China Digital TV soars in debut

Shares in China Digital TV closed Friday at $28 per share. The Beijing-based company raised $175 million by selling 12 million American Depository Shares at $16 a share, though underwriters had the option to purchase another 1.8 million shares.

The deal tapped into investor enthusiasm for IPOs from China due to strong business prospects in the country and the performance of other recent tech IPOs. China Digital TV makes hardware that enable digital TV network operators to control access to their programs and also develops software that is used in digital network conditional access systems and set-top boxes. The company's opportunities are seen as huge as Chinese television networks switch from analog to digital transmissions.

For the first six months of 2007, China Digital TV reported net income of $12.2 million on revenues of $21.6 million, compared to net income of $13 million on revenues of $30.4 million for all of 2006.

Capital International Inc., a global private equity fund, is among the largest shareholders in the company with a 21.6% post-IPO stake valued at $192 million based on the $16 offer price.

Morgan Stanley and Credit Suisse Group were joint bookrunners for the offering, while Piper Jaffray & Co., CIBC World Markets and Needham & Co. LLC were co-managers. Chun Wei of Sullivan & Cromwell LLP represented China Digital in the transaction, while Matthew Bersani of Shearman & Sterling LLP represented the underwriters.

China Digital TV's strong performance came two days after shares of e-mail marketing company Constant Contact Inc. soared 73% in their debut.

Technology companies have been among the best performing IPOs in 2007. Among the stellar performers are virtualization software maker VMware Inc. of Palo Alto, Calif., up more than 200% from its offer price; Cavium Networks Inc. of Mountain View, Calif., up 150%; and Latin American online auction company Mercadolibre Inc. of Buenos Aries, up 129%.

But there also have been disappointments, as some companies have failed to live up to their IPO hype. Shares of Redwood City, Calif.-based BigBand Networks Inc., which sells network-based platforms that enable cable operators and telephone companies to offer their video and data services across coaxial, fiber and copper networks, were recently down 50% from their offer price. The company disappointed investors in August when it lowered its financial projections for the year and again in September when it revised its revenue outlook for the third quarter.

Also not living up to expectations was network security firm Sourcefire Inc. of Columbia, Md. The company's shares were down 40% from their IPO price due to weak earnings. Digital content delivery firm Limelight Networks Inc. also disappointed investors.

It has suffered from less-than-enthusiastic coverage from research analysts and an earnings miss in its first quarter as a public company.