China Digital TV Holding's CEO Discusses Q1 2012 Results - Earnings Call Transcript

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

Q1 2012 Earnings Call

May 22, 2012, 20:00 p.m. EDT

Executives

Yi-Ke Hong – Brunswick Group

Dong Li – President and CMO

Nan Hao – Senior Supervisor, IR

Presentation

Operator

Good evening and thank you for standing by for China Digital TV's first quarter 2012 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.Yi-Ke Hong.

Yi-Ke Hong

Hello everyone and welcome to China Digital TV's first quarter 2012 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. 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.

Dong Li

Thank you, Yi-Ke. Hello everyone and welcome.

In the first quarter, we were pleased to see steady revenue growth of 12.6% on an annual basis. Smart card sales remained a strong contributor to our overall revenue this quarter. This is as a result of cable operators' continued investment in digitalization projects. While digital conversion at the provincial level is now almost complete, we've seen a continuous push for digital penetration, particularly in lower-tier regions. As a result, we saw strong demand from several provinces, including Jiangsu, Guangdong, Zhejiang, Hubei and Shandong this quarter.

Supported by these drivers, smart card shipments reached 3.7 million in the first quarter, compared with 3.63 million in the same period in 2011, and 5.38 million in the fourth quarter of 2011. The quarter-over-quarter decrease was primarily a result of seasonality due to the Chinese New Year holiday in Q1.

During the first quarter, average selling price, or ASP, for smart cards increased by 3.7% compared to the fourth quarter of 2011. In addition, the unit cost of smart cards increased by 12.6% compared to the fourth quarter of 2011.

With steady shipments recorded in the first quarter, we have maintained our leadership position with a 58% share of the CA market, according to Zhongguang Luoda Consulting, a Beijing based research agency. This is a significant lead over all peers in China.

In addition to steady growth in smart card sales, we've also seen encouraging progress from our next generation products. This quarter, revenue generated from other products, including our multimedia home entertainment boxes, integrated chips and surface mounted device chipsets, was $2.1 million compared to $112 thousand from the same period last year.

Now, let me provide you some updates on China's cable TV market.

According to Zhongguang Luoda, by the end of Q1 2012, the total number of Chinese cable TV subscribers reached 200 million, of which about 110 million were digital subscribers. This represents a roughly 56% penetration rate for digital cable service. The remainder of the market that has not yet gone digital will continue to drive demand for our CA products. Furthermore, in the near future, the conversion from standard definition set top boxes to high-definition set top boxes will remain a driving factor for demand in China's digital TV market.

Beyond our CA products, this quarter we achieved encouraging progress from our value-added services, as well as from international market development. As we disclosed last quarter, China Digital TV started deploying cloud computing services in Nanjing city and is actively seeking partnerships with cable and telecom operators. In the first quarter of this year, we deployed a cloud computing system in Qingdao city. The project has entered its trial run and has deployed 800 concurrent knots.

In addition to working with cable operators, we also signed an agreement with a leading telecom operator in Shandong Province to help it run internal tests on the video cloud platform, covering a few thousand users. To date, 60 concurrent knots have been deployed and tests have been started internally. The primary benefit of the cloud computing system is to enable both cable and telecom operators to provide customized value-added services and diversified application to commercial and individual end users.

In international markets, we continued to explore opportunities and expand our overseas partnerships. In the first quarter, we furthered our cooperation with One Sky, the Thailand subsidiary of GMM Grammy Public Company Limited, with another mounted device chipset order of 600 thousand units. In addition to our partnership with One Sky, we remain committed to exploring new opportunities in international markets.

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