Operator: Good afternoon ladies and gentlemen. Thank you for standing by and welcome to the Cogo Group, Inc. 2009 results conference call. During today’s presentation, all parties will be in a listen only mode. Following the presentation, the conference will be open for questions. If you have a question, please press * follow by the 1 on your touch tone phone. Please press *0 for operator assistant at anytime. If you are using speaker equipment, it may necessary to pick up your handset before making your selection. This call is being recorded today, Thursday the 6th August, 2009. I would like to turn the floor to Will Davis. Please go ahead sir.

Will Davis: Thank you and good afternoon to everyone. My name is Will Davis, and I'd like to thank you all for joining us today to participate in Cogo's Second Quarter 2009 Earnings Conference Call.

After the market close today, Cogo issued a press release reporting final unaudited financial results for the quarter ended June 30, 2009. This release can be accessed in the investor relations section of Cogo's website at www.cogo.com.cn and on most other financial websites.

The discussion today will be hosted by Jeffrey Kang, Chairman and CEO, who will discuss the company’s business operations; Frank Zheng, our CFO, who will report the company’s financials; and Will Davis, Chief Marketing Officer will discuss guidance.

Before we begin, I'd like to remind everyone that the call today may contain forward-looking statements regarding future events and the financial performance of the company. We wish to caution you that such statements are just predictions, and actual results may differ materially as a result of the risks and uncertainties inherent in the company's business. We refer you to documents that the company files periodically with the SEC, specifically the most recently filed Form 10-K, as well as the Safe Harbor statement made in [today’s] press release. These documents contain important risk factors that could cause actual results to differ materially from those contained in the company's current projections. Cogo assumes no obligation to revise the forward-looking information contained in today's call.

At this time, I'd like to turn the call over to Jeffrey. Jeffrey, the floor is yours. Thank you.

Jeffrey Kang: Thank you, Will, and thanks to everyone for joining our earnings call. During the second quarter of 2009, Cogo posted revenue of $73.6 million in US dollars, up 7.9% year-over-year and up 16.3% sequentially. Our Non-GAAP EPS Diluted was 15 cents, with gross margin of 14.3% and Non-GAAP operating margin of 7.7%. We continue to target gross margins of 15% and Non-GAAP operating margins of 10%.

Cogo’s revenue breakdown in the second quarter is as follows:

• Mobile handsets comprised 32% of total revenue, showing a sales increase of 0.4% year-over-year, an increase of 8% quarter-over-quarter.

• Digital media made up about 30% of total revenue, representing a sales increase of 0.5% year-over-year and an increase of 23% quarter-over-quarter.

• Telecom infrastructure represented 25% of total revenue, showing a sales decrease of 7% year–over-year and an increase of 15% quarter-over-quarter.

• Industrial business represented almost 12% of total business. This segment grew about 242% year over year and increased about 25% quarter over quarter.

• Service business represented about 1.5% of total revenue, with revenue increasing about 83% year-over-year and 57% quarter-over-quarter.

In the second quarter of 2009, Cogo had 1,284 active customers, up 3% from the previous quarter and up 11% from the prior year period, with more than 90% repeating customers. Average Revenue Per User (“ARPU”) in the second quarter was $57,000, down 3% from the previous year period and up 13% sequentially.

Overall, we are very pleased with Cogo’s business results in the second quarter, particularly given the continued challenging global economic environment. Our reported revenue figure of $73.6 million exceeded our original guidance and we made sequential progress in both gross margins and operating margins. We feel strongly that one of our competitive advantages is our platform service business model that works with about 1,000 small and medium enterprises and our relationships with these enterprises have proven to be very sticky in the products and services we provide. During late 2008 and earlier 2009, Cogo was concerned about the viability of some of our small and medium enterprise customers.

In retrospect, we were probably too conservative in attempting to manage our business and working capital risk for these enterprises; in actuality, many of these enterprises thrived and have emerged even stronger with share gains both domestically and internationally by having a time to market advantage and better price performance. Therefore, since we feel that the worst of the economic difficulties have passed in China and we believe Cogo should move more aggressively to pursue growth in the second half of 2009 and into 2010. Given these prospective, we are temporarily using working capital to fund these opportunities, noting that we plan to see free cash flow return once projects are completed. We believe that our strong capital structure gives us flexibility that we believe our competition cannot match and we believe now is the time to stay aggressive in pursuing opportunities. It is important for me to note that cash flow [generation] has been a clear focus for me since I founded the company and this has not and will not change.

I would like to make a few brief comments about my thoughts on the Chinese economic situation. While we are not immune to the current global economic conditions, we are encouraged by the Chinese government’s monetary and fiscal policy to stimulate demand and our optimism on this front has only grown since our last conference call in May. We continue to believe that China’s economic growth will exceed that of most other developed markets in 2009 and into 2010.

Additionally, we are benefitting from a number of tailwinds that we believe put us in a unique position to grow our revenue in 2009 and 2010. These include China 3G, the addition of more handset features and applications, the growth of our export business, and opportunities in our industrial segment. Let me talk a little bit more about each of these areas.

We saw an improvement in handset demand sequentially in the second quarter of 2009, with our revenue growing about 8% from the first quarter, essentially in line with our internal projections. Most of the handset component shortages that we saw in the first quarter have disappeared and we believe that overall, the inventory in the foodchain is in rough equilibrium. We still saw a NOR flash shortage for parts of the second quarter. We expect our handset demand to grow sequentially in the third quarter of 2009. We continue to benefit [from] several drivers within the handset business, including the continued ramp of CDMA handsets at China Telecom and second half seasonality. Looking out, we anticipate several handset drivers to become material at some point in 2010, including CMMB (a version of mobile TV prevalent in China), the motion sensor product used in high end wireless devices with gaming functionality and the ramp of TD-SCDMA at China Mobile. However, our visibility to a significant ramp of TD-SCDMA handsets is currently limited and a material ramp up could be slightly delayed from our original expectations. In our view, the ramp of the CMMB is closely tied to the ramp of TD-SCDMA handsets.

Our telecom business grew 15% sequentially, a strong showing following a seasonally weak March quarter. We expect it to show another strong sequential growth in the third quarter. Note that we began benefitting from China’s 3G network expansion well before the official announcement in January that 3G licenses would be available. Additionally, we participate in optical, wireline and connectivity businesses, so our business is tied to much more than the rollout of 3G. We expect operators to go through periods of digestion with 3G equipment; this is not a new viewpoint. However, we expect 3G builds in China to remain material for many quarters to come.

Relationships with Huawei, Huawei-3 Com, ZTE and Alcatel Lucent should continue to benefit Cogo as they are all likely share gainers in the Chinese wireless market. Additionally, Cogo benefits from the continued rapid international telecom growth of Huawei and ZTE.

Our Industrial business grew over 240% year over year and we continue to believe that this segment should be our fastest growing segment in the short and medium terms. The first quarter of 2008 was the first quarter that this was a reportable segment and now it is around 12% of sales. We notice significant contract activities, but note that there are often long sales cycles and lead times for many of these opportunities given that they are largely new markets. Currently, Cogo is an active participant in the rapid growth of both the domestic railway system and the modernization of China’s electrical grid. We also see tremendous opportunities over time as China upgrades its electrical meter system to a “smart meter” system. Our major component partners in this industrial segment are leading global semiconductor players like Freescale, Atmel, Maxim, Panasonic. Longer term, we see potential in the automotive, cleantech, security and medical sectors. While some of our end market customers and the technology utilized in our industrial segment are different from those in our core segments, the business model is exactly the same: Cogo is a gateway for component suppliers wanting to do business in China, and we speed time to market for our customers.

The Mega Smart deal closed late in the second quarter as expected and we expect to record fairly small amounts of revenue in the third quarter. We have seen an encouraging amount of contract activities and we believe that the integration is going as planned. Overall, we are excited about the prospects of quickly integrating the sales and engineering talent to the overall Cogo platform. We believe that this transaction will provide a cost efficient way to quickly broaden our exposure to several rapidly growing Industrial verticals. However, we note that sales cycles can often be lengthy and nailing down the exact timing of revenue recognition can often be difficult. Clearly, though, we are very excited for the growth prospects of the industrial applications market going into 2010 and beyond.

Now that we have closed the Mega Smart deal, we are consistently reviewing other potential targets given our cash position. We continue to view M&A as a critical part of Cogo’s long-term growth strategy and diversification into new vertical segments. However, it is just as important to ensure that any acquisition be rightful fit for Cogo.

In an effort to streamline our organization and better focus our resources, we are going to merge our digital media and handset businesses into one reportable segment starting in the third quarter of 2009. While we understand the desire for more transparency, we believe that business reasons dictate this decision. Nearly all our top handset customers are working extensively on new converged media products, including the GPS devices, E-books, etc. and this is blurring the difference between these reportable segments. Our motion sensor product is another example of this. It can be used in both gaming and high end mobile devices. Over time it will probably become universal across mid and high end mobile devices. As an example, it will be impossible for us to tell in certain situations whether motion sensors will be used in GPS devices or a more wireless focused mobile TV devices. Over time, we expect that scenarios like this will only naturally increase and make it more difficult to distinguish between digital media and handset revenue.

With that, I would turn the call to Will to discuss our guidance. Will, the floor is yours.

Will Davis: Thank you Jeffrey. Good afternoon everyone, and thank you for joining our call. In the third quarter of 2009, we expect that our revenue will be in the range of $79-80 million US dollars and non-GAAP EPS in the range of 16-17 cents. We expect gross margins to remain roughly stable from the second quarter, in the range of 14%, and we anticipate good opex discipline, given current market conditions, while staying flexible to pursue new business opportunities where appropriate.

As with last quarter, we are not providing specific annual guidance for Cogo in 2009. While we continue to have good visibility over most of our end markets for the next quarter, we note that the global economic situation makes a full-year 2009 predictions more difficult. Nevertheless, given our current visibility and some tailwinds we remain optimistic about our revenue growth potential heading into the back half of 2009 and 2010. We expect to continue to broaden our customer base and see opportunities to gain share versus some weakened competitions. Additionally, we expect to continue to add new component suppliers in 2009, while also enhancing our status with current suppliers such as Broadcom, Freescale and Maxim. We plan to record a small amount of revenue from the Mega Smart deal in the third quarter of 2009- following a close late in the second quarter.

Here are some specific guidance items to help in your modeling for the third quarter of 2009:

• Non-GAAP Operating expenses for R&D and SG&A in the third quarter should be approximately $4.7 million, split approximately 25% for R&D and 75% for SG&A. As indicated, we maintain our longer term gross and operating margins targets of 15% and 10%, respectively.

• Interest income in the third quarter is estimated to be around $300,000 and we would expect that to remain roughly constant for the rest of the year. We expect to continue to be affected by these lowered interest rate environments and we do not believe it is prudent to alter our current cash strategy to pursue higher yields.

• We continue to estimate our Non-GAAP effective tax rate to be around 8% in 2009. In the third quarter, stock compensation is estimated to be around $2 million, which will likely be split evenly between R&D and SG&A. Acquisition related costs, including amortization and impairment of intangible assets, will be approximately $2 million.

Other than those items noted above, there are no significant differences between GAAP and Non-GAAP results. With that, I would like to turn the call over to Mr. Frank Zheng, our Chief Financial Officer, to review our unaudited balance sheet and cash flow.

Frank Zheng: Thank you, Will. Good afternoon everyone. For clarity, all the figures I’m discussing here, unless otherwise noted, are in US dollars. Now, let me review the line items from [second] quarter.

Since Jeffrey highlighted the main points of the P&L statement, I will focus on the balance sheet and cash flow. Cogo continues to have a very healthy balance sheet, with around $3.15 a share in cash. Out total cash position was around $118 million (or about $101 million in cash and $17 million in pledged bank deposits) as of June 30, 2009, down about $8 million sequentially, largely due to working capital requirements. The Company had bank borrowings of about $4.4 million as of June 30, 2009 for working capital purposes. We used bank facilities because the borrowing cost was very low, just about 2 to 2.5% per annum, which had been off-set by our RMB interest income.

As we mentioned earlier in the call, we are leveraging our strong balance sheet through our inventory and accounts receivable to target new opportunities as we head into the back half of 2009 through 2010. We expect our cash flow will improve over time and we’ll remain very focused on this aspect of our business. The Company continues to be in a strong financial position with a current ratio of [4.0] to 1. Inventory turnover was 31 days versus 29 days in the first quarter of 2009. Accounts receivable were collected in an average of 96 days versus 93 days sequentially. Accounts payable period [lengthened] to 26 days from 20 days sequentially. Net cash used in operating activities for the six months ended June 30, 2009 was $2.4 million. Total equity was about $216 million as of June 30, 2009, increased 2.3% from $211 million as of March 31, 2009.

We did not buy any stock back in the second quarter and will continue to view buying back stock on a strategic basis to be an important element of our use of cash going forward.

This concludes my remarks. Thank you everyone for joining the call to discuss our 2009 second quarter unaudited results. At this time let’s turn the call to the operator to open up the floor for further questions. We will look to end this call around 5:30. Operator?

Operator: Thank you, sir. We will now begin the question and answer session. As a reminder, if you do have a question please press the * followed by the 1 on your touchtone phone. If you decide you’d like to withdraw your question please press the * followed by the 2. If you are using speaker equipment, you will need to lift up your handset before making your selection. And our first question comes from the line of Mike Walkley with Piper Jaffray. Please go ahead.

Mike Walkley: Great. Thank you very much. I’m gonna start the question on the industrial opportunity. When you talk about the longer sales cycle, including in may be some push out of revenue and may be you can touch on if you think this business will still be in the 15% of sales and finally help us to think about the gross margin of this business relative to your more mature business segment.

Jeffrey Kang: Well, let me answer this question. We are still optimistic about the 15% of industrial business in the second half of this year. Because it is a relatively new market to our business, we feel the cycle of industrial business [will be] slightly longer than other segments of our business, like mobile, digital media or telecom. That’s the nature of this business. For this business right now, I think most of our growth is actually coming from this segment, so are still quite optimistic about the growth from this business but at the same time, we believe the gross margin of this business is still higher than our average gross margin. That’s why we don’t expect this business to become mature in the next 1 or 2 years. For us, we will have a long way to go. May be in the next 5 years, we are going to see growth from this segment.

Mike Walkley: Great. Thanks for clarifying that. And then Jeffrey, just another follow on the clarification question. In the call you mentioned that CMMB was closely tied to the TD and you said that it might be launched later than you expectation. Do you mind telling us where you earlier expectations are and now your views on when these products further ramp materially for your business?

Jeffrey Kang: The reason why the CMMB is tied to the TD-SCDMA is like a practical issue in China. Because legally the CMMB phone is only able to be embedded into the TD and even though technically it can be used by any cell phone but it is only approved by the Chinese government right now into this TD-SCDMA cell phone. Previously people have different estimation anywhere from 4 to 5 or 10 million of shipment of TD-SCDMA cell phone this year, but I think right now China Mobile kind of postponed the shipment of the TD cell phone. I think this year anywhere from 1 million to 3 million units of TD-SCDMA cell phones are available in China but that’s our internal estimation.

Will Davis: Mike, I would just add that we’ve seen a slower than expected ramp in the number of available handsets for TD at China Mobile and we’ve talked about this in May about how we didn’t see a significant number of different devices and that’s still true and from our vantage point, you really need a large number of devices to kind of reach a critical mass to push a new product in a new technology and we are still waiting for that. That being said, we are still very confident that this will flow through at some point but trying to pin down a material ramp at this point is difficult for us to do. In terms of gauging how much more pushed out is tough to say but it’s definitely slower than we had anticipated. I think that it’s a double landed too from a stand point of not only are you missing on a unit replacement cycle and CMMB has a much ASP content per module than the average on a handset. We feel very strongly that this will flow through once the marketing plans and the devices for TD are in place. Just we are a bit uncertain now-When are we going to see that ramp?

Mike Walkley: Thanks clarifying Will. So I guess the way to think about it is we’ve got a ramp in the infrastructure of TD continuing this year but probably the handset ramp starts sometime next year especially they are going to hit their 50-million target by 2011.

Will Davis: What I was reading somebody’s research this morning is that China Mobile has officially cut its expectation for TD from 10 million to 3 million. I am not sure if that’s an official company line or what that was but I think that gives you a pretty good indication of-if that’s accurate- that’s a pretty big change. I don’t think there is anybody continuing to believe that 10 million was a realistic number for ’09 but certainly it’s been ratcheted down. If you are looking at this, the key is going to be when you have a significant ramp in the number of handsets available in the stores because until that happens I think that China Mobile has less incentive to really push migration.

Mike Walkley: Great. Here is the last question and I will pass it on. Just to dwell on your handset has been up sequentially was it mainly due to your customers exporting more and seeing more and more of the export out of China into other emerging markets or those are China market itself picking up in the third quarter?

Jeffrey Kang: Yeah we think both. We are seeing quite healthy demand both from Chinese domestic demand and at the same time we are still seeing the increase in the export business.

Will Davis: Mike, I would just say that the inventory situation as Jeffrey discussed appears fairly normal and I think it is always tough to know 100% those within the foodchain and final product distribution. We feel pretty good about the overall inventory level. That being said, I think that certainly the sell-in players selling components into the foodchain and there is a level of cautiousness out there. But the inventory feels pretty normal and we should see a sequential uptake going into the third quarter. Things seem to be moving along ok from that standpoint. I would say from the handset point of view the biggest issue and the biggest [welcar?] right now is-- “when does TD start to ramp?” When do we move from a couple hundred thousand 3G units a month to a couple millions. That will be a big lever for us. When does it happen--is tough to predict. But that’s probably gonna have a huge positive impact for us what that happens.

Mike Walkley: Great. Thanks very much for answering my questions and good luck in the industrial opportunity out there.

Will Davis: Thank you Mike

Jeffrey Kang: Thanks Mike.

Operator: Thank you and our next question comes from the line of Amir Rozwadowski with Barclays Capital. Please go ahead.

Amir Rozwadowski: Thank you very much and good afternoon Jeffrey, Frank and Will.

Jeffrey Kang, Frank Zheng and Will Davis: Hi Amir.

Amir Rozwadowski: If we could talk a bit more about the handset demand environment and how, outside the ramping of TD, how should we think about the handset demand environment in China right now?

Jeffrey Kang: In general, I think the second half especially in the third quarter we have already seen the signs of strong demand on the way in the third quarter. TD, as we mention many times before, TD-SCDMA is just a quite small portion of the overall cell phone demand from the Chinese market, and right now in addition to the TD-SCDMA, we are seeing a very strong GSM and GPRS as well as CDMA cell phone demand in the third quarter. We are quite optimistic about the handset revenue in the second half of this year.

Amir Rozwadowski: And Jeffrey, if we think about sort of overall handset market in China, obviously down year over year in the first quarter, should we think about the gradual steady improvement through the year to [flare] this year or do you think the overall market itself to grow in 2009 versus 2008.

Jeffrey Kang: I think eventually it will grow 2009 over 2008, if it keeps this current trend.

Amir Rozwadowski: Okay that’s very helpful. And then you mention that CDMA we know that you folks have been working on partnerships in that arena, perhaps you can give us some color on how that has played out for you.

Jeffrey Kang: As we are working with one of the leading CDMA vendors which is the second largest one in China at this moment, the first half, frankly speaking, we didn’t see too much ramp up of this CDMA business but since this third quarter, we are seeing the sign that the CDMA demand is increasing. That’s why we feel quite optimistic about China Mobile’s roll out of CDMA service and also we will increase the demand for the CDMA cell phone in the market from the second half of this year.

Amir Rozwadowski: Great. Lastly, if I may. It seems as though this business year you have picked up pretty healthily in the second quarter. I was just wondering if you could comment on current supporting this business and how we should think about progression from these levels.

Jeffrey Kang: The trend we are seeing is the converge of the many media products with wireless function. That’s the trend we are seeing from end market. Because this kind of converged products is the trend and we are seeing the demand, for most of our customers, they are not only serving the Chinese domestic market they are also serving the global market. What we are seeing this demand is also quite healthy, we cannot say it’s gonna be totally recovered from the global slowdown but what we are seeing at least the worst is over. The end market should move into the growth perspective. We estimate our revenue from digital media will continue to grow in the second half of this year.

Amir Rozwadowski: Great. Thank you very much for the incremental color.

Will Davis: Thanks Amir.

Operator: Thank you and our next question comes from the line of Quinn Bolton with Needham and Company. Please go ahead.

Quinn Bolton: Just wondering if we start with a couple house-keeping items for Frank. In the press release you guys talked about a larger provision for doubtful accounts but you didn’t really talked about in the preperate script. Can you give us a sense of what’s going on in the doubtful account side?

Frank Zheng: The doubtful accounts this quarter increased to about $2 million. There is no specific customers have large default. There is overall customer profile we think as you see this quarter AR is getting big and also the inventory. We just have to estimate the doubtful accounts into that.

Jeffrey Kang: It’s a typical accounting treatment. KPMG is our auditor and they are very strict about the quality of our AR or inventory. Once our AR and inventory increase they will make more provision to accommodate that. It doesn’t mean all of them is like dead inventory. From business angle, we still view we can still sell to our customer and we can collect AR. It’s just from accounting viewpoint they will take more provision to be more conservative.

Quinn Bolton: Okay. It’s not necessarily tied to one specific customer who may have gotten bankrupt. It is just really a function for higher account receivable balance.

Will Davis: No. There is nothing specific going on as Jeffrey and Frank had indicated. It’s a really standard conservative way to look at this with the AR going up. Sometimes accounting the laws- there is more Art than Science and we’d rather be on the conservative side in terms of trying to estimate where the issues are. If things end up being better then so be it but I think it is just important to kind of lay this out given the environment. That’s all this is.

Quinn Bolton: Just out of curiosity, what is the provision in March? I am just trying to look for, it sounds like you took an additional 2 million charge in June but looking at the Non-GAAP numbers, your numbers were fairly close to March. I am just trying to figure out- I would have thought to have seen a bigger step up in one of the expense lines given that increase provision but don’t really seem to see it in your R&D or SG&A.

Frank Zheng: If I remember correctly for the first quarter, the doubtful account is about $0.6 million. This quarter increased about $2 million. I will double check the number again.

Jeffrey Kang: Basically as Frank mentioned, this is more like a normal accounting treatment. Let me talk about another issue which is-as I just mentioned [earlier]- basically in the end of last year or Q1, we are very much worry about our quality of our AR and inventory because that’s where most of our risks come from. Right now we are more optimistic, as you just mentioned that half a year I am very much worried about if some of our customers will file bankruptcy which will cause damage to us. Right now we believe the worst is over and in terms of China business, we didn’t see our customers having too much problems or who cannot go through this economic downturn. On the contrary, we saw most of our customers become much stronger in the past half a year. They kind of increased their market shares and increased their demands. That’s why we feel that we should be more aggressively pursue business opportunity rather than controlling risks. That’s the different priority we have set since the third quarter of this year.

Quinn Bolton: Okay. The second house-keeping item is the split in Stock Comp between R&D and SG&A. Is that about a 50:50 split for the second quarter?

Will Davis: Let’s see. Yes. Very close to 50:50. R&D was a little higher but…

Quinn Bolton: But 50:50 is a good approximation.

Will Davis: Very close.

Quinn Bolton: Was wondering if you guys can give a good overview of kind of the slower ramp of the TD-SCDMA market. I am just wondering if you had any thoughts on CDMA2000 or wide-band CDMA of the other 2 carriers. Do you think that those are similarly delayed or could you see perhaps a more optimistic outlook over the next couple of quarters in those more matured technologies?

Jeffrey Kang: Yeah. For the CDMA2000, they have a more clear ramp up plan because it’s mostly driven by China Telecom which has strong muscle to promote its new technologies. We are more optimistic about CDMA2000 technology sales. With WCDMA because it is naturally expanded from GPRS or 2.5, we still also feel optimistic about that portion. In China a lot of the cell phones are actually 3G/ WCDMA available, just don’t have the 3G network or service covering. In cell phone itself, it already functioned WCDMA function market there.

Quinn Bolton: Okay. My last question is around the CMMB opportunity. You mentioned the official phones/ labeled phones to be crafted to be TD-SCDMA. I am wondering what you think the attach rate would be for CMMB modules in the TD phones next year.

Jeffrey Kang: I think that’s probably 20-40% attach rate over the TD-SCDMA cell phones. Because CMMB module’s roughly ASP is around $5-6 range. I think that’s one of the selling points. Another thing is the mobile right now TV service rate for free for most of the consumers that’s why we think the attachment rate for the CMMB module is roughly 20-40% among the TD-SCDMA cell phones.

Quinn Bolton: Okay. The last or relate question. Do you think there will be a grey market for CMMB? Will we see these modules showing up in GSM/ GPRS phones or is there some limitations or restrictions that the Chinese government is putting on in relation to access? Unless its TD phone you really are not going to be able to receive the CMMB signals on a grey market GSM/ GPRS phone?

Jeffrey Kang: You can say that GPS/ GSM cell phone with CMMB function but it is not from the companies which can run fully legal business in China. It’s only in grey market. In the grey market, a lot of the players could produce GSM/ GPRS phones with CMMB function.

Quinn Bolton: Okay. So you think there will be a grey market opportunity in the TD market.

Jeffrey Kang: Yeah.

Quinn Bolton: Okay. Thanks you.

Operator: Thank you and our next question comes from the line of Bill Choi with Jefferies. Please go ahead.

Bill Choi: Okay. I want to stay a little more on the impact of TD-SCDMA and the CMMB on your expectations for your company. The 1 to 3 million internal target for your company you mentioned is for the market overall. Is that correct?

Jeffrey Kang: Yes.

Bill Choi: So your expectation still is. And what do you think your market share would be of that 1-3 million?

Jeffrey Kang: Internally, I think gonna get anywhere around for 30 to 50% of that business.

Bill Choi: Okay. And you are also saying even from the beginning attach rate would be about 20-40%?

Jeffrey Kang: Yes.

Bill Choi: Okay. If I am correct, you guys haven’t really sold too many of those modules yet. It was primarily throw in for expectations selling for the fourth quarter, correct?

Jeffrey Kang: Yes.

Bill Choi: Okay. Alright. Would there any volumes that would be in your guidance for September quarter or the June quarter?

Jeffrey Kang: We already started shipping TD & CMMB cell phones every month/ ever quarter. In terms on our shipment rate, it’s highly rely on how much volume our customers [are] able to sell or able to produce. Based on the trend, the shipment or the rollout of TD-SCDMA has well been slightly delayed to next year. Even though we are still optimistic about the overall demand from TD-SCDMA cell phone front, from that angle, that will also impact our CMMB mobile TV module sales. From that angle, we are talking about it is going to be slightly delay. But we are not saying the market is gone. We are still optimistic about the overall market size of the TD-SCDMA in the next few years.

Bill Choi: Okay. Even when you think about the impact this year, primarily more the Q4 ramp that you are expecting that kind of goes away. Even then, running all the math you are probably still going to be looking at a couple of millions at max.

Jeffrey Kang: Yes.

Bill Choi: Okay. Just trying to understand the digital media strength here. You guys are still doing a whole bunch of markets here including IPTV set-top-boxes to (inaudible) and so forth. Can you just parcel out what was stronger and whether that you expect to continue to the next couple of quarters?

Jeffrey Kang: As I just mentioned earlier, in the first half, especially in the second quarter, we saw the converged internet access available devices with function like GPS, mobile TV or other functions together. That kind of device should increase in size in the first half. Since the second half, we are seeing the IPTV set-top-box certainly moving into the growth trend. We are also seeing, as I just mentioned those internet access available devices will also be a growth driver for our digital media business.

Bill Choi: Alright. Also from my perspective, I don’t know why you guys need to combine the 2, which should give a better visibility for the trends as is. I can’t imagine these converged devices are bits and piece segments of the digital media currently. You guys sell a whole bunch of other products and I think set-top-boxes are meaningful component.

Jeffrey Kang: The reason why we combine the businesses together is because it’s sometime very hard for us to say that this revenue belongs to digital media or belongs to cell phones. Because what we are seeing is the converge of the digital media device with wireless access function. So, you can call the cell phone high-end cell phone or on the other hand you can say that it is a media device. For us in order to have a clear classification of revenue identification, we decided to combine the 2 segments together. I think in the longer term, we are going to see less and less clear boundary between cell phone and other media devices products. In the future, we gonna see more and more consumer internet device, which have all the web surfing function or entertainment function and in the same time it will also have phone and wireless function available there. For example, our motion sensor solution, which is mostly for playing game. Such solution can be embedded in high-end smart phone and at the same time it can be embedded into the high-end GPS or mobile TV devices with wireless functionality. For the same revenue, it’d difficult for us to treat it as cell phone or digital media segments.

Bill Choi: That makes sense. But if I could look at the margins, there is obviously a meaningful difference between those margins we are current getting for the handsets versus those from digital media. Can you talk a little about the trends of these converged devices and how the margin flares?

Jeffrey Kang: I think the combined margin of these 2 businesses still from around anywhere from 10-15% of gross margin.

Bill Choi: Okay. Great, thanks.

Will Davis: Hi Bill. Hey tt’s Will. I would just like to add in terms of rational why we are doing this. I think you are right to point out that the converged business may be of use of part of the segments now but I think in terms of aligning our resource with our customers given increasingly these guys are putting more resources into the broken into other convergence of devices. It’s more for the planning for the future. I think that this is a move that we are thinking it will be increasingly becoming relevant in the next 5 years. Looking at the point in time today, yeah, you are probably right but I think looking out over the next 3-4 years, that’s the rational for doing this. If we think of the combined 10-15%. That would be appropriate. I think we had talked about the handset margin being the lowest kind of. People make their own estimates and I think you are talking about the kind of 8-10% and you give it a quarter of the handset business.

Bill Choi: That’s right.

Will Davis: And then the digital media being the mid to high teens. Typically so when you aggregate those out and that’s kind of what you get that gives you a kind of 10-15% range. I think longer term a lot this is going depends on how fast some of these new devices ramp. For us, the faster the new technologies ramp, the more new technologies come up, the more new products come out, the faster the cycle to ends. That’s all great for us. The worst thing for us is the technological stagnation. It’s great for us that these device guys are getting into new categories. I think the faster the technology comes too, that helps gross margins because staled product with staled technology leads to depressed margins.

Bill Choi: Alright. Okay. Thanks.

Operator: Thank you and our next question comes from the line of Eric Stephens with Renn Capital Group. Please go ahead. Eric Stephens: Hi guys. Just looking at your business outlook section, you mentioned you are on the margin expansion mode. You touched on it a little bit in answering the other guys’ questions. Can you explain in a little more detail what you mean by that?

Will Davis: Well, when we put out our margin targets a couple of months ago we were around 14% on the gross margin side and 7% on the operating and we talked about going to 10% and the operating in 15%. We made some sequential improvement, albeit not huge. We are moving in the right direction and I think the operating margin will expand again 3Q and expand again in 4Q from our vantage point. We didn’t put a time frame when we will reach 10 and 15 but at some point in the 2010 we are going to be close there. So when we talk about operation margin expansion mode or expansion mode in general, we are not talking about massive leaps and bounce, we are talking about moving things in the right direction particularly in the operating line. That’s why we have frankly more leverage. When you look at this company, you will see there is not a lot more opex required to run the company at 250 million versus 350 million or vice versa 350 vs. 250. So there is a lot of leverage there. Gross margin is largely mixed within it. If you have the industrial market growing faster than everything else, that on an apple to apple basis, that will make the margin goes up. I think that’s one of the reasons why that segment is so attractive to us because it is growing faster and can help expand gross margins but we do have more leverage on the operation side. Eric Stephens: Alright. Thank you.

Will Davis: Sure.

Operator: Thank you and our next question comes from the line of Adele Mao with SIG. Please go ahead.

Adele Mao: Thanks. I just want to ask about SG&A expense again in the quarter. If we back out the $2 million in doubtful write-off, then SG&A is less than 4 million for the quarter which seem extremely low to me. Did you guys have a reduction of headcount or is there other factors for the one time to help out on the expense front for the quarter?

Jeffrey Kang: Well, you are right. Normally our operating expenses are roughly $4 million a quarter but we also have decent discipline since the beginning of this year. Yes, we cut headcount for none-performed business at the same time we hire more people to run new business. We have very good discipline in terms of operating expenses. In general we didn’t see too much different from our original plan. Again, for Cogo, the reason why we think we can run a successful business because we have very good and quick execution capability. Once we find some business not performing well, we cut off the whole business and reformat. That will make sure our resources will be allocated to the performers. That’s how we will continue to keep disciplined in the future. We are not going to see our operating expenses increase in the foreseeable one to two quarters.

Adele Mao: Okay. That’s good to know. I may have missed some of your comments earlier. Are you still expecting about $10-15 million revenue contribution from Mega Smart as you guided last quarter?

Jeffrey Kang: Yes.

Adele Mao: Okay. Now that the acquisition has been closed, could you disclose the deal value or the historical revenue or any other information? It looks like on the balance sheet the goodwill and the intangible assets have gone up significantly in the quarter. That seems attributable to Mega Smart. Is that correct?

Jeffrey Kang: Yes.

Adele Mao: Okay. Could you disclose historical revenue or any type of track in the financials?

Jeffrey Kang: Yeah. We acquired a team which has run this business many years. This is a team of about 15 people. We closed the deal at the end of Q2. We expect it to start contributing revenue from the third quarter. We still believe from right now to the next Q1, we are able to generate $15-20 million revenue from this business. They already have decent contracts covering most of the business in the next 2 quarters. Historically this company probably makes around $10 million revenue per year. Because we can leveraging Cogo’s financial strength as well as our much broader customer base, and stronger supplier relationship, I believe it can come to $15-20 million revenue in the first year after being acquired.

Adele Mao: Have you paid all the deal value up front?

Jeffrey Kang: No, as usual, we wouldn’t pay them a one-time deal. We usually have ratch up terms which breakdown the payment tightened to certain performance.

Adele Mao: Thank you Jeffrey. That’s very helpful.

Will Davis: Thanks Adele.

Operator: Thank you and our next question comes from the line of James Faucette with Pacific Crest Securities. Please go ahead.

James Faucette: Thank you very much. I just wanted to go back to a comment that you made, I guess in your prepared remarks regarding your intention to, I think the quote was to use your balance sheet to help your growth in the second half of the year. Could you elaborate a little bit? Should we take that as –we may see accounts receivables increases as you offer vendor financing after having been conservative earlier in the year, that you would be looking to move up the timeline on acquisitions, etc. or whatever else you may be thinking?

Jeffrey Kang: Let me answer this question. I remember I mentioned about 2 quarters ago when the market at the end of Q4, everybody was so worried about the whole market. It’s the same to us. Because during the time the company set a tone- we are going to grow our business but our top priority is to prevent Cogo from being hurt by customers disappearing or the whole market go away. Controlling risks was our priority six months ago. But right now, what we are seeing, at least in China, the most difficult economic situation has been over. Everything is moving into growth area. From that angle, management decided to fine-tune management mentality to focus on growth of business. In terms of growing business, for example, in the [pass] if some customers have the possibility to go bankrupt, we refuse to receive any order from them. That will make us have no inventory or AR issue. Right now when the market situation is much better, we believe all those customers [are] able to keep their business; we start to accept their orders. That will make our inventory and AR dollar amount increasing along with our revenue line. Again, we are not going to take a lot of risks to get more business. We still have very good discipline. As I said, we usually control our AR. It’s around 90 days to 100 days of AR and inventory is always controlled to around 30 days or below 30 days. When we talk about staying more aggressively pursuing opportunities, it means we pursue more revenue growth in the next few quarters.

Will Davis: James, if I can just add sum this up. You look at some of the factors that would affect our working capitals that gives you a follow on what Jeffrey was talking about. At the end of the year, our inventory was very very low and everyone across the foodchain was very low. I think you got a natural kind of a snap back coming on that side as the psychology has certainly turned. So, that’s one thing and I think the second thing was the industrial business where we got Mega Smart now we are going after. There is a lot of contract activities out there and we are increasing our work with a lot of the industrial semi-conductor guys like Maxim and Freescale. There is a lot of business out there. We are aggressively going after that. I think just thirdly more seasonal trends, I think, would dictate the needs to use the working capital a little bit. Having the cash pile gives us not only a lot of flexibility on going after M&A or buybacks whatever, but you could use your balance sheet to finance some of the growth. You don’t have to go to the equity market etc. You can sort of self-finance. Ultimately we will see this all flow back into the cash flow. And it will be volatile but our cash flow last quarter was $9.8 million which was very very unusually high. Some of it is a natural swing quarter from quarter. It just kind of give you an idea that there are several factors moving into this. To follow Jeffrey’s point, psychology in China has changed a lot. From late fall to now; there is a much higher sense of optimism, particularly related to the stimulus spending. That’s really only just begun. A lot of the industrial business that we are looking at have long lead cycles and long sales cycles. We feel like we have a lot of irons in the fire now to start closing some of these as we head into next year.

James Faucette: That’s great. That’s helpful clarification. The other thing I want to ask from a (inaudible) perspective. You indicated that handset business genuinely looks pretty good except for the TD-SCDMA. I think that’s understandable why given kind of what China Mobile is doing. I am just wondering if you have any sense right now as to the activity that is taking place if this is largely inventory building ahead of yield, with (inaudible) being more aggressive or how much may be is going into export etc. from the Chinese manufacturer. Thank you very much.

Will Davis: Thanks James. I think it’s probably a combination of things. Inventory appears fairly normal in channel although it’s tough to say 100%. It appears fairly normal. We are a little disappointed about the TD ramp at China Mobile but in general the handset trend seems to be working in the right direction getting some seasonal improvement. We reach more of a equilibrium in the channel which is better for business. You don’t want to have too much or too little and things seem to be in equilibrium. It’s kind of a normal course of business which is a good thing and the export business appears to be continuing to do well. Granted off a small number-the market share of some of these guys have internationally but we think that we are continuing to move into the right direction and I think you can look at Mediatek’s number as an indication of how some of these guys accelerating and we will continue to excel I think. We’ve got a number of different opportunities that for instance high end products. ZTE is launching a school of high end smart phones and we will see how well they do on the market. That’s kind of a new area on for international play for these guys. It’s a combination of things and we are not overly optimistic. Things seem to be moving into the right direction on the handset front. I think looking out, the market is going to do what it’s going to do and these guys are going to export what they are going to export but one of the things that is within our control is the features and functionality that are going to get added in. We are working with freescale aggressively on motion sensor product that we mentioned in the press release may be 2 months ago. That should start flowing through. Ultimately CMMB will flow through. And then a natural replacement cycle coming on the 3G side. It’s not exactly known when these will start to hit but we feel pretty good that we are well positioned when it happened. We will wait and we are prepared for it. The underline business trends of the handset market appears to be fairly normal.

James Faucette: That’s very useful. Thanks.

Operator: Thank you. At this time, there is no further question.

Jeffrey Kang: Thanks very much. I believe that Cogo’s unique business position within the Chinese market, our breadth of business relationships across a wide range of end markets, and our large net cash position all support sustained revenue growth in 2009 and into 2010. Even in this expected continued economic downturn, we are currently in margin expansion mode and expect to show year over year revenue growth every quarter in 2009.

I would like to reiterate that we believe that the worst of the China economic situation is behind us and we feel confident about a variety of growth prospects as we head into the second half of 2009 and beyond. We believe that all of the pieces are in place for Cogo to show accelerating revenue growth in 2010 vs. 2009, given our planned expansion into new verticals within the vibrant China economy, expanding our revenue per existing customer and utilizing our balance sheet to profitably but aggressively pursue new opportunities.

I would like to take this opportunity to thank all Cogo’s believers, employees, customers, partners and long term shareholders. You have provided Cogo with the opportunity to deliver robust and sustainable growth in the past, and we appreciate your support as we move into 2009. Management is committed to driving sustainable high growth and providing significant returns to our shareholders. Thank you again for joining this call. I look forward to talking with you soon. Good bye.

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.