China Digital TV Holding's CEO Discusses Q2 2011 Results - Q&A Transcript

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

Q2 2011 Earnings Call

August 15, 2011 8:00 PM ET

Executives

Dong Li – President and Chief Marketing Officer

Nan Hao – Senior Supervisor, IR

Analysts

Mike Olson – Piper Jaffray

Philip Wan – Morgan Stanley

Questio n -and - Answer Session

Operator: (Operator Instructions). Our first question comes from Mike Olson with Piper Jaffray. Please proceed.

Mike Olson – Piper Jaffray

Hey, good morning. I just had one quick question for you regarding gross margin, gross margin was definitely up more than we expected on a year-over-year basis in the June quarter. Do you believe gross margin is going to remain in that kind of below 80% range in the second half of 2011 or should we expect it to be more in the high 70s? Thanks.

Dong Li

(Foreign Language - Chinese)

Nan Hao

Hi Mike. The impact of the gross margin caused from the two reasons. The first reason was the phase ASP from the (inaudible) cards. Actually the ASP from this quarter compared to the last quarter has remained almost the same in U.S. dollars and the other reason caused the gross margin increase was the unit cost of these cards. The unit cost of the cards this quarter was $0.18 and compared to the last quarter we have 8% decrease of the unit cost and for the average selling price we will remain stable at 5% increase within this year. So this is still future of – this is the trend of our gross margin.

Mike Olson – Piper Jaffray

Thank you.

Nan Hao

Hello, all right.

Operator

(Operator Instructions). Our next question comes from Philip Wan with Morgan Stanley. Please proceed.

Philip Wan – Morgan Stanley

Good Mr. Li, Mr. Hao and Mr. Liang, thanks for taking my question. Given the strong smart card shipment in the second quarter and the increasing demand from some provinces as you mentioned, could you share with us your expectations for the smart card shipment for the remaining of this year and also is there any target mandated by the Chinese government for this year or next year? Thank you.

Dong Li

(Foreign Language - Chinese)

Operator

(Operator Instructions)

Nan Hao

So before the call was dropped company’s President Mr. Li was in the middle of explaining second half shipment and government target for the second half of the year. I will turn the call back to Mr. Li, he can finish his answers.

Dong Li

(Foreign Language - Chinese)

Nan Hao

Hi Philip, I will answer the questions. For your first question we only forecast the third quarter card shipments from 4.5 million to 4.7 million and we have no plan to forecast the last quarter of the card shipments of the last quarter of this year. For your second question currently we don’t have any – heard any news from the government in regard of the card shipments digitalization policies target and we are still on the processing of the card shipments digitalization by the end of 2015. Hello, Philip. Hello.

Operator

I believe Philip is out of the queue. Philip has just joined again, we will go ahead join him back

Philip Wan – Morgan Stanley

Hello, can you hear me.

Nan Hao

Hello, Philip.

Philip Wan – Morgan Stanley

Yes, can you hear me?

Nan Hao

Philip do you have any another questions.

Philip Wan – Morgan Stanley

Yes, I do have a follow-up question regarding your new business what is your progress for your integrated chip solution?

Nan Hao

So you mean the all-in one chip, sorry.

Philip Wan – Morgan Stanley

Yes, and has it been included in your sales guidance for the third quarter?

Nan Hao

Okay. I will ask Mr. Li to answer this question.

Philip Wan – Morgan Stanley

Thank you.

Unidentified Company Representative

(Foreign Language - Chinese)

Dong Li

And Philip, I will answer the first question of yours. Basically for our OEM (ph) chips, we plan to have 30,000 or OEM chips will be trialed in different cities and currently for this OEM chips is still under technology verification in cable operator side and actually technology verification we are trying to have cooperation with cable operators to release this all-in one chips to the market and for your second question we will ask Mr. Li to answer your question.

Unidentified Company Representative

(Foreign Language - Chinese)

Dong Li

The forecast of the third quarter does not include any all-in chips cost or chip shipment.

Philip Wan – Morgan Stanley

Okay, thank you for your answer.

Dong Li

Okay, thanks Philip.

Operator

(Operator Instructions) We are now approaching the end of the conference call. I would now turn the call over to China Digital TV’s Head of Investor Relations, Nan Hao, for closing remarks.

Nan Hao

Once again thank you for joining us today and please don’t hesitate to contact us if you have any further questions. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

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