Jittery investors hit Gemstar despite solid fundamentals. (Investments & Finance).

BAD news billowed over Gemstar-TV Guide International Inc. recently, prompting investors to sell and run. In a 48-hour period, Gemstar's stock lost 29 percent of its value, demonstrating how jittery Wall Street can be in the wake of Enron.

Never mind the fact that Gemstar met its targets last year and reports more cash than debt on its balance sheet. Investors have lost their appetite for uncertainty and mystery, which swirled the other week when Gemstar disclosed a big shift in revenue streams and announced the unexpected departure of Peter Boylan III as co-president.

On March 19 came more unwelcome news: The U.S. International Trade Commission postponed a ruling on Gemstar's complaint that key patents are being violated by EchoStar Communications Corp., Pioneer Corp., Scientific-Atlanta Inc. and SCI Systems Inc. The ruling, initially set for last March 21, may be delayed until June 21.

Gemstar's stock fell March 26 to a 35-month low of $14.80, before closing at $14.85. Analysts glumly predicted that the price might stall for months until an ITC ruling. Analysts said the stock suffers from an "overhang," while in a Yahoo chat room, it has been dubbed "a perfect storm."

Legal cudgel

No investor watches more closely than Rupert Murdoch's News Corp., which owns 38 percent of Gemstar. In addition to TV Guide Magazine and TV Guide Channel, Gemstar holds patents related to on-screen program guides, which are vital in the 200-plus channel universe. Shareholders want assurance that Gemstar will continue to dominate the interactive program guide business.

Gemstar has filed a number of patent-infringement lawsuits, but none have proceeded to a final determination at trial. For that reason, the ITC proceeding has attracted much attention, as the quasi-judicial agency usually rules within a year.

Some analysts have wagered publicly that the ITC outcome will favor Gemstar, or at least not hurt the Pasadena-based company. After reviewing the record of Paul Luckern, the administrative law judge, Lehman Brothers' Michael Stanek wrote in a report that "the odds greatly favor a Gemstar win."

But Luckern pushed back the date for his initial determination. The 71-year-old judge noted that the 16-day hearing in December generated 5,870 pages of transcript and 6,500 exhibits.

Gemstar Chief Executive Henry Yuen warned investors on a conference call that when the ruling is made, the full text would probably be revealed only to outside counsel for the companies because of confidential material.

A Gemstar victory wouldn't result in monetary damages, but the judge could bar imports of set-top boxes or "could even prohibit satellite import of signals," declared Gemstar's Jon Orlick, who was named general counsel on March 18.

Analysts were rattled by the news that Boylan resigned as co-president and co-chief operating officer, effective April 1. The 37-year-old executive, who has served as Wall Street's primary contact since Gemstar acquired TV Guide in July 2000, wasn't on the conference call.

Ask the chairman

"There was a knee-jerk reaction that may be Pete had insight into the ITC case that none of us had. It's hard to fathom how that's possible," Banc of America Securities analyst Douglas Shapiro said.

"The market's reacting to the COO stepping down while they're reducing their company guidance, combined with the uncertainly as to the legal outcome," said John Tinker, managing partner of Steamer Capital in New York.

Yuen told analysts on the conference call that he would take Boylan's place as their primary contact. "I will personally take over a lot more of these communications as well as organize our investor relationship activities in a far more productive and effective way' the chief executive said.

Wall Street has had some memorable encounters with Gemstar. One of the most notable occurred in November 2000, when Yuen and Gemstar's chief financial officer disclosed only the company's revenue and cash flow on an earnings conference call. After the stock plunged 18 percent, the company filed a more conventional earnings report and held another conference call three days later. Boylan, who only participated in the second call, stayed on the phone until every question was exhausted.

Revenue shift

Boylan brought some bravado to the calls, often hinting at dire outcomes for companies like EchoStar or cable television operators if they failed to negotiate license fees for various Gemstar patents or interactive program guides.

Over the course of 15 months, Boylan helped Gemstar negotiate long-term agreements with Adelphia Communications Corp., Charter Communications Inc. and Comcast Corp.

On Monday, however, Yuen said the company had been "too eager" in the past to discuss deals in progress and would discontinue the practice because of the expectations it created.

For the first time, Gemstar told investors March 18 of an important shift in revenue, resulting from the deals it has struck with cable TV operators.

Yuen said revenue from set-top manufacturers could decline 50 percent this year, because Gemstar won't collect one-time licensing fees from manufacturers shipping boxes to cable companies that have agreed to pay Gemstar on a monthly basis for each subscriber using its interactive program guide.

"Generally, we have what is called 'no double dip' policy when we negotiate with cable operators," Yuen said. But the shift will result in a surge of revenue from recurring fees, which the company prefers over the long run, the Gemstar chief executive said.

The upshot? Merrill Lynch analysts Jessica Reif Cohen and Keith Fawcett concluded that Gemstar's revenues would decline 6 percent to $1.28 billion in 2002. The analysts reduced their target price to $40 from $60.

At Salomon Smith Barney, analyst Niraj Gupta lowered his rate to "outperform" from "buy," reducing the 12-month target price to $24 from $32.

Neither brokerage firm mentioned in its report that Gemstar said it will probably write down $5 billion of its $8.6 billion in goodwill and other intangible assets, acquired largely as a result of the TV Guide purchase two years ago.

With so much suspense at Gemstar, few are fretting over the non-cash charge.

[GRAPH OMITTED]