China Digital TV Holding Co., Ltd. (STV)
Q3 2011 Earnings Call
November 22, 2011 7:00 p.m. EST
Dong Li – President and Chief Marketing Officer
Nan Hao – Head of IR
Zhenwen Liang – CFO
Philip Wan – Morgan Stanley
Mike Olson – Piper Jaffray
Previous Statements by STV
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Good evening and thank you for standing by for China Digital TV’s third quarter 2011 earnings conference call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the meeting over to your host for today’s conference, Ms. Cynthia He.
Cynthia He – Brunswick Group
Hello everyone and welcome to China Digital TV’s third quarter 2011 earnings conference call. The company’s earnings results were released earlier today, and are available on the company’s IR website at http://ir.chinadtv.cn, as well as on newswire services.
Today, you will hear from Mr. Dong Li, China Digital TV’s president, who will give an overview of the quarter, followed by the Company’s head of investor relations, Mr. Nan Hao, who will discuss financial results. After their prepared remarks, they will be joined by China Digital TV’s chief financial officer, Mr. Zhenwen Liang, to answer your questions.
Before we continue, please note that the discussion today will contain certain forward-looking statements made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today.
Further information regarding these and other risks and uncertainties is included in our registration statement on Form 20-F and other documents filed with the U.S. Securities and Exchange Commission. China Digital TV does not assume any obligation to update any forward-looking statements except as required under applicable law.
As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on China Digital TV’s investor relations website. I will now turn the call over to China Digital TV’s president, Mr. Li.
Thank you, Cynthia. Hello everyone and welcome.
In the third quarter, we were pleased to see robust demand for our CA products, as provincial-level network consolidation and investment in digitalization projects continued to progress quickly. In particular, we experienced strong demand from several provinces, including Zhejiang, Heilongjiang, Jiangsu and Hubei. Our leading market position allowed us to capitalize on this development, producing strong Q3 results.
Smart card shipments reached 4.66 million in the third quarter, compared to 3.95 million in the same period in 2010, and 4.64 million in the second quarter. Net revenues grew 22.5% year-over-year and 4.7% quarter-over-quarter.
During the third quarter, China Digital TV retained a strong market position, holding 58% market share of CA card shipments, according to Luoda Consulting, a Beijing based research agency. As the leading industry player, China Digital TV continued to benefit from cable operators’ focus on investing in digitalization projects and ongoing provincial-level network consolidation.
During the third quarter, average selling price, or ASP, for smart cards decreased by 1.4% compared to the second quarter of 2011. We believe that ASP decline in 2011 will stay within 5% of last year's pricing level.
Let me provide a brief market update. According to Luoda, in the third quarter of 2011, the number of China’s digital cable TV subscribers reached 99 million. This included 4 million newly added digital cable subscribers, compared to 3.6 million newly added digital cable subscribers in second quarter of 2011.
SARFT has reported it will launch a direct to home, or DTH, project, which will cover China’s rural TV subscribers by 2015. SARFT has chosen NDS as its main foreign CA provider. While SARFT has not confirmed that it will also use a domestic CA provider, it is currently considering options. We will closely monitor SARFT’s DTH plans going forward and respond as appropriate.
Looking at the remainder of 2011 and over the longer term, we expect to maintain steady performance in our smart card business, while actively promoting the development of our value-added services, next generation products and integrated chips. We remain confident in our belief that our team’s experience and industry knowledge will keep us ahead of the development of China’s cable TV industry.
I would now like to turn to operational developments during the third quarter.
As we mentioned in the second quarter of 2011, Intel Capital invested in Joysee, a subsidiary of China Digital TV, to develop advanced, highly secure and reliable high-definition smart TV and set-top box products. We are pleased to report that we have made significant progress on this project. Joysee has successfully developed the prototype of a next generation product, which is currently under functional debugging.
In international markets, we continued to explore opportunities and expand our footprint. In the third quarter, our cooperation with the One Sky, the Thailand subsidiary of GMM Grammy Public Company Limited, made steady progress, with a moderate shipment of surface mounted device chipset, or SMD chipset for short. In addition, China Digital TV received a new order for SMD chipsets from One Sky in the third quarter to be delivered in the near future. We believe that this indicates a positive momentum in the development of our international business.