China Digital TV Holdings

China Digital TV Holdings
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China Digital TV Holdings (STV)

Q1 2010 Earnings Call

May 11, 2010 20:00 pm ET

Executives

Liang Xu - CFO

Dong Li - President and CMO

Analysts

Jie Liu - Auriga USA

Wallace Cheung - Credit Suisse

Mike Olson - Piper Jaffray

Operator

And we will now take your questions.

Question-and-Answer Ses

s

ion

Operator

(Operator Instructions). Our first question will come from the line Jie Liu with Auriga USA. Please proceed with your question.

Jie Liu - Auriga USA

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Good morning guys. Congratulations on good results on the guidance. I have a couple of questions yes. First of all, could you give us a quick update on the competitive landscape and what contributed to the better than expected pricing environment?

Liang Xu

I'll invite our president, Mr. Li to comment on the committed landscape.

Dong

Li

[Foreign Language]

Unidentified Company Representative

[Foreign Language]

Dong Li

[Foreign Language]

Liang Xu

[Foreign Language]

Dong Li

[Foreign Language]

Liang Xu

Okay. Starting from 2009, our competition has been coming mainly from domestic competitors and we attribute the 2% in price decline in Q1 mainly to the fact that the second placeholder which assume a vision was planning to go public in Q1 this year. And actually, it happened just a couple of weeks ago. And because of the IPO on Asia market, they had to manage their financials more prudently instead of compete extremely aggressively and that is the main reason for the stabilized ASP in Q1 but that does not say that the price would keep stabilizing in the quarters to come.

Jie Liu - Auriga USA

But in your press release, you kind of said that your ASP, you were saying in the last, in the remaining three quarters on the year will be waiving 10% right?

Liang Xu

Yes.

Jie Liu - Auriga USA

So that’s not very large right? So in other words, you guys expect that your local competitors to refrain from a price war basically.

Liang Xu

Yes. They would compete in a more prudent way.

Jie Liu - Auriga USA

Okay, I see. All right, just another quick question on your tax rate. You said your tax rate for the year will be 15%? I’m just wondering if that’s the worst case or that’s the best case? If it’s not the best case, what can be the best case?

Liang Xu

That should be the worst case for China Digital TV. As you might be aware, last year China Digital TV qualified as a so called key software company in China. And with that, China Digital TV would be entitled to a 10% tax rate and this qualification would be evaluated on an annual basis. So we have to re-apply and get approval again in 2010. And because of the uncertainty associated with the qualification for that, we are using 15% as our tax rate but if we can qualify as a key software company in China again, we would be able to enjoy a 10% tax rate.

Jie Liu - Auriga USA

Great. Thank you guys.

Liang Xu

Thank you Jie.

Operator

Our next question comes from the line of Wallace Cheung with Credit Suisse. Please proceed with your question.

Wallace Cheung - Credit Suisse

Just quickly on the quite exciting shipments and guidance in second quarter and also the first quarter number as well. How much is actually can be attributed by a free network version policy so far? In particular the second quarter guidance like if we taken out the technology factor, how much is actually you think about -- a lot of like cable T.V. carriers are now following the instructions or the swap policy on the French government and they are trying to speed up the digitalization process. And that may lead to even further faster growth in the third and fourth quarter.

The second question is just want to get an update about the overseas business. Have we factored in to any overseas treatment so far in the second quarter guidance? Thank you.

Unidentified Company Representative

[Foreign Language]

Unidentified Company Representative

[Foreign Language]

Unidentified Company Representative

[Foreign Language]

Unidentified Company Representative

[Foreign Language]

Liang Xu

We've been at least 30% of the fact that we gave the guidance in Q1 was attributed to the three network convergence.

Unidentified Analyst

[Foreign Language]

Unidentified Company Representative

[Foreign Language] We started shipping smartcards to overseas market in 2009 and because of the relatively small volume, in the guidance we gave to the market place both annually and for the second quarter. That number didn’t include the expected numbers to the overseas market

Unidentified Analyst

Just quick two follow-up, one is regarding the first quarter shipment number hasn’t included these overseas shipment, second is though on the annual basis in 2010 how do we expand the overseas shipment numbers?

Liang Xu

Yeah, first question is the guidance for the second quarter, right?

Unidentified Analyst

Its first quarter, have we include the overseas shipment?

Liang Xu

Oh, yes, of course. Yes, we have. And your second question is does our guidance…

Unidentified Analyst

No, on the full year basis how do we expand these overseas guidance, how much will it ship?

Unidentified Company Representative

[Foreign Language]

Unidentified Company Representative

[Foreign Language] We expect to ship a incremental 200,000 smart cards to the overseas market in 2010.

Operator

Our next comes from the line of Mike Olson with Piper Jaffray. You may proceed with your question.

Mike Olson - Piper Jaffray

Couple of quick ones here. So, when you said ASP declines will be contained within 10%, does that mean you expect a sequential decline will not be more than 10% in any given quarter or that ASPs won’t be down 10% from where they are now for the remainder of the year?

Liang Xu

We were actually talking about the year-over-year, by the end of 2010 compared with Q4 ‘09 level the ASP decline wouldn’t be higher than 10%.

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