Skyworth Digital: New Deployment of European Market and Smart & Connected Car

July 22,2015

    After two weeks of suspension, on July 21, Skyworth Digital (000810.SZ) officially announced the acquisition updates and new strategic layout which is a major concern of investors and the public. On one hand, based on internationalization strategy, Skyworth Digital declared to acquire Strong Group, a famous set top box enterprise of Europe, a first time for an domestic enterprise in such industry to realize cross-border merger and acquisition in Europe; on the other hand, based on the demands to deploy "automobile sitting room" and vehicle-borne entry, the company acquired the auto electronics business under Skyworth Group to further build "intelligent connection + life". On the same day, it also announced a stock option incentive plan for senior executives of Beijing Skyworth Hightong.

    Acquiring Strong Group, Cultivating European Market

    Established in 1996, Strong Group is a famous set top box enterprise in Europe, with over fifteen years of experience in brand sales and channel distribution of digital TV set top box and network products, consumer electronic goods. It used to be an authorized distributor of THOMSON set top box in most areas of Europe, Middle East and Africa. Meanwhile, it was a sales agent of THOMSON TV set and network broadband products in regions such as North Europe, Central Europe and Eastern Europe. Strong Group has nine subsidiaries distributed in the European Continent, which focus on local brand distribution and operation, forming an end-to-end marketing and service system consisting of demand definition, research and development, local delivery and after-sale service. Strong brand is ranked No. 1 in set top box market share in North Europe markets such as France, Holland, Austria, Ukraine and Denmark and is ranked among top three in the market share in the East Europe markets such as Bulgaria and Romania and Central Asia markets such as Kazakhstan, respectively.

    According to the announcement, Smart Choice Store Company Limited (hereinafter referred to as "Smart Choice"), a fully-owned subsidiary of Skyworth Digital reaches the agreement with Strong Media Group Limited (hereinafter referred to as "Strong Group") to transfer 80% and 20% stock rights (100% stock rights after the acquisition process is finished) to Skyworth Digital under two stages, so as to expand the sales business of Strong brand series intelligent set top box and related products in Europe, Central Asia and North Africa; meanwhile, based on the channel and distribution capacity of Strong, it will actively expand the operation of related added value services of OTT under the brand of Strong.

    As the leader of the industry at home and a brand with international influence, Skyworth Digital's overseas set top box export has secured the first spot in the industry for several years in a row. Currently, its major overseas markets include the regions such as Southeastern Asia, India and South Africa, with its sales mode taking the form of B2B. According to its overseas development strategy, while continuing to consolidate its advantageous status in the market, the company actively expands the markets of Europe and America, establishes internationalized and localized teams and build related diversified platforms for sales, channels and services; its sales mode extends from B2B to B2C, producing multi-business operators with professional end-to-end added value services such as distribution and delivery of set top box and enhancing the company's brand added value and bargaining power.

    In 2015, the digitalization process of the European Continent is facing new opportunities and breakthroughs. The satellites and terrestrial digital TV of France will enter a new round of alternation period from "Mpeg2 to Mpeg4"; following Italy, Germany also plans to promote HEVC technology in two years; other European countries will also usher in the period of alternation of terrestrial digital TV from standard definition STB to high definition STB. These countries and regions are the major markets of digital TV in Europe, which are expected to produce huge market demands and sales growth in two or three years as the digitalization process advances. By 2020, the market is forecasted to reach 350 million users.

    With the acquisition of Strong Group's business and team this time, Skyworth Digital combined its capabilities in research, development, design, supply chain and manufacture with the capabilities of Strong Group in internationalized brand, market, channels and distribution, which will effectively supplement each other's advantages in business and resources, give a full play to the synergy effect, provide a great driving force for its expansion of overseas markets, and greatly enhance its market share in Europe, Central Asia and North Africa. Meanwhile, the company plans to deploy the sales of brand intelligent terminals at the OTT retail channels and the operation of subsequent added value service in Europe, which as a whole can bring higher revenue and make more contribution to profit growth for the company.

    In the markets of Europe, Central Asia and North Africa, Strong will become a powerful distribution platform for the consumer electronic products of Skyworth Digital.

    Acquiring Auto Electronics, Expanding Mobile Sitting Room

    Other than the new deployment in overseas markets, based on the development strategy deployed to promote auto "automobile sitting room" intelligent terminals and related added value service of vehicle-borne mobile entry, Skyworth Digital has completed its acquisition of 100% stock rights of Skyworth Auto Electronics (Shenzhen) Co., Ltd., an associated party under Skyworth Group.

    Skyworth Auto Electronics is one of the earliest enterprises in the industry to engage in research, development and operation of vehicle-mounted navigation and entertainment products and systems, providing various vehicle-mounted video and audio navigation products based on the Wince platform, independently developed SDS double intelligent system platform and Android system platform. In recent years, based on independent research and development, reformation and innovation, it gradually shifts to supplying intelligent vehicle-mounted terminals, ADAS, intelligent traffic auxiliary system for users, and provides users with safe, convenient, intelligent and interconnecting mobile vehicle-mounted services depending on intelligent devices. Skyworth Auto Electronics has developed multiple series of Big Dipper double mode system intelligent terminals (including intelligent rearview mirror series such as Skyworth Magic Mirror) and differentiated vehicle-mounted information service system for high-class cars such as Audi and Benz as well as Big Dipper vehicle-mounted intelligent gateway and other products and systems; meanwhile, it has transformed to provide car networking based big data operation service such as internet based insurance and intelligent traffic, vehicle-mounted mobile socializing service and LBS position information service.

    The full holding of Auto Electronics helps Skyworth Digital deploy in the operation of "mobile sitting room" intelligent terminals, vehicle-mounted mobile entry and car networking added-value service. Combined with Skyworth Digital's technology and talent reserve, operating and service experience and sharing of cloud platform system and big data analysis, it will provide resource integration for the subsequent research and development of car intelligent connection, channel expansion and progress of operation and service, and expand new growth points for Skyworth Digital.

    Expanding Radio and Television Added-value Service, Implementing Stock Option Incentive

    Beijing Skyworth Hightong Digital Technology Co., Ltd. (hereinafter referred to as "Skyworth Hightong") is mainly engaged in the development and sales of digital TV front-end system, Pangea OTT added-value service system and operation, cable digital TV intelligent reception system and terminal, terrestrial broadcast digital TV intelligent reception system and terminal, network TV reception device and system and home multimedia intelligent reception system and terminal.

    Based on actively expansion of the added-value service operation of radio and television operators and the implementation of stock option incentive for management, Skyworth Hightong will transfer 15% stock rights to senior executives of the company, which will be beneficial to the long-term development of the company.

    Profile of Skyworth Digital LLC:

    Skyworth Digital is a listed company (stock code: 000810.SZ) of A shares in China under Skyworth Group. It dedicates to providing global users with digital TV network video and audio products, systems and operation, and expert service depending on the sitting room. It is ranked No. 1 for several years in a row in the market share, its overall sale volume is ranked No. 3 globally. To follow the trend of online-, data-, network- and international-oriented, it actively carries out reformation and innovation to develop the added-value operation and service for radio and television users, Internet OTT, mobile Internet, big data for home and "automobile sitting room".

    For years, Skyworth Digital has cooperated with strategic partners like operators, content providers, application providers and channel providers to build the intelligent ecological chain centering on "platform+ content+ terminal+ application" based on radio and television network, telecommunication network and the Internet. The company has rolled out a full series of set top box such as digital TV, intelligent network and IPTV, intelligent network access equipment, auto intelligence and car networking and the Internet of things and other intelligent products, system and operation service, which can fully satisfy the individualistic experience and demands of operators and terminal users.

    The company is ranked No. 1 in the market share of radio and television operators, establishing a solid and good partnership with 900-plus radio and television operators at provincial and municipal levels, with a market coverage rate of above 90%; the sales proportion of intelligent STB and intelligent network access terminals has grown year by year. It secures the first position in export volume to international markets for several consecutive years in domestic industry, extends its markets to regions like Europe, Southeastern Asia, India, South Africa and America, thus making it an industry leader at home and a famous brand with international influence.