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Comtech Group, Inc. Acquires Controlling Interest in Emerging Business Services Company

13 January 2006

SHENZHEN, China, Jan. 11 -- Comtech Group, Inc. (Nasdaq: COGO), a leading provider of customized module design and subsystem solutions for more than 200 technology product manufacturing companies based in China, today announced that it has acquired a 51 percent majority interest in Huameng Engineering Service Ltd., a provider of technology, engineering and business services to established telecom equipment vendors in China, with additional subsidiaries expected to be opened in Hong Kong, Thailand, and Malaysia during this calendar year. Huameng currently employs approximately 200 engineers and consultants to provide outsourced technology and business services, including high-end system testing, hardware and software installation, planning, training, deployment, maintenance and technical support for telecom vendors. Under terms of the agreement, Comtech paid $2.5 million in cash to acquire a majority interest in Huameng Engineering Service Ltd with the potential to acquire the remaining interests at a future date. The total amount of US$2.5 million will be invested solely into the company for expansion of the business both in China as well as international markets. The seller is not receiving a cash payment as part of this agreement.

Comtech expects Huameng to generate meaningful revenue in 2006, and more importantly through Huameng, Comtech will be receiving recurring service revenue with a gross margin over 40 percent, which is significantly higher than the company's current blended margin. The recurring service revenue should improve Comtech's overall margin, visibility and further diversify revenue streams.

Huameng's primary customer, Huawei, is one of the world's leading networking and telecommunications equipment suppliers and the largest telecom equipment vendor in China. Huawei currently outsource high-end system testing, system maintenance, training, engineering and others services to Huameng in specific geographic regions. Comtech also has a long-standing relationship with Huawei, who is a significant customer, and believes that by collectively leveraging its expanded service and product offering it will be able to incrementally increase overall revenues derived from this relationship. Huameng's focus has been 3G wireless and Datacom, which are the fastest growing business sectors in the industry. Prior to the acquisition, operations were mainly based in China. Comtech's investment will be used to expand operations to capture the strong demand and growth in the international markets for business services as its major customer Huawei's international business exceeded 60 percent of its total revenue in 2005.

Jeffrey Kang, Chairman and Chief Executive Officer of Comtech Group, commented, "We have seen many leading hardware providers such as IBM and Hewlett-Packard transform from solely providing and selling hardware products to also offering business services to complement their existing business. Similarly, we see this initiative as an opportunity to expand our business from not only doing design solutions and selling components but also providing business service to our existing customer base. Comtech's core asset is our large and long standing customer base; and our focus is to grow our business by serving our existing customers' need. Providing engineering and business service to our existing customers is a natural extension of current operations for Comtech. This acquisition is another step we have taken to execute one of our key growth strategies which is entering high margin business and generating recurring service revenue by leveraging the existing customer base of more than 200 leading technology companies in China. We are excited to start providing business service to and receiving recurring service revenue from some of our key customers. Many of our customers have stated their need for a business service offering, as an example Huawei alone anticipates paying approximately US$300 million to business and engineering service providers in 2006. We believe that by capitalizing on our existing customer base we are well positioned to capture a portion of this sizable and growing market."

About Comtech

Comtech Group, Inc. is a leading provider of customized module and subsystem design solutions in China, serving as a gateway to leading international and domestic electronics manufacturers in China. Comtech's core business has historically focused on the mobile handset and telecom equipment end-markets, but has recently expanded its market to include the digital consumer electronics end-markets. Comtech has worked with more than 200 customers. Comtech's customer base includes a majority of the largest and most well-known manufacturers in the mobile handset and telecom equipment end-markets in China.

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 plans and objectives for future expansion, including into engineering and business service related market, anticipated margins for our business; general and cyclical economic and business conditions, and, in particular, Huameng business perspectives; our ability to enter into and renew key corporate and strategic relationships with Huawei or other customers; changes; and other statements containing forward looking terminology such as "may," "expects," "believes," "anticipates," "intends," "expects," "projects," "looking forward" or similar terms, variations of such terms or the negative of such terms. Such information is based upon various assumptions made by, and expectations of, our management that were reasonable when made but may prove to be incorrect. All of 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. Accordingly, there can be no assurance that actual results will meet expectations and actual results may vary (perhaps materially) from certain of the results anticipated herein. For a further description of these and 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. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.

Source: prnewswire