The Devoncroft Digest provides an overview of and insight into industry news items that I think might be interesting / important for readers and clients.
Here are a few of the things that have caught my eye this week.
Earnings Season Continues
A number of broadcasters, TV platform operators and broadcast technology vendors announced their earnings this week. With one or two exceptions the results were generally positive.
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Broadcast Technology Vendor Earnings
Harmonic posted strong Q2 results. The company’s revenue was up 18% versus the same period last year, and up 13% versus the previous quarter. More importantly, the company’s net income of the quarter was $4.4m vs. a loss of $7.9m during the same period last year.
On the company’s earnings conference call and slide presentation Harmonic executives also discussed the pending acquisition of video server company Omneon, and provided a bit more information on Omneon’s business. Omneon recorded bookings of $57.8m during the first half of 2010, a 19% y/y increase. For the full year, Omneon is expected to have revenues of $120-$125m, with (non-GAAP) gross margins of 57-57% and (non-GAAP) operating margins of 6-7%.
The market seemed to like what Harmonic had to say. On the day after the earnings announcement, Harmonic shares were up by almost 17%.
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Technicolor announced its results for the first half of 2010 this week, which saw revenues decline 18.5% versus the previous year. The company achieved EBIT of €15m from “continuing operations,” but recorded an EBIT Loss of €109m from “discontinued operations.” The company attributed this EBIT loss “mostly to Grass Valley,” which found a buyer this week after being for sale for more than a year (more on that below). More information about Technicolor can be found in the slide presentation that the company used during its analyst earnings conference call.
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Belden issued strong numbers for Q2, beating the expectation of equity analysts. Driven by strong results from the Americas (which were up 27% y/y), the company’s revenues rose 24% versus the same period a year ago, and 6% versus the previous quarter. The company issued an upbeat forecast and raised its guidance for the future.
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Audio (and now video) specialist Dolby Labs delivered strong results for its 3rd quarter. The company’s revenues rose 34% versus the same period last year, and its net income increased by 25% versus Q3 2009. Dolby which has been pushing aggressively into the 3D and Digital Cinema markets, recorded a non-cash impairment charge of $9.6 million in cost of revenue related to digital cinema systems provided under operating leases to exhibitors.
Separately, Dolby announced an additional $300m for its stock repurchase program, which has the objective of offsetting dilution from the company’s equity compensation programs.
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Cable technology vendor ARRIS announced its preliminary Q2 Results. The company’s revenues were up slightly, but its net income and gross margins were both down. Investors were unhappy with these results and sent the company’s shares down sharply.
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Leading set-top box vendor Pace announced strong results for the first half of 2010. For the first six months of the year the company’s revenues rose by 21% and profit jumped by 46% versus the same period in 2009. Separately, the company announced its intention to acquire 2Wire (see below).
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Broadcaster & Platform Operator Earnings
European satellite operator Eutelsat announced this week that it achieved a record year, and that its revenue and EBITDA growth both exceeded 11% versus 2009. The company’s earnings press release that it now delivers 3,662 broadcast TV Channels, and that the number of HDTV channels had grown by 80% during 2010.
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Belo, one of the largest pure-play TV broadcasters in the US delivered strong results for its second quarter of 2010. The company’s revenue for Q2 was up by 13% versus 2009, and its net income almost doubled. Significantly the company’s revenue from the automobile sector was up by 51% and its digital (website) revenues grew by 14%.
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US cable operator Comcast reported that its revenues increased by 6.1% in its second quarter of 2010/ The company’s operating income and cash flow were both up, but it lost 256,000 basic video subscribers. The company, which is currently seeking approval to purchase NBC-Universal, disclosed that it spent a total of $59m on the deal during the quarter
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UK-based Virgin Media delivered strong results for its second quarter. The company’s revenue, operating income and cash flow all increased.
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Broadcast Industry M&A Continues
Multiple broadcast technology M&A deals were announced today:
- Grass Valley is to be acquired by Francisco Partners, a private equity firm
- Ross Video is buying Codan
- Pace announced proposed their acquisition of 2Wire
Francisco Partners has made a binding offer to buy 100% of the shares in Grass Valley.
After more than a year on the block, and several rumored bids, Technicolor appears to have found a buyer for Grass Valley – a Private Equity firm called Francisco Partners. According to Technicolor CFO Stephane Rougeot “This binding offer is a key step in the largest of the disposals we decided to make as part of the strategic refocus of our activity portfolio. This will clarify and solidify our financial profile. This is also positive news for Grass Valley Broadcast employees and customers who will benefit from the engagement of a new shareholder recognized as a leader in technology-based businesses.”
Francisco is buying all of Grass Valley, except for the transmission business, which is being retained by Technicolor.
Technicolor certainly did not get rich from this deal. It paid $172m for Grass Valley in 2002, and then acquiring multiple companies (including Canopus for more than $100m) over the past few years, the company has now struck a deal with Francisco Partners which according to a Technicolor press release values Grass Valley at $100m.
After reviewing the structure of the deal, one industry insider told me that Grass Valley was sold at what one industry insider described to me a “fire sale.” In fact it appears that no money will change hands, and that Technicolor will actually pay €20m to Grass Valley in order to fund “ongoing management of the activity.”
For its part, Francisco Partners will sign an $80m IOU, which carries capitalized interest of 5% per year. This means that Francisco will not pay anything for Grass Valley for at least five years, and that Technicolor will make a large cash injection into the company to keep it going.
Clearly Technicolor wanted to get rid of Grass Valley and its associated losses so it can focus on its now core business activities. The only silver lining for Technicolor is that it has the right to “receive additional consideration from the buyer based on the potential future remuneration of the new owners of the disposed entity.”
Grass Valley announced the deal in a press release and a letter to customers. The company has set up a deal-oriented website where information about the transaction has been published, and has also created an “Ask Jeff.” (as in Jeff Rosica, head of the Grass Valley Broadcast & Professional business) email address where questions about the deal can be sent directly to the company. According to Rosica, who was interviewed by industry website TVNewsCheck, it’s Business As Usual At Grass Valley.
Grass Valley is one of the industry’s great companies and I am sure that the people there are happy to finally have resolved their fate. Let’s hope they can now focus on making great products – and of course money for their new owners.
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Ross Video Acquires Codan
Ross Video, which is best known for its production switchers and newsroom automation systems, announced that has it entered into a letter of intent to buy 100% of the shares of Codan Broadcast Products Pty Ltd. The sale, subject only to the finalization of due diligence, is scheduled for completion on 31 August, 2010. The deal will expand the Ross portfolio by adding Codan’s product range of routing switchers, signal processing and audio monitoring. It also strengthens Ross Video’s foothold in the important Australian broadcast market. This is the second Ross acquisition in the past two years. In 2009 Ross purchased Dutch graphics firm Media Refinery.
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Pace to Acquire 2Wire
Leading set-top box vendor Pace plc announced its proposed $475m acquisition of 2Wire, a provider of residential gateways and associated software for the broadband service provider market. According to the press release, 2Wire has established customer relationships in the tier one telco market, including AT&T, which has been a customer of 2Wire for 10 years and uses 2Wire solutions in its U-Verse platform. 2Wire is currently owned by a consortium including Alcatel-Lucent, AT&T, Telmex, and Oak Investment Partners.
Pace says that following the completion of the acquisition it will be the number one provider of telco residential gateway devices in the US and the number three globally.
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3D News – RealD Insiders Cash in on IPO
The Wall Street Journal reports that following on from their successful IPO, insiders at 3D firm RealD Insiders Made More Money in IPO than Company Did. A skeptical Wall Street equity analyst is quoted in the article as saying that the only reason for the IPO was to generate liquidity for investors.
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Other Broadcast Technology Vendor News
Harris Creates New Division, Names Means GM
The changes continue at the broadcast communications division of Harris. The company announced this week that it has created a new “Workflow, Infrastructure & Networking” (WIN) business unit, and named newly hired Doug Means as its General Manager. According to the company’s press release, Means will lead the newly formed WIN business unit, which encompasses the Harris Broadcast infrastructure, networking, server, automation and asset management product portfolios. WIN was formed as part of an overall strategy to create scale, reduce organizational complexity and deliver more interoperable solutions to address the continually changing needs of Harris Broadcast customers.
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Evertz Lands Big International Order
Canadian infrastructure vendor Evertz, which prides itself on not doing marketing, took the unusual step of issuing a short press release to announce the fact that the company has received orders in excess of C$7m from an unnamed international customer.
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Elemental Closes $7.5m Funding Round
Video transcoding firm Elemental Technologies, which uses GPU processing announced that it has closed a $7.5 funding round. The company says it intends to use the capital to expand its business in the United States and internationally. While this is a good result for Elemental, it appears the company did not fully achieve its goals with this round. According to an SEC filing, the company had hoped to raise $9m, but it looks like it fell short of that goal. Transcoding is a tough business as evidenced by the recent sale of Ripcode (who had raised considerable financing) to RBG. Perhaps Elemental’s unique GPU-based approach will enable the company to thrive – it gets pretty good reviews from broadcasters according to an article about Pitch Blue which appeared in Broadcasting & Cable magazine this week.
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Envivio Raises $15m
GigaOm property NewTeeVee reported this week that Envivio, another player in the video encoding / transcoding space, has secured $15m in additional funding and shaken up its management team.
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Other Platform Operator News
Ascent Media Hires 3 New VPs
Ascent Media has appointed three new vice-presidents for its media and digital services operations in Burbank, CA.
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MobileTV News
The Wall Street Journal published an interesting article about the state of the mobileTV market in the USA, which discusses Qualcomm’s Plans for FLO TV, the US broadcaster-backed Open Mobile Video Coalition and mobileTV operator MobiTV. The WSJ’s finding? The picture for mobile TV in the US is “fuzzy.”
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Other News
Broadcasting & Cable magazine’s Glen Dickson wrote an interesting article about the new HD file delivery platforms that are being rolled out by Ascent Media and DG FastChannel.
According to B&C, Pitch Blue, the new HD file delivery platform from Ascent Media and CBS is now delivering HD content to 1,350 US TV stations, while the new system from DG FastChannel has been deployed in 500 US TV stations. The B&C article also highlights the need for transcoding systems in TV stations to convert these HD file to house formats. As mentioned above, Elemental gets a good review from stations.
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Market Research Note of the Week: Reliability Rankings of Broadcast Technology Vendors — The Top 30 Globally
Broadcast technology products are purchased by discerning customers for what are often mission-critical applications. Thus, the reliability of products is a paramount concern for buyers of these products.
To measure the rankings of the reliability of vendors, respondents were asked to rank broadcast technology vendor brands for “reliability” on a 10-point scale, with 10 being best in the market and one being worst in the market. The top 30 ranked brands are shown in the graph for the global sample of all respondents. There are a wide variety of vendors on this list, including large and small companies and those who produce audio and video products.
When reviewing these results it’s important to understand how many products are produced by each vendor on this list. This will help us to understand if reliability comes from small, focused companies or large, multiproduct vendors.
The 2010 BBS evaluated 27 separate product categories. As with the previously published top 30 quality rankings, single-product companies (those who were covered on only one product category in the 2010 BBS) dominate the rankings for reliability.
To read the full article, including a breakdown and analysis of the findings, click here.