China Digital TV Holding Co., Ltd. (STV)

Q2 2010 Earnings Call Transcript

August 17, 2010 8:00 pm ET

Executives

Henry Fraser – Brunswick Group

Dong Li – President and Chief Marketing Officer

Eric Yuan – Senior Manager, IR

Zhenwen Liang – Acting CFO

Analysts

Jie Liu – Auriga USA

Mike Olson – Piper Jaffray

Philip Wan – Morgan Stanley

Wallace Cheung – Credit Suisse

Presentation

Operator

Good evening and thank you for standing by for China Digital TV’s second quarter 2010 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, Henry Fraser from Brunswick Group.

Henry Fraser

Hello everyone and welcome to China Digital TV’s second quarter 2010 earnings conference call.

The company’s earnings results were released earlier today, and are available on the company’s IR website at 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. Eric Yuan, who will discuss business updates and financial results. After their prepared remarks, they will be joined by China Digital TV’s acting 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.

Dong Li

Thank you, Henry. Hello everyone.

We are pleased to deliver strong financial results for the second quarter. Net revenues were $19.1 million dollars and we shipped 3.61 million smart cards over the quarter, both exceeding our high-end guidance. And we continued to capture market share -- achieving 55% market share in smart card shipments during the quarter, according to a third party market research firm. Also during the second quarter, new government policies and implementation guidelines continued to shed more light on cable network consolidation and three-network convergence.

Overall, the industry has begun to move beyond the “wait & see” attitude which slowed down the TV digitalization process last year. As a result, we are seeing accelerated cable network consolidation and increased investments by cable operators in TV digitalization projects. At the beginning of 2010, SARFT and other relevant governing bodies required that by the end of 2010 each province must establish a provincial-level cable operator. This provincial operator would gradually acquire local operators, eventually leaving only one cable operator in each province. To date, 19 provinces have established provincial-level operators, and the remaining 12 are preparing to do so.

Regarding three-network convergence, SARFT announced in June the first group of 12 cities that will participate in pilot schemes for the convergence project. These include first-tier cities such as Beijing, Shanghai and Shenzhen. In these pilot cities, cable operators and telecoms companies will be allowed to expand their scope of services and enter each others’ market spaces, providing triple-play services which bundle video, voice and internet services on a single network. Cities not involved in the pilot schemes will be keeping a close watch and innovative business models emerging from the pilot program may encourage cable network upgrades.

This is a very exciting time for China’s TV industry. We expect that the improved policy environment will continue to drive digitalization through the second half of 2010, and will drive demand for advanced technologies and premium content across multiple media platforms in the medium to long term. As the industry leader, I am confident that, by executing our strategy of enhancing our content protection business while investing in new businesses, China Digital TV will be well positioned to maximize opportunities during this next stage. I will now hand the call over to our head of investor relations, Eric Yuan, who will discuss operational developments in detail.

Eric Yuan

Thank you, Mr. Li. Hello everyone.

To expand on some of Mr. Li’s points – we are pleased to see that smart card shipments and revenues have recovered over the past three consecutive quarters from a low point in the third quarter of 2009. We believe that in the second half of this year, operators will continue to actively invest in TV digitalization projects and we are optimistic about shipment demand. Average selling price, or ASP, was largely stable in the second quarter at less than 1% below the Q1 level. We are confident that any ASP decrease in 2010 should be contained within our previous forecast of 10% below the 2009 level. Furthermore, we are excited to see that we are widening our market share gap with competitors.

Read the rest of this transcript for free on seekingalpha.com