NDS tumbles in challenging period

Conditional access specialists NDS hasn't had the best of quarters, with operating income falling a massive 56% to just $25.9m, and total revenues for Q1 down 11%, with volume discounts being largely blamed for the falls. Revenue from its CA activity fell 19% compared to the same period last year, while costs rose 10%. Currency fluctuations, especially with the Israeli Shekel, impacted operating income to the tune of $8.1m.

NDS is also in the process of taking itself private announced on August 8 and the company was proceeding with the formalities for the new prospectus, with the transaction closing towards the end of this year or very early 2009. The bill to date for that exercise saw $14.1m spent on the 'proposed transaction' including $11m invested on a forward currency hedge. NDS' "significant" litigation costs for its recent dispute with Echostar also impacted during the quarter-year.

Dr Abe Peled, chairman and CEO said the three months had been "challenging", although added that overall revenues were still in line as far as guidance was concerned. "NDS's results this quarter reflect lower revenues from several large customers whose CA contracts have been renewed with certain volume discounts and new pricing to reflect different smart card change-over policies, as well as smart card recycling by certain customers. This is in line with our guidance for fiscal 2009. In addition, our results have been impacted by unusually large currency fluctuations during the period. At this point, the worldwide economic uncertainty has not been reflected in our operational results or outlook; however, we remain cautious and are monitoring the field results closely. Our project pipeline remains strong, and we remain focused on helping our customers compete effectively."

He said NDS had established a hiring freeze (although had added 408 new staffers) and will not increase headcount during what he described as a "turbulent period" in the financial markets. Peled stressed it was also important to note that even if subscribers traded down from top-level tiers this would not affect NDS' income as long as the viewer maintained a basic subscription.

Peled spoke optimistically about the roll out of DTH in India, and also that despite the recent revelations at Premiere in Germany he remained "extremely bullish" about the possibly of subscription growth at Premiere.

Tough as all this is, NDS still ended Q1 with $711.2m in cash in the bank, although it needs $725m to be available for the deal mentioned above - where Permira Advisors and News Corp will take NDS private.