Gemstar Taking a Hit From News Corp.'s DirecTV Loss.THE selection of EchoStar Communications Corp. as the winning bidder for Hughes Electronics Corp. stunned stun tr.v. stunned, stun·ning, stuns 1. To daze or render senseless, by or as if by a blow. 2. To overwhelm or daze with a loud noise. 3. many on Wall Street, but none were more surprised than shareholders of Pasadena-based Gemstar-TV Guide International Gemstar-TV Guide International, Inc. is a media company that licenses interactive program guide technology to multichannel operators, such as cable and satellite television providers, and consumer electronics manufacturers, video recorder scheduling code under brands such as VCR Inc. After the deal was announced Oct. 28, Gemstar shares fell more than $3 -- further than EchoStar, further than Hughes and further than losing bidder News Corp., whose hopes to enter the U.S. satellite broadcasting market via Hughes' unit DirecTV were dashed. By Wed., Oct. 31, Gemstar's had firmed to $20.27, down $2.92, or 13 percent, from where it last traded before the contract was announced. Why did Gemstar get hit so hard? Because News Corp. was expected to win Hughes, and if it did, Gemstar stood to reap a substantial windfall, in the form of a potential licensing agreement with DirecTV. Instead, DirecTV is poised to land in the hands of EchoStar, which has refused to license Gemstar's interactive programming guide technologies. Gemstar has sued EchoStar (along with others) alleging patent infringement patent infringement n. the manufacture and/or use of an invention or improvement for which someone else owns a patent issued by the government, without obtaining permission of the owner of the patent by contract, license or waiver. , and EchoStar has countersued with an antitrust claim. However the dispute eventually winds up, Gemstar's chances of getting its IPG IPG Implantable pulse generator, see there in front of DirecTV's 10 million subscribers have been set back. "They've been indicating to the Street that DirecTV was about to sign a deal, but now you have a sworn enemy" poised to take control of Hughes, said Rob Martin, an analyst with Friedman Billings Ramsey FBR Group Friedman, Billings, Ramsey Group Inc., or simply FBR, (NYSE:FBR), is a full service investment bank headquartered in Arlington, Virginia that sponsors the FBR Open PGA golf tournament held in Phoenix, Arizona. & Co. Some of the set-top box The cable TV box that sits on "top" of the TV "set," although it is often located several feet away in an equipment rack. The set-top box descrambles the premium channels and provides a tuner for the higher cable numbers that very old TVs did not support. manufacturers DirecTV uses pay licensing fees to Gemstar, but DirecTV has been resistant to signing a broader IPG contract one that could bring Gemstar 50 cents per month per subscriber. "It seems as if there had been ongoing talks about it," said Josh Bernoff, a Forrester Research Forrester Research is an independent technology and market research company that provides its clients with advice about technology's impact on business and consumers. Corporate facts
Gemstar officials declined to comment. News Corp. owns 38 percent of Gemstar. If it controlled Hughes as well, the common wisdom went, an IPG deal between Gemstar and DirecTV would be short work. Now, the picture has changed. Martin lowered his projection for Gemstar's subscriber growth by 5 million, to 35 million by the end of 2002. (Gemstar's subscriber base stood at 12 million in July.) He also lowered estimates for corresponding revenue from advertising on the guides, due to the expected lower subscriber count and the deteriorating advertising market. Lower revenue estimates Overall, Martin cut Gemstar revenue estimates by $70 million in 2002, to $1.44 billion. It's not a large amount, but because those revenues generate high profit margins, nearly all of the loss passes through to Gemstar's EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become line. Martin cut his 2002 estimates for EBITDA, or earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
The key to Gemstar's success has been its intellectual property portfolio, which it wields like a weapon in dealings with potential customers and competitors. Gemstar owns more than 180 U.S. and 190 foreign patents and has another 300 U.S. and 800 foreign patents pending. Its technology and licensing division, with expected 2001 revenues of $325 million, is devoted to "developing, licensing and protecting the company's intellectual property and technology," according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the company's own description. With such a strong patent position, Gemstar has used legal action to nudge recalcitrant cable broadcasters and set-top box makers into signing up. Subscriber base rises The results have been impressive. Subscribers have tripled over the past year, and Adelphia Communications Corp., Charter Communications Charter Communications NASDAQ: CHTR is an American company providing cable television, high-speed Internet, and telephone services to more than 5.7 million customers in 29 states. It is the third-largest publicly traded cable operator in the U.S. Inc. and Comcast Corp. have all signed on as they rolled out their digital cable platforms -- even though all those companies backed a rival, open-standards IPG joint venture called TV Gateway. Gemstar has made little progress in the satellite sphere, where EchoStar and DirecTV are he dominant U.S. players, and BSkyB. another News Corp. affiliate, is a major player in Europe. [Graph Omitted] [Graph Omitted] Gemstar-TV Guide International Inc. Stock Prices YEAR (Dec. 31) 2000 1999 Revenue (millions) $731.1 $241.4 Operating Expenses (millions) 488.9 108.8 Operating Income (millions) (219.4) 110.9 Net Income (millions) (213.1) 81.3 Earnings Per Share (0.64) 0.33 (*)Year ended March 31, 2000. Company changed its fiscal year. SUMMARY Business: Entertainment technology and media Headquarters: Pasadena CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. : Henry Yuen Market Cap: $8.2 billion Dividend Yield: N/A Total Liabilities: $2.35 billion P/E Ratio P/E ratio Current stock price divided by trailing annual earnings per share or expected annual earnings per share. Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25.50 = 10 times $2.55. XYZ stock sells for ten times earnings. : N/A Long-Term Debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. : $332.2 million Gemstar-TV Guide International Inc. does not pay dividends Gemstar-TV Guide International Inc. Stock Prices YEAR (Dec. 31) 2000 1999 Revenue (millions) $731.1 $241.4 Operating Expenses (millions) 488.9 108.8 Operating Income (millions) (219.4) 110.9 Net Income (millions) (213.1) 81.3 Earnings Per Share (0.64) 0.33 (*)Year ended March 31, 2000. Company changed its fiscal year. |
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