China Digital TV Holding Co., Ltd. (STV) Q1 2011 Earnings Call May 16, 2011 8:00 PM ET Executives Josh Gartner – Brunswick Group LLC, IR Dong Li – President Nan Hao – Head, Investor Relations Zhenwen Liang – Chief Financial Officer Analysts Mike Olson – Piper Jaffray Philip Wan – Morgan Stanley Presentation Operator
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, Josh. Hello everyone. We are pleased to report that in the first quarter we saw steady strong demand from cable operators as they continue to invest in digitalization. We delivered strong performance, taking into account the normal seasonal slowness related to the Chinese New Year and the annual CCBN conference. Smart card shipments reached 3.63 million, representing a 41% increase year-over-year. Net revenues were $19.3 million US dollars, representing a 38% increase from the same period last year. In addition, we are particularly delighted that we were able to continue expanding our market leadership position during the first quarter. As a result of our focus on customer base expansion and day-to-day execution, our market share increased to 61.8% from 59.1% in the fourth quarter of 2010. This strengthened leadership position will help insulate us from short-term fluctuations in the demand for smart cards caused by ongoing cable network consolidation, while also preparing us to capitalize on next generation products as the pay-TV market develops in China. According to the latest data from Analsys International, a Beijing-based market research agency, the number of China’s digital cable TV subscribers has reached 96.5 million as of the end of March. Meanwhile, the number of newly added digital cable subscribers in the first quarter of 2010 was about 4.32 million. These increases were the result of accelerated mass migration to digitalization and the cable network consolidation at provincial level.
Looking at the remainder of 2011, we believe that the policy environment will remain positive as cable operators continue pushing forward with digitalization. As you know, the government mandated a deadline for provincial-level cable network consolidation by the end of 2010. This created significant smart card demand in the fourth quarter of 2010. However, not every province was able to meet, or completely meet this deadline. As cable operators complete the consolidation process and enhance their network capabilities, we expect to see continued strong demand for smart cards during the remainder of this year, albeit at a milder growth rate than in 2010.Looking further ahead, the continuing implementation of the three networks convergence will lead to the increasing development of innovative technologies, products and value-added services. Therefore, we remain strongly committed to R&D. We are focusing on advanced content protection technologies applied across multiple platforms, as well as interactive super-terminals that support two-way programming. As China’s digital TV market continues to mature, we are confident that our strategy to diversify our business will better enable China Digital TV to benefit from the growing market opportunities in the near future and will strengthen our position as the industry leader. We also believe that the future is bright in our international markets. We have pressed forward with our strategy to lay the groundwork to raise our profile and revenue streams abroad. I would now like to turn to operational developments. During the first quarter, average selling price for smart cards remained relatively stable, with a modest decrease of 1.3% compared to the fourth quarter of 2010. As we said in the Q4-2010 earnings call, we believe that the decrease in ASP during 2011 will be contained to within 5% of last year’s price levels. Read the rest of this transcript for free on seekingalpha.com