China Digital TV Files for Initial Public OfferingFriday, September 21st, 2007
China Digital TV Holding Co., Ltd. is offering 12,000,000 American depositary shares, or ADSs, each representing one ordinary share. This is our initial public offering and no public market currently exists for our ADSs or ordinary shares. We anticipate that the initial public offering price of the ADSs will be between $11 and $13 per ADS.
We are the leading provider of conditional access, or CA, systems to the PRC’s rapidly growing digital television market. Our CA systems, which consist of (i) smart cards that are inserted into set-top boxes at the subscriber’s end, or terminal end, (ii) software installed at the digital television network operator’s transmission point, or head end, and (iii) software for set-top boxes, enable digital television network operators to control the distribution of content and value-added services to their subscribers and block unauthorized access to their networks. As of June 30, 2007, we had installed CA systems at 130 digital television network operators in 26 of the 32 provinces, autonomous regions and centrally administered municipalities in the PRC. We were the leading vendor of smart cards for CA systems in terms of smart cards shipped in the PRC for each of the first and second quarters of 2007, with a market share of approximately 44% in each quarter, according to Analysys International, a Beijing-based market research firm. We derive a substantial majority of our revenues from sales of our smart cards, which accounted for 85.6% and 87.9% of our total revenues in 2006 and in the six months ended June 30, 2007, respectively. We expect that the sales of our smart cards will continue to constitute the majority of our revenues in the near future. In addition, we license our set-top box design to set-top box manufacturers and sell advanced digital television application software such as electronic program guides and subscriber management systems to digital television network operators.
PRC television network operators are in the early stages of switching from analog to digital transmissions, and the PRC government has set a target of 2015 for operators nationwide to complete the digital transition. We are a primary beneficiary of this transition because CA systems are an essential component of any pay-television platform. We sell our CA systems and digital television application software to PRC television network operators including cable, satellite and terrestrial television network operators and enterprises that maintain private cable television networks within their facilities. Our top five customers, in terms of revenues in 2006, were Jiangsu Qingda Science and Technology Industries Co., Ltd., or Jiangsu Qingda, Dalian Tiantu Cable Network Stock Co., Ltd., Zibo Guangdian Tianwang Shixun Co., Ltd., Taiyuan Cable Television Network Co., Ltd., and Zunyi Municipal Radio and Television Information Network Center. China Central Television, the largest television broadcaster in the PRC, also uses our CA systems, as well as those from other vendors, to encrypt its programs for distribution to local digital television operators, although it is not a major contributor to our revenue.
We were founded in 2004 by Dr. Zengxiang Lu and Mr. Jianhua Zhu, who had worked together from 2001 at N-T Information Engineering, one of the PRC’s earliest CA systems vendors. We purchased N-T Information Engineering’s CA systems business in 2004 and continued to build upon the strong reputation that business had achieved. We sold 0.2 million, 1.5 million and 3.9 million smart cards in 2004, 2005 and 2006, respectively, and we sold 2.8 million smart cards in the six months ended June 30, 2007, compared to 1.3 million in the same period of 2006. Our net revenues increased from $3.6 million in 2004 to $13.1 million in 2005 and $30.4 million in 2006. Our net revenues increased from $10.4 million in the six months ended June 30, 2006 to $21.6 million in the same period of 2007. Our net income increased from $4.5 million in 2005 to $13.0 million in 2006 and from $3.4 million in the six months ended June 30, 2006 to $12.2 million in the six months ended June 30, 2007.