Gear Maker's Picture Is Pretty Thanks To Rise Of Digital TV
Michael Lyster
789 Words
5441 Characters
01/12/98
Investor's Business Daily
A8
(Copyright Investor's Business Daily, Inc. 1998.
To Subscribe Call (800) 733-8900.)
Harris Corp. wants to televise the digital revolution.
The electronics company is vying for the biggest chunk of the
high-stakes digital TV broadcastequipment market.
TV broadcasters are expected to spend about $5 billion in the next
five years converting their transmission systems to digital from
analog. It's required by the Federal Communications Commission.
Meanwhile, consumers will start buying digital TVs, which offer
muchimproved reception.
The digital market is a natural for Harris. It has the biggest
share of the analog market for two major pieces of transmission
equipment: transmitters and exciters.
"The broadcast business has been basically a slow-growth market,"
said Harris Chief Executive Phillip Farmer. "With the changeover to
digital, it's going be a high-growth business for us."
The Melbourne, Fla.-based company is squaring off against Comark
Communications Inc., part of France's Thomson-CSF. Each has signed
up to sell the digital transmitters and exciters to stations owned by
two of the four major networks.
In this field, Comark and Harris face only a few smaller
* competitors. They include Blue Bell, Pa.based Acrodyne
Communications Inc. and ITS Corp., part of Minnetonka, Minn.-based
ADC Telecommunications Inc.
All are pitching the nation's 1,650 television stations. It'll
cost stations $3 million to $9 million to convert, analysts say.
But Harris has the edge. It has about 65% of the analog
transmitter and exciter market.
That's not the full picture, though. Transmitters/exciters are
about half the cost. The other key broadcast equipment consists of
antennas and studio equipment, as well as integration services.
Here, there are two more big players: Sony Corp. of Japan and the
Netherlands' Philips Electronics NV.
Analysts say those markets will be more challenging for Harris.
"We are going to have to work," said E. Van Cullens, president of
Harris' communications business. He says the company wants to take
the market lead for those products.
Networks plan to start digital broadcasts in the fall. At last
week's Consumer Electronics Show in Las Vegas, set makers made flashy
new digital TVs their showpieces. Digital TV offers eye-catching
clarity, movielike panoramas and enhanced sound.
But digital sets, at first, will cost about $5,000. So the
transition to digital should be slow. Still, by '07 half of the
nation's households will be watching digital TV, says market
researcher Forrester Research Inc. of Cambridge, Mass.
The timetable for broadcasters is clearer. Under federal rules,
26 big-city stations will go digital this year. In '99, another 14
must come aboard. All stations must convert by '06 or lose their
licenses.
That's good news for equipment makers like Harris. The market
includes virtually every TV station and most production houses.
"What makes (the market) interesting is the potential growth,"
said Lawrence Harris, an analyst with Jackson Partners & Associates
Inc. He rates Harris' stock a "buy."
Digital TV is key as Harris converts from being primarily a seller
of computer systems for defense industries to the commercial world.
For fiscal '97 ended June 30, Harris had $3.8 billion in revenue,
three-fourths commercial and one-quarter defense. Harris also makes
and sells semiconductors and Lanier office equipment.
Sales for the company's communications unit, which includes
broadcast equipment, are expected to rise 16% in fiscal '98 to $1.1
billion, and another third in fiscal '99 to $1.4 billion, says Harris
of Jackson Partners.
Harris' per-share profit in fiscal '98 should rise 10% to $2.91,
according to the average estimate of five analysts polled by First
Call Corp. Later this month, First Call expects Harris to release
per-share earnings for the quarter ended Dec. 31 of 66 cents a share.
That's up 12% from 59 cents a year ago.
Harris delivered its first digital transmitter late last year to
station WSB in Atlanta. It's signed deals to sell equipment to the
stations owned by CBS Corp. and The Walt Disney Co.'s Capital
Cities/ABC Inc. unit.
Digital transmitters and exciters could bring Harris $2 billion in
sales over the next several years, says Cowen & Co. analyst Blaine
Carroll. Sales are just starting.
"(Broadcasters) are moving past the uncertainty and are setting
budgets," Harris' Cullens said. "They should be pulling the trigger
over the next few months."
Comark has deals with General Electric Co.'s National Broadcasting
Co. and News Corp.'s Fox Television Stations Inc.
Growth in digital TV is part of a larger plan, says Cullens.
Harris also wants to increase sales of wireless communications and
telecommunications systems.
"(Digital TV) probably has the highest cachet in terms of public
interest," Cullens said. "But when I sit down, it's one of a number
of things on my list. (Digital TV) isn't an unlimited market."
Last year, the company bought France's Innovation
Telecommunications Image and Sound to tap the European market for
digital TV products. Cullen has scouted out prospects in China.
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