SHENZHEN, China, Aug 6, 2008—Cogo Group, Inc. (NASDAQ: COGO), a China-based provider of customized module design solutions as well as engineering and technology services to domestic and international technology product companies, today announced unaudited financial results for its second quarter 2008. The Company reported quarterly revenue of $68.2 million, up 34.9% year-over-year, compared to $50.6 million reported in the second quarter of 2007. The Company continued to experience growth across all end markets - mobile handset, telecommunication equipment, and digital media, which it believes are among the fastest growing markets in China.

Net income for the second quarter of 2008 was $6.5 million, up 27.2% from $5.1 million in the same period last year, with Non-GAAP net income up 36.1% over the same period last year. Earnings per common share (“EPS”) Diluted on a U.S. GAAP basis were $0.16, and Non-GAAP EPS Diluted (which excludes share-based compensation expenses and acquisition related costs including amortization of intangible assets and recognized deferred taxation) was $0.21, up 31.3% from the second quarter of 2007.

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

2007(1)  Percent Change

  Consolidated Revenue            $68,218         $50,554         34.9%
  Cost of Sales                   $55,946         $40,785         37.2%
  Gross Profit                    $12,272          $9,769         25.6%
  Net Operating Expenses           $6,423          $4,778         34.4%
  Income from Operations           $5,849          $4,991         17.2%
  Net Income(2)                    $6,466          $5,082         27.2%
  EPS Diluted                       $0.16           $0.13         23.1%
  Non-GAAP EPS Diluted              $0.21           $0.16         31.3%

  (1) The US dollar amounts are calculated based on the conversion rate of
      US $1 to RMB 6.8591 as of June 30, 2008 and US $ 1 to RMB 7.6120 as of
      June 30, 2007.
  (2) Included in the Q2 2008 net income was an amount of $1.3 million for a
      share-based compensation expense in accordance with Statement of
      Financial Accounting Standards of No. 123 (revised 2004), Share-Based
      Payment ("SFAS 123R") and $0.6 million acquisition related costs
      including amortization of purchased intangible assets and recognized
      deferred taxation. Non-GAAP net income excluding the effects of
      share-based compensation expense and acquisition related costs was
      $8.4 million or a $0.21 Non-GAAP EPS Diluted in Q2 2008.

The Company signed an agreement to acquire Long Rise, a China-based company specializing in low-cost CDMA mobile handset design solutions with a customer base of over 300 small and mid-sized enterprises. This acquisition is expected to extend Cogo’s product offerings to address the demands of the rapidly expanding CDMA market, stimulated by China Telecom’s entrance into the CDMA market in the second half of 2008 following the restructuring of China’s telecom industry.

Jeffrey Kang, CEO of Cogo Group, Inc. commented that due to China's tightened monetary policy and a few natural disasters, China’s end-market environment in Q2 was the worst Cogo had faced in the past few years.

“We believe we have outperformed expectations to deliver over 30% growth in a tough end-market environment. While this tightening has reduced demand for our mobile handsets business, our business driven by infrastructure investment, such as telecom and most carrier-related digital media, has been solid and is still growing as expected. In addition, Cogo's growing international handset business has maintained unit shipment growth, helping to offset domestic weakness. However, profit margins are pressured because the product mix favors low-end handsets in Q2,” Mr Kang said.

“Although the handset business seasonally picks up from July, management still has concerns about end-market growth in the second half of 2008. Assuming that the current environment will remain unchanged, Cogo’s management has decided to adopt a defensive business strategy to focus on maintaining and expanding market share, increasing revenue growth, and cutting operating expenses to improve operating leverage, in order to grow in a slowing economic environment.

“Cogo has also strategically lowered pricing -- largely on mobile handsets and partially on a few digital media businesses such as GPS and telecom, with most digital media prices remaining intact. This will enlarge Cogo’s Total Address Market, for example, the low end phone market that we strategically skipped in the past. Management believes these are the right defensive moves to grow business in a slowing economic environment.

“This strategy will ensure Cogo is well-positioned for growth next year even if the end market continues to slow down. But if China's end market environment improves next year after the softening of macro policy and there is a strong rebound of domestic consumer spending, management will adjust the Company's growth strategy accordingly to either further expand revenue and profit growth by keeping the current margin structure, or reassess margin expansion as a priority.

“Management expects Q3 to be a transitional period, and that the handset business will be back on track from Q4 and we will experience solid growth in 2009. Our digital media and telecom businesses have not been affected by the domestic slowdown and continue to perform strongly. Management does not view the current weakness in China as a significant issue, but an opportunity for Cogo to consolidate and enhance its position in the industry to pave the way for long term growth,” Mr Kang concluded.

Financial Results

Revenue for the second quarter was $68.2 million, an increase of 34.9% compared to $50.6 million reported for the second quarter of last year. The revenue breakdown is as follows: $23.5 million, or 34.4% of total sales for mobile handsets, representing a 14.7% increase year-over-year; $19.9 million, or 29.2% of total sales for telecommunications equipment, representing a 28.0% increase year-over-year, and $21.7 million, or 31.8% of total sales for digital media products, representing a significant increase of 69.6% year-over-year. The Company’s service business contributed $0.6 million in revenue for the second quarter and accounted for approximately 0.9% of total sales, representing a decrease of 65.8% year-over-year. Also during the quarter, the Company generated revenue of $2.5 million from solution sales relating to the Industrial Business, which includes industrial solutions targeted at the Green Energy and Auto-electronics sectors, amounting to 3.7% of total revenue.

Cost of sales, which includes the aggregate purchase of components from suppliers and the direct cost of services, was $55.9 million compared to $40.8 million, representing an increase of 37.2% year-over-year. Gross profit for the second quarter was $12.3 million, up 25.6% compared to the $9.8 million during the second quarter of last year. Gross margin for the second quarter decreased slightly to 18.0% compared to 19.3% reported during the second quarter of 2007 due to the unfavorable product mix reflecting growing demands in the lower end handset market which operates with lower margins.

Selling, general and administrative expenses totaled $4.9 million, up 44.3%, compared to $3.4 million reported for the second quarter of last year. The increase was attributable to higher staff costs due to an increase in share-based compensation expenses, an additional bad debt provision, amortization of intangible assets and other sales-related expenses that support our ongoing business. Research and development (R&D) expenses increased by 14.3% to $1.6 million compared to $1.4 million in the second quarter of 2007. The increase was attributable to a rise in R&D personnel related costs and additional expenditure for new market development. Capital expenditure was $0.2 million compared to $0.4 million during the same quarter in the prior year. The drop was attributable to a decrease in the purchase of properties and equipment. Depreciation was $0.4 million compared to $0.1 million reported in the second quarter of 2007.

Income from operations was $5.9 million, up 17.2% as compared to $5.0 million for the second quarter of 2007. Operating margin for the second quarter was 8.6% versus 9.9% for the second quarter of 2007. Excluding the effects of share-based compensation and acquisition related costs including amortization of purchased intangible assets, operating margin would have been 11.9% for the second quarter of 2008, compared to 12.0% for the same period in 2007. The effective tax rate for the second quarter of 2008 was 4.7%, compared to 8.1% for the same period in 2007. The decrease in effective tax rate was primarily due to the reduction of the Hong Kong income tax rate from 17.5% to 16.5%, which resulted in a decrease in recognition of deferred taxation of $195 thousand for the quarter ended June 30, 2008. No minority interests’ share of income was reported as compared to a minority interests’ share of income of $0.24 million over the same period in 2007.

Net income for the second quarter was $6.5 million or EPS Diluted of $0.16 on a U.S. GAAP basis, compared to net income of $5.1 million, or EPS Diluted of $0.13 in the second quarter of 2007. Included in net income for the second quarter was an amount of $1.3 million for share-based compensation expenses and $0.6 million for acquisition related costs including amortization of purchased intangible assets and recognized deferred taxation. Excluding the stock-based compensation expense and acquisition related costs including amortization of purchased intangible assets and recognized deferred taxation, the Company would have reported a net income of $8.4 million or $0.21 Non-GAAP EPS Diluted for the second quarter. The weighted average number of shares used in the calculation of EPS Diluted was 40.1 million compared to 38.0 million in the second quarter of 2007.

For the six month period ended June 30, 2008, the Company reported revenue of $129.7 million, an increase of 35.5% compared to $95.8 million reported during the first half of 2007. Gross profit was $24.3 million, an increase of 31.9% compared to $18.4 million reported during the first half of 2007. Gross margin was 18.7% of sales, compared to a gross margin of 19.2% for the same period last year. Net operating expenses were $13.6 million, an increase of 46.0% as compared to $9.3 million for the same period last year. Income from operations was $10.7 million, an increase of 17.4% from the $9.1 million reported during the prior year period. Non-GAAP operating margins, excluding share-based compensation expense and amortization, were 11.9%, down a slight 0.2% as compared to the same period last year, as a result of the lower gross margin. The Company had an effective tax rate of 6.3% compared to 8.6% during the prior year during the same period. The decrease in effective tax rate was primarily due to the reduction of the Hong Kong income tax rate from 17.5% to 16.5%, which resulted in a decrease in recognition of deferred taxation of $195 thousand for the six months ended June 30, 2008. There is no minority interests’ income during the six month period, compared to $0.3 million in the first half of 2007. Net income for the half-year period was up 34.4% at $11.9 million, or $0.30 per fully diluted share compared to $8.8 million or $0.24 per fully diluted share for the same period last year. During the first half of 2008, the Company incurred $3.0 million in non cash share-based compensation compared to $2.1 million in the same period last year.

Balance Sheet

As of June 30, 2008, the Company completed the quarter with cash of $122.5 million, down slightly from $123.0 million at the end of the March 31, 2008, attributable to the payment of an acquisition consideration and a stock repurchasing program. Inventory decreased slightly from $17.8 million at the end of 2007 to $15.2 million as of June 30, 2008. The Company continues to be in a strong financial position with a current ratio of 5.5 to 1. Inventory turnover has shortened to 25 days. Receivables were collected in an average of 98 days. Operating cash flows for the quarter ended June 30, 2008 were positive at $4.8 million. Intangible assets decreased slightly to $19.8 million at the end of June 30, 2008 as compared to $20.3 million as of March 31, 2008. Goodwill was $14.5 million at the end of June 30, 2008. Shareholders’ equity was $217.5 million as of June 30, 2008, a slight increase from $210.4 million as of March 31, 2008.

Business Outlook

Based on current visibility, management provides Q3 guidance of $70-74 million in revenue and $0.14 Non-GAAP EPS Diluted, and expects full year revenue of $280-290 million with Non-GAAP EPS Diluted estimated at $0.72.

Mr Kang commented, “Cogo has been able to create a pattern of sustainable and solid growth in the past five years because of our ability to identify growing industries, expand our customer base and generate repeat revenue from each customer. In Q1 2008, Cogo had 1,089 active customers and ARPU (Average Revenue Per User) was $55 thousand. In Q2 2008, our customer base increased 6.2% to 1,156 active customers, generating ARPU of $59 thousand, up 6.8% quarter-over-quarter. We believe providing long term, robust growth is more valuable than having one or two high performing quarters, and we are optimistic about maintaining our consistent growth pattern. By strategically decreasing the weight of the mobile business while continuing to expand our customer base and increase ARPU, particularly in the new high growth industry, management is committed to driving sustainable high growth and providing significant returns to our shareholders. With our in-depth knowledge of the industry and strategic market insights, I am confident that management can implement sound strategies quickly that address any challenges we face. ”

Teleconference Information
2008 Q2 Earnings Conference Call
Date/Time
   August 6, 2008 (Wed) @ 4:30 PM (ET)
Conference Call:
   US/ Canada Toll-Free: 1-800-762-8779
   International: +1 (480) 629 9041
Replay:
   US/ Canada Toll-Free: 1-800-406-7325 (Passcode: 3868113)
   International: +1 (480) 590 3030 (Passcode: 3868113)

About Cogo Group, Inc.:
Cogo Group, Inc. (NASDAQ:COGO) is a leading provider of customized module and subsystem design solutions in China. The Company believes it acts as a proxy to China's technology industry as it works with virtually all the major ODMs and OEMs in China. Cogo leverages these relationships and combines their IP to create designs that Cogo then sells to electronic manufacturers. These designs allow manufacturers to reduce their time to market for new products and ultimately increase sales. Cogo Group focuses on the mobile handset, telecom equipment and digital media end-markets for their customized design modules while also offering business and engineering services to their large telecom equipment vendor customers. Over the last twelve years, Cogo has grown its customer list to include more than 200 of the largest and most well known manufacturers across the mobile handset, telecom equipment and consumer markets in China, covering both multinational Chinese subsidiaries and Chinese domestic companies.

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 proposed discussions related to our business or growth strategy such as growth in digital media, mobile handset and telecom businesses, such as business with ZTE, as well as our potential acquisitions which are subject to change. Such information is based upon expectations of our management that were reasonable when made, but may prove to be incorrect. All 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. For further descriptions of 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, including our most recent Forms S-1 and/or S-3. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at www.sec.gov.

About Non-GAAP Financial Measures:
To supplement Cogo's consolidated financial results presented in accordance with GAAP, Cogo uses the following measures defined as Non-GAAP financial measures by the SEC: 1) Non-GAAP net income, which is net income excluding share-based compensation expenses and acquisition related costs such as amortization of purchased intangible assets, 2) Non-GAAP basic and diluted earnings per share, which is basic and diluted earnings per share excluding share-based compensation expenses and acquisition related costs such as amortization of purchased intangible assets, 3) Non-GAAP income from operation, which is income from operation excluding share-based compensation expenses and acquisition related costs such as amortization of purchased intangible assets and 4) Non-GAAP operating margin, which is operating margin excluding share-based compensation expenses and acquisition related costs such as amortization of purchased intangible assets. The presentation of these Non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these Non-GAAP financial measures, please see the table captioned “Reconciliations of Non-GAAP measures to the most comparable GAAP measures” set forth at the end of this release.

Cogo believes that these Non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses and acquisition related costs such as amortization of purchased intangible assets that may not be indicative of its operating performance from a cash perspective. Cogo believes that both management and investors benefit from referring to these Non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These Non-GAAP financial measures also facilitate management's internal comparisons to Cogo's historical performance and liquidity. Cogo computes its Non-GAAP financial measures using the same consistent method from quarter to quarter. Cogo believes these non- GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using Non-GAAP net income, Non-GAAP basic and diluted earnings per share, Non-GAAP income from operation and Non-GAAP operating margin is that these Non-GAAP measures exclude share-based compensation charge and acquisition related costs such as amortization of purchased intangible assets that have been and will continue to be for the foreseeable future a recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each Non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.

  Tables Attached



  COGO GROUP, INC. and SUBSIDIARIES
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
  FOR THE QUARTERS ENDED JUNE 30, 2008 AND 2007
  (in thousands, except share data)

                               Three Months    Three Months  Three Months
                                   Ended           Ended         Ended
                                June 30, 2008 June 30, 2008  June 30, 2007
                                   $'000          RMB'000       RMB'000

  Net Revenue
    Product sales                  67,632         463,897       371,794
    Services revenue                  586           4,020        13,023
                                   68,218         467,917       384,817
  Cost of sales
    Cost of goods sold            (55,579)       (381,223)     (301,439)
    Cost of services                 (367)         (2,517)       (9,014)
                                  (55,946)       (383,740)     (310,453)

  Gross profit                     12,272          84,177        74,364
  Selling, general and
   administrative Expenses         (4,864)        (33,364)      (26,209)
  Research and development
   expenses                        (1,575)        (10,800)      (10,487)
  Other operating (expenses)
   /income, net                        16             108           326
  Income from operations            5,849          40,121        37,994
  Interest expense                    (85)           (587)         (984)
  Interest income                   1,019           6,990         7,049
  Income before income taxes
   and minority interests           6,783          46,524        44,059
  Income tax expense                 (317)         (2,173)       (3,580)
  Income before minority
   interests                        6,466          44,351        40,479
  Minority interests                    -               -        (1,794)
  Net income                        6,466          44,351        38,685

                                        $             RMB           RMB
  Earnings per share
  - Basic                            0.17            1.14          1.05
  - Diluted                          0.16            1.11          1.02

  Weighted average number of
   common shares outstanding
  - Basic                                      39,035,887    36,772,864
  - Diluted                                    40,094,428    38,041,918



  COGO GROUP, INC. and SUBSIDIARIES
  UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
  AS OF JUNE 30, 2008 AND DECEMBER 31, 2007
  (in thousands, except share data)

                                  June 30,       June 30,     December 31,
                                    2008           2008           2007
                                   $'000          RMB'000       RMB'000

  Assets
  Current assets:
    Cash                          122,535         840,482       919,650
    Pledged bank deposits           7,419          50,885        51,603
    Accounts receivable, net
     of allowance for doubtful
     accounts                      73,229         502,288       418,329
    Bills receivable                2,437          16,716        35,300
    Inventories                    15,214         104,351       129,892
    Prepaid expenses and other
     receivables                    2,965          20,339        18,306
  Total current assets            223,799       1,535,061     1,573,080

  Property and equipment, net       2,825          19,379        17,848
  Intangible assets, net           19,792         135,754       148,659
  Investment in an affiliated
   company                             61             416           416
  Goodwill                         14,502          99,474        99,474
  Other assets                        143             980         1,063
  Total Assets                    261,122       1,791,064     1,840,540

  Liabilities and stockholders'
   equity
  Current liabilities:
    Trade accounts payable         25,178         172,699       174,628
    Bank borrowings                     -               -         9,080
    Amounts due to related
     parties                            -               -         1,403
    Income taxes payable            1,474          10,110         6,957
    Accrued expenses and other
     liabilities                   13,723          94,124       169,046
    Deferred income taxes             575           3,944         4,071
  Total current liabilities        40,950         280,877       365,185
  Deferred income taxes             2,667          18,293        21,487
  Total liabilities                43,617         299,170       386,672

  Stockholders' equity
    Common stock Par value:
     USD 0.01 Authorized:
     200,000,000 Shares;
     Issued and outstanding:
     38,616,971 shares in 2008
     and 38,496,167 shares in 2007    460           3,158         3,150
    Additional paid-in capital    163,223       1,119,569     1,085,459
    Retained earnings              74,312         509,711       428,333
    Accumulated other
     comprehensive loss           (15,326)       (105,122)      (63,074)
  Total stockholders' equity      222,669       1,527,316     1,453,868
    Less cost of common stock
     in treasury, 405,000 shares
     in 2008                        5,164          35,422             -

  Total liabilities and
   stockholders' equity           261,122       1,791,064     1,840,540



  COGO GROUP, INC. and SUBSIDIARIES
  RECONCILIATION OF NON-GAAP MEASURES TO THE MOST COMPARABLE GAAP MEASURES
  FOR THE QUARTERS ENDED MARCH 31, 2008 AND 2007
  (in thousands, except share data)

                                                  Three Months Ended June 30
                                                      2008           2007
                                                     $'000          $'000

  Net Income
    GAAP net income                                  6,466          5,082
    Share-based compensation expense                 1,297            833
    Acquisition related costs - amortization
     of purchased intangible assets and recognized
     deferred taxation                                 605            233
    Non-GAAP net income                              8,368          6,148

  Income from operation
    GAAP income from operations                      5,849          4,991
    Share-based compensation expense                 1,297            833
    Acquisition related costs - amortization of
     purchased intangible assets                       941            233
    Non-GAAP income from operation                   8,087          6,057

  Operating Margin
    GAAP operating margin                              8.6%           9.9%
    Non-GAAP operating margin                         11.9%          12.0%

  Earnings per share                                    $              $
    GAAP net income per common share - Basic          0.17           0.14
    GAAP net income per common share - Diluted        0.16           0.13

    Non-GAAP net income per common share - Basic      0.21           0.17
    Non-GAAP net income per common share - Diluted    0.21           0.16

  Weighted average number of common shares
   outstanding
    Non-GAAP net income per common share
     - Basic                                    39,035,887     36,772,864
    Non-GAAP net income per common share
     - Diluted                                  40,094,428     38,041,918