Broadcom's best customer, General Instruments, announces blowout earnings! Says that digital set-top box sales grew 26% sequentially and 200% year-over-year. This is very bullish. Interesting too is GIC's comments about MediaOne; it claims that it won MediaOne's set-top box business, despite Philips' claims to the contrary. I assume one was named the primary supplier and the other is the second source supplier.
Doughboy.
Company Press Release
SOURCE: General Instrument Corporation
General Instrument Reports Record Quarterly
Results
Earnings Per Share of $0.26, Operating Margin of 13.5%, Sales of $564 Million, and Orders of
$590 Million
HORSHAM, Pa., Feb. 9 /PRNewswire/ -- General Instrument Corporation (NYSE: GIC - news) today announced
record results and strong earnings growth for the fourth quarter ended December 31, 1998. Earnings per share were
$0.26 on a diluted basis, up 160% from $0.10 per share in the fourth quarter of 1997 before restructuring and other
charges. Net income for the fourth quarter more than tripled to $46 million compared to net income, before restructuring
and other charges, of $15 million for the fourth quarter of 1997.
Operating income was $76.4 million in the fourth quarter, compared to $22 million, before restructuring and other charges,
in the prior year. Operating margin increased to 13.5% in the quarter, compared to 5.1% in the prior year before
restructuring and other charges and 11.7% in the third quarter of 1998.
Fourth quarter sales of $564 million increased 27.9% from $441 million in the prior year. Record revenues in the quarter
reflect strong shipments of interactive digital cable TV systems, partially offset by anticipated declines in analog cable and
international sales. Transmission equipment sales grew year over year and satellite system sales were flat with the prior
year.
Orders for the fourth quarter of 1998 totaled a record $590 million, an increase of 23.1% from $479 million in the fourth
quarter of 1997. The Company's backlog on December 31, 1998 was $636 million, 31.4% above the prior year.
''The digital cable roll-out continues to gain momentum as penetration rates grow and new markets are launched by our
customers,'' said Edward D. Breen, Chairman and CEO. ''This represents the third consecutive quarter of record results
in revenues and profit margins for General Instrument. Top line growth coupled with our continuing focus on cost control
and productivity gains drove the positive results in the quarter.''
During the quarter, General Instrument generated $126 million in cash from operations. On December 31, 1998, General
Instrument had a cash balance of $149 million with no debt.
The company repurchased approximately 2.5 million additional shares during the fourth quarter bringing the weighted
average common and common equivalent shares outstanding for the quarter ended December 31, 1998 to approximately
180 million. As previously reported, the company has repurchased 6.3 million shares under the share repurchase program
announced in September of 1998.
FULL YEAR RESULTS
Sales for the twelve months ended December 31, 1998 were $2.0 billion, an increase of more than 12.5% from 1997.
Excluding the 1998 and 1997 restructuring and other charges, operating income was $219.7 million in 1998 compared to
pro forma operating income of $108.3 million in 1997 while net income was $134.9 million ($0.80 per share) in 1998
compared to pro forma net income of $67 million ($0.45 per pro forma share) in 1997. The tables attached hereto reflect
the historical reported results for the applicable periods.
RECENT PRIMESTAR DEVELOPMENTS
On January 22, PRIMESTAR, Inc. announced that it reached an agreement, subject to certain closing conditions, to sell
its direct broadcast satellite (DBS) medium-power business and assets. ''While the potential loss of this customer could
impact 1999 satellite systems sales, the company is comfortable with current 1999 consensus estimates of $0.93 per
share,'' said Breen.
In connection with this uncertainty, the company is taking action to reduce overhead and further consolidate its San Diego,
CA, and Horsham, PA operations. These initiatives are expected to result in one-time charges ranging from $10 - $15
million. ''These overhead reductions will not impact our ability to deliver on our commitments nor interfere with our plans
for the future,'' said Breen. ''We are redirecting our resources to the areas of our business that offer the best opportunities
for growth.''
DIGITAL UNIT SHIPMENTS GREW 26% SEQUENTIALLY
Digital set-top terminal shipments for the fourth quarter grew 26% to 730,000 units from 580,000 units in the third quarter
of 1998. Year over year, digital shipments more than tripled from the 200,000 units shipped in the fourth quarter of 1997.
During the quarter, General Instrument launched 61 digital headends bringing the number of active digital headends to
more than 700. From the time of product introduction in late 1996 to the end of the fourth quarter, General Instrument
shipped more than 2.7 million interactive digital set-tops. ''Digital shipment growth continues to be driven by the
attractiveness of the digital business case for our customers,'' said Breen.
The DCT-2000 set-top terminal was commercially deployed during the fourth quarter. The DCT-2000 is a more
advanced interactive digital terminal, which incorporates a faster processor, more memory and improved graphics.
Shipments of 365,000 of these terminals were well ahead of company expectations.
During the quarter, General Instrument's Taiwan facility manufactured the first pre-production DCT-5000+ advanced
interactive digital terminals and added an additional digital manufacturing line. The DCT-5000+ is built around a 175MHz
RISC processor and a high-end 3D and picture in graphics platform representing the leading edge in advanced digital
cable terminals.
SIGNIFICANT DIGITAL AWARDS FOR THE QUARTER
On February 2, 1999, General Instrument and United Pan-Europe Communications N.V. (UPC), a subsidiary of United
International Holdings, Inc., announced the selection of GI's DVi-5000+ DVB-compliant advanced interactive digital
set-top terminals for deployment in UPC networks passing 4.9 million homes across Europe. The DVi-5000+ platform
will be GI's most powerful DVB interactive system and will deliver an unprecedented level of processing and graphics
capabilities.
''This award is significant for General Instrument and reflects the company's commitment and technological ability to meet
the demands of Europe's leading broadband communications companies,'' said Breen.
Yesterday, General Instrument and MediaOne announced an expanded agreement, which will result in the deployment of
GI's technology in markets serving approximately two million' subscribers. Initially employing GI's DCT-2000 interactive
digital set-top terminals, MediaOne plans to offer digital services in selected markets beyond its initial Detroit deployment
beginning in the second quarter of 1998. GI will work with MediaOne to create a digital platform incorporating
MediaOne's open architecture specifications.
''MediaOne's award represents an important event for General Instrument by raising significantly the number of homes
committed to GI's digital interactive technology in North America,'' said Breen. ''This important win exemplifies the
advantages inherent in General Instrument's broad offering of interactive digital solutions.''
IP NETWORKS SYSTEMS DEMONSTRATES TELEPHONY
At the Western Cable TV Show held during the first week of December 1998, the company demonstrated its seamless,
end-to-end IP telephony solutions. Visitors to the show were able to place live, long-distance telephone calls over a
hybrid fiber coax (HFC) network using telephones connected to GI's DCT-5000+ advanced digital interactive consumer
terminals.
General Instrument's IP Telephony solution integrates GI's DCT-5000+ advanced IP telephony cable modems and
Broadband Telephony Interface (BTI) devices into one system. General Instrument's approach offers a more cost-
effective alternative to traditional circuit-switched telephony or hybrid solutions incorporating video and telephony devices
from multiple manufacturers. GI's unique IP system enables consumers to simultaneously watch television, surf the World
Wide Web, and talk on the telephone.
On January 7, 1999, General Instrument announced its intention to work with Cisco Systems, Inc. and AT&T to develop
and trial IP solutions that will allow AT&T to offer data, voice and video services over the HFC networks now being
deployed by AT&T and Tele-Communications Inc. (TCI).
''General Instrument's IP Networks business unit, in partnership with the leading names in data networking and related
technologies, will establish the benchmark for integrated broadband service platforms and will lead the way for the
industry,'' said Breen.
SATELLITE & BROADCAST REVENUES IN LINE WITH EXPECTATIONS
Fourth quarter satellite and broadcast sales were flat with prior year. Relative to the third quarter of 1998, satellite sales
declined slightly.
During the quarter and more recently, General Instrument announced new digital TV awards by broadcasters and cable
programmers. In November, Cincinnati's WCPO-TV selected GI's High Definition and Standard Definition encoders for
the launch of its DTV services. In December, General Instrument announced that Rainbow Media Holdings, Inc. selected
GI's DigiCipher® II system for the launch of its digital television services. In January, General Instrument announced that
Turner Broadcasting System, Inc. had selected GI's DigiCipher® II system for conversion of Turner Classic Movies from
analog to digital operation.
''General Instrument pioneered standard and high definition digital television. To date, we have shipped more than 3,000
digital channels to programmers and broadcasters at more than 100 major facilities,'' said Breen. ''We are very excited
about these digital TV awards and view these installations as indicators of an expanding growth opportunity for General
Instrument in years to come.''
615,000 ADVANCED ANALOG UNITS SHIPPED
Advanced analog shipments of 615,000 units for the quarter were up slightly on a sequential basis. Compared to prior
year, advanced analog shipments declined as expected.
''While General Instrument continues to be the leading provider of advanced analog and traditional analog solutions, sales
of these products have been impacted by the shift to digital deployment in North America as well as the current
international situation,'' said Breen. ''We expect international analog trends to improve once the economic situation begins
to recover in Asia and Latin America.''
During the quarter and more recently, General Instrument received orders for the planned deployment of more than 30
analog addressable systems by Spanish operators ONO, Supercable and Retecal. These operators are building pay TV
networks passing more than 50% of the TV households in Spain.
''GI's strategy of offering local technical support, engineering and training through its network of European offices was
critical in winning these 30 analog systems,'' said Breen. ''These Spanish awards are the latest examples of GI's status as a
global supplier of pay TV systems and solutions.''
TRANSMISSION SALES GREW 11% FROM PRIOR YEAR
Transmission sales remained at the levels achieved during the third quarter of 1998 as expected. Compared to prior year,
transmission sales grew by 11%.
During the quarter, General Instrument received new commitments for its Gallium Arsenide (GaAs) hybrid technology
from Tele-Communications, Inc., Time Warner Cable, Comcast Cable Communications, Renaissance Media Systems,
and Prime Cable. GI's GaAs technology offers many benefits including improved distortion and noise performance,
improved amplifier spacing, greater channel loading, better reliability, and lower installation and maintenance costs.
''Continued spending in network upgrades by North American cable operators drove the year on year improvement
during the fourth quarter,'' said Breen. ''With the North American upgrade activity at full throttle, we expect 1999
transmission revenues to grow relative to 1998.''
Visit General Instrument at its Web Site -- gi.com
General Instrument Corporation (NYSE: GIC - news) is a leading worldwide provider of integrated and interactive
broadband access solutions, teaming with its business partners to lead the convergence of the Internet, telecommunications
and video entertainment industries.
This press release contains ''forward-looking'' information within the meaning of the Private Securities Litigation Reform
Act of 1995, and, accordingly, the cautionary statements contained in Exhibit 99, under the caption ''Forward-Looking
Information'' in General Instrument Corporation's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1998, are incorporated herein by reference. Actual results might differ materially from those projected in
the forward-looking statements.
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Information)
Historical Pro Forma
Twelve Months Ended Twelve Months Ended
December 31, December 31,
1998 1997 1997(A)
NET SALES $1,987,825 $1,764,088 $1,764,088
Cost of sales 1,431,327 1,336,482 1,336,482
GROSS PROFIT 556,498 427,606 427,606
OPERATING EXPENSES:
Selling, general and
administrative 193,637 215,404 219,004
Research and development 244,295 207,826 207,826
Amortization of excess of
cost over fair value of net
assets acquired 14,319 14,571 14,571
Total operating expenses 452,251 437,801 441,401
OPERATING INCOME (LOSS) 104,247© (10,195) (13,795)(B)
Other income (expense) - net (11,815) 5,766 5,766
Interest income (expense)
- net 1,217 (5,210) 5,631
INCOME (LOSS) BEFORE INCOME
TAXES 93,649 (9,639) (2,398)
Provision for income taxes (38,199) (6,474) (9,269)
NET INCOME (LOSS) $55,450© $(16,113) $(11,667)(B)
Earnings Per Share - Basic $0.35
Earnings Per Share - Diluted $0.33©
Pro Forma Loss Per Share
- Basic and Diluted $(0.11) $(0.08)(B)
Weighted-Average Shares
Outstanding - Basic 159,547
Weighted-Average Shares
Outstanding - Diluted 168,952
Pro Forma Weighted-Average
Shares Outstanding 147,523 147,523
(A) - Pro forma information reflects (i) the number of common shares issued and common equivalent shares existing
at the date of the distribution from the former parent company plus actual share activity during the period
subsequent to the distribution, (ii) an additional $3.6 million of selling, general and administrative costs to eliminate
the allocation of corporate expenses to CommScope and General Semiconductor, as such costs subsequent to the
distribution were no longer allocable, and (iii) a net debt level of $100 million at January 1, 1997 through the date of
the distribution. All costs included in the pro forma results subsequent to the distribution include actual results;
accordingly, no pro forma adjustments are included subsequent to the distribution date.
(B) - Excluding the $110.9 million ($78.5 million net of tax) of restructuring and other charges (primarily employee
costs related to the split of the company's Taiwan operations, costs directly related to the spin-off, costs related to
the restructuring of the Satellite operations, and costs related to the consolidation of the corporate headquarters),
pro forma operating income and pro forma net income would have been $108.4 million and $66.8 million,
respectively, or $.45 per diluted share for the twelve months ended December 31, 1997. These costs include $84.7
million charged to cost of sales, $28.1 million to selling, general and administrative expense and $9.4 million to
research and development expense, partially offset by $4.3 million of other income and $7.0 million of interest
income.
(C) - Excluding the $123.9 million ($79.4 million net of tax) of restructuring and other charges recorded during the
three months ended March 31, 1998 (primarily costs related to the closure of various facilities, including the
Company's satellite TV manufacturing facility in Puerto Rico, severance and other employee separation costs, the
write-down of fixed assets to their estimated fair values and inventory to its lower of cost or market and a $75
million charge to fully reserve for a research and development advance made to the Next Level Communications
partnership), operating income and net income would have been $219.7 million and $134.9 million, respectively, or
$.80 per diluted share for the twelve months ended December 31, 1998. These costs include $26.7 million charged
to cost of sales, $13.3 million to selling, general and administrative expense, $75.4 million to research and
development expense and $8.5 million to other expense - net.
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In Thousands, Except Per Share Information)
Historical
Three Months Ended
December 31,
1998 1997
NET SALES $564,203 $441,075
Cost of sales 394,677 378,041
GROSS PROFIT 169,526 63,034
OPERATING EXPENSES:
Selling, general and administrative 45,631 75,446
Research and development 43,899 59,284
Amortization of excess of cost over
fair value of net assets acquired 3,635 3,755
Total operating expenses 93,165 138,485
OPERATING INCOME (LOSS) 76,361 (75,451)(A)
Other income (expense) - net (3,301) 3,902
Interest income - net 1,092 9,130
INCOME (LOSS) BEFORE INCOME TAXES 74,152 (62,419)
Benefit (provision) for income taxes (28,183) 16,481
NET INCOME (LOSS) $45,969 $(45,938)(A)
Earnings (Loss) Per Share - Basic $0.27 $(0.31)
Earnings (Loss) Per Share - Diluted $0.26 $(0.31)(A)
Weighted-Average Shares Outstanding
- Basic 168,058 147,978
Weighted-Average Shares Outstanding
- Diluted 179,668 147,978
(A) - Excluding the $86.5 million ($60.9 million net of tax) of restructuring and other charges (primarily related to the
restructuring of the Satellite operations and the consolidation of the corporate headquarters), operating income and net
income would have been $22.4 million and $15.0 million, respectively, or $.10 per diluted share. These costs include
$66.2 million charged to cost of sales, $22.2 million to selling, general and administrative expense and $9.4 million to
research and development expense, partially offset by $4.3 million of other income and $7.0 million of interest income.
SOURCE: General Instrument Corporation
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