In recent years, China’s mobile handset market has experienced rapid growth and development. According to Gartner Dataquest, China has been the world’s largest wireless telecommunication market in terms of subscribers since 2001. It is believed that China will continue to play a key role in the development of the global telecommunication industry and remain one of the largest wireless subscriber markets in the world for the foreseeable future.

From the end of 2005 to the end of 2006, based on MII data, the number of wireless telecommunication subscribers in China grew from approximately 393 million to 461 million. In addition, according to Gartner, in 2005, mobile handset sales to end users in China were 89.9 million units, representing approximately 11% of global mobile handset sales. This figure is expected to grow at a compound annual growth rate of 18.5% through 2010, compared to the expected worldwide growth rate of 9.2% for the same period.

Moreover, China’s mobile telecommunication operators are planning to upgrade their networks to offer 3G wireless telecommunication services. 3G technology is expected to enable users to transmit larger volumes of data and more sophisticated content, such as streaming media and multi-player games, more quickly. The PRC government is conducting tests of internationally recognized standards for 3G wireless telecommunication services as a preliminary step before issuing 3G telecommunication operator licenses, although no timetable for issuing 3G licenses has been announced by the PRC government.

The more extensive use of data transmission, as facilitated by new and upgraded technologies and networks, is expected to lead to increased demand for enhanced wireless value-added services and, therefore, increased demand for mobile phones with more advanced technologies in China. According to International Data Corporation estimates, there will be more than 62 million 3G subscribers in China by 2010.

The Company has devoted significant resources to developing and producing handset products with various features that are targeted at different consumer segments.

In 2004, 2005 and 2006, the Company rolled out 43, 49 and 55 new handset models, respectively. As of December 31, 2006, the Company offered approximately 53 different handset models to its customers. These products include features such as multimedia functions, touch-screen pads, open operating systems, built-in 4-megapixel video cameras, large LCD screens, ultra-long standby battery and ultra-thin design. The Company’s ultra-long standby products provide up to 1,700 hours of standby time.

The Company develops and produces its products based on a limited number of handset platform designs, which can be easily customized according to required specifications to produce multiple models with varying features. In 2004, 2005 and 2006, the Company introduced 17, 13 and 23 new platform designs, respectively.

In addition, the Company is currently developing and expects to launch in 2007 new handset models with more advanced features, such as Global Positioning System, or GPS functions, built-in TV and fingerprint identification.

Mobile handset models typically have a limited economic life, which is approximately 12 to 15 months for particularly successful handsets and four to six months for most other handsets.

From 2004 to 2006, the Company sold approximately 0.57 million units of T868 model handsets, 0.50 million units of T800 model handsets, 0.14 million units of A100 model handsets, 0.42 million units of V180 model handsets and 0.48 million units of A1000 model handsets.

Cost of goods sold increased by 35.1% from RMB1,526.4 million in the year ended December 31, 2005 to RMB2,062.2 million ($264.2 million) in the year ended December 31, 2006.

Gross profit increased by 40.6% from RMB337.7 million in the year ended December 31, 2005 to RMB475.0 million ($60.9 million) in the year ended December 31, 2006,

Interest income increased by 6.4% from RMB5.6 million in the year ended December 31, 2005 to RMB6.0 million ($0.8 million) in the year ended December 31, 2006,

Net income increased by RMB56.1 million from RMB230.6 million in the year ended December 31, 2005 to RMB286.7 million ($36.7 million) in the year ended December 31, 2006.