The Company experienced a significant reduction in revenue in the second quarter due to the fact that its largest ICM segment customer experienced inventory issues with another supplier which caused the customer not to purchase products from the Company during the second quarter. In addition, the Company expects to generate lower ECSS segment revenues moving forward as a result of its strategic decision to shift the electronic component procurement (ECP) portion of its ECSS segment to a brokerage model. Finally, although the Company believes its ICM business model is now proven, it has not been able to expand its customer base as quickly as planned. As a result of the foregoing, the Company now expects to sell approximately 2.5 million mobile phones in 2011, down from its previous estimate of 3 million, and it expects full-year 2011 revenue of approximately $195 million, unchanged as compared to the full-year 2010. This compares to the Company's previously issued guidance of $255 million for the full-year 2011.
SinoHub has begun a strategic initiative to develop its own mobile phone brand in China, the world's largest mobile phone market. There are several examples of companies, the most notable being Tianyu in Beijing, that have executed this strategy successfully. The Company will continue to make and sell private label, custom design mobile phones for distributors and operators elsewhere. We believe the strategy to create our own brand in China, where a marketable brand name is necessary for success, combined with our strategy of using our joint design process to create mobile devices that give our customers competitive advantage in their local markets, will expand our market opportunity, help drive margin improvement and create a more defensible position for our Company.
SinoHub today announced that in view of the unusual market activity in its common stock (SIHI), the New York Stock Exchange contacted SinoHub in accordance with its usual practice. SinoHub stated that its policy is not to comment on unusual market activity.
For full fiscal year 2011, SinoHub is providing revenue guidance of $255 million, representing anticipated year-over-year growth of 30% over 2010.
"With a higher handset replacement rate in developing countries and private label phone manufacturers continuing to gain market share, we believe we are well positioned to participate in the robust growth currently taking place in the emerging markets. Securing our first smart phone orders was a significant milestone and provides us the opportunity to fully leverage the online joint design capabilities we developed for our clients, while producing higher priced, higher margin phones. We secured orders from customers such as China Unicom, which had 166 million subscribers, including 12.8 million 3G subscribers, at the end of 2010, and HT Mobile in Indonesia, which sells between 500,000 and 600,000 phones per month, which we believe validates our business model and puts us on a path to secure much larger orders and drive incremental growth during 2011."
We are seeing tremendous growth in our mobile phone manufacturing and sales business. Our ability to provide strategic support through our online joint design process and our online order tracking is extremely appealing to a wide variety of customers. With an established customer base that is purchasing more phones, the recent contracts we have announced and a growing pipeline of new customers, we expect growth in our ICM business to accelerate from the second quarter through the end of 2011. We expect to sell approximately 3 million phones in 2011, a 160% increase over last year.
"We are delighted to secure additional phone orders from HT Mobile, a leading distributor in Indonesia and a highly valued customer to whom we have shipped approximately 300,000 handsets to date. HT Mobile sells over 6 million mobile phones per year in Indonesia and has communicated their intention to produce a significant portion of their 2011 volume with SinoHub using our joint design model. These anticipated orders along with indications for additional models, give us confidence we will produce over 1 million phones for HT Mobile during 2011, which will be roughly equal to our entire production for all customers during 2010."
"We have built an efficient and flexible platform for mobile phone production, which leverages both our core ECM and SCM business units. We believe our differentiated model provides a foundation for SinoHub to substantially deepen its relationships with existing customers, as evidenced by these orders from HT Mobile, while securing new relationships with large mobile phone distributors in emerging markets. Furthermore, we currently have the capacity to produce approximately 3.2 million phones annually and expect to fulfill larger orders, including smartphones, for existing and new customers during 2011."
"Our strong third quarter sales results were led by record shipments and revenue from our custom design mobile phone contract manufacturing business. We produced approximately 320,000 handsets for the third quarter, up from 250,000 in the second quarter, with sales being strongest in Indonesia and India. With growing adoption of our unique new business model which allows us to provide strategic support for handset distributors, we are optimistic in maintaining our positive momentum in VCM. We are also very pleased that ECP experienced growth as business volume increased and, more importantly, the gross margin in ECP improved substantially to 15.6% from 12.2% in the second quarter of 2010."
Based on the strong results through the first nine months of 2010, Management is raising FY 2010 revenue guidance to $192 million from the prior guidance of $180 million, representing anticipated year-over-year growth of approximately 50% over 2009.
During its first nine months of operations, the VCM business generated $38.7 million of revenues, with gross margins of 17.8%. Management expects VCM margins to improve further as it makes further improvements in operating efficiencies and product mix, while shifting away from contract printed circuit board assembly production work toward greater production of the Company's own products. Having produced and sold about 775,000 phones in the first nine months of this year, the Company remains on track to meet its stated goal of selling at least one million phones for the full year 2010. "We remain extremely excited about the growth prospects for our VCM business. With a higher handset replacement rate in developing countries and private label phone manufacturers continuing to gain share in countries like Indonesia, we are well positioned to participate in the robust growth of mobile phones in emerging markets. With the prospect of producing smart phones for customers, which carry significantly higher average selling prices, we are confident VCM will be a significant growth driver in 2011."
For full fiscal year 2010, SinoHub reaffirmed revenue guidance of $180 million, representing anticipated year-over-year growth of 40% over 2009. Guidance includes approximately $50 million in anticipated sales from its virtual contract manufacturing (VCM) business.
For full fiscal year 2010, SinoHub reaffirmed revenue guidance of $180 million, representing anticipated year-over-year growth of 40% over 2009. 2010 guidance provided assumes a substantial increase in sales from its new virtual contract manufacturing (VCM) business.
In 2010 and beyond, SinoHub plans to build its VCM business to serve mobile phone distributors in emerging markets outside of China. Developing country markets, according to a report from JP Morgan Global Equity Research, account for over two-thirds of all mobile phone sales in the world. It is estimated that over 797 million handsets were sold in developing countries in 2009, compared to 335 million in developed countries, with sales to developing countries expected to rise to over 1 billion in 2011 compared to 373 million in developed countries. The Company is also evaluating additional international expansion of its VCM business for mobile phones in the US.
The new mobile phone facility has annual output capacity of approximately 5.4 million handsets, or 450,000 handsets per month based on 12 assembly lines. The Company expects to reach full capacity utilization, or over 75,000 handsets per month, on the initial two assembly lines by June 2010 to produce mobile phones for developing countries, with additional assembly lines to be added based on increasing demand. In addition, the Company plans to install 3.5 surface mount lines starting in June with production capacity of over 150,000 mobile phone mother boards per month.
SinoHub expects to experience continued strong growth in 2010 based on the fact that 90% of the products its customers make are sold in China and are products that are in high demand. For full fiscal year 2010, SinoHub is providing revenue guidance of $180 million, representing anticipated year-over-year growth of 40% over 2009. 2010 guidance provided assumes a substantial increase in sales from its new virtual contract manufacturing (VCM) business.