-2 convertible preference shares 42,373,000 16,949 - - Exercise of employee stock options - - - - Repurchase of restricted shares - - - - Issuance of Series B convertible preference shares - - 2,350,000 940 Exercise of Series A convertible preferred options to investors - - - - Collection of subscription receivables from stockholders - - - - Deferred stock compensation, net - - - - Net loss - - - - Foreign currency translation adjustments - - - - Unrealized gain on short-term investments - - - - Balance at December 31, 2002 42,373,000 16,949 2,350,000 940 Issuance of warrants to a service provider - - - - Issuance of Series C convertible preference shares and warrants (net of share issuance costs of $800,000) - - - - Issuance of Series C convertible preference share to employees - - - - Issuance of Series D convertible preference share and Series D warrant for license agreements - - - - Exercise of employee stock options - - - - Repurchases of restricted shares - - - - Collection of subscription receivables from stockholders - - - - Deferred stock compensation, net - - - - Deemed dividend on preference shares - - - - Net loss - - - - Foreign currency translation adjustments - - - - Unrealized gain on short-term investments - - - - Balance at December 31, 2003 42,373,000 16,949 2,350,000 940 Issuance of Series D convertible preference shares and Series D warrants to Motorola and MCEL - - - - Issuance of Series D preference shares in exchange for software licenses - - - - Issuance of series B convertible preference shares in exchange for intangible assets - - 750,000 300 Issuance of Series B convertible preference shares to a service provider - - 12,343 5 Conversion of preference share to ordinary shares upon initial public offering (42,373,000) (16,949) (3,112,343) (1,245) Issuance of ordinary shares upon initial public offering (net of issuance cost of US$37,007,406) - - - - Redemption of Series A-1 preference shares - - - - Shares and warrants issued to a service provider - - - - Issuance of ordinary shares in exchange for equipment - - - - Exercise of stock options - - - - Repurchase of restricted ordinary shares - - - - Repurchase of restricted preference shares - - - - Collection of subscription receivable from stockholders - - - - Collection of note receivables from employees - - - - Deferred stock compensation, net - - - - Deemed dividend on preference shares - - - - Net income - - - - Foreign currency translation adjustments - - - - Unrealized gain on investments - - - - Balance at December 31, 2004 - $- - $-

FIRST ADD -- TABULAR MATERIAL -- TO FOLLOW