Don, I'll get to your questions in a moment, but first let me say that I'm happy for those investors that have been holding on to this stock that the Intel news has propped up the share price. It's been a painful year. However, it's more than likely a good opportunity to lighten up on Avid, as I believe it is only a temporary infusion of hope and upward momentum. Once Avid spiked up, momentum investors piled on, and they will not stay long. Look for a downward trend to begin again soon, unless Avid announces some spectacular quarterly numbers, which is unlikely to happen soon. We are in the historically worst quarter for Avid, before the NAB convention next month. Everyone holds off purchasing until they see all the new toys coming on the market at the show.
I don't really see the value of this news to shareholders other than short term hype and a quick momentum play. Clearly, any association with a market leader like Intel will boost the share price of even the most unappealing issue. A $14 million investment on their part is less than pocket change to a giant like Intel. (They had just over $5 billion in PROFITS last year) To me, it's a wonder they didn't invest in Avid years ago when it was growing like a rocket and the only real game in town.
Avid's had a Wintel platform nonlinear system out for nearly a year (MCXpress), which has gotten great reviews in the trades, but that hasn't helped it to stop losing money. Professionals in my industry don't care whether a turnkey tool like an Avid is on a Wintel or Apple platform, just that it works and does the job well. In fact, if anything, more of us creative types are already using Apple Macintoshes, so the learning curve is easier, our existing software libraries are immediately useful on the Avid, and files (graphics, animations, etc.) can be imported and exported in a snap. The studio I edit at is a division of a large company networked on Wintel machines, and their bean counters didn't have a problem buying a Macintosh platform Avid. In fact, they added another PowerMac to be used in the edit bay for graphics, Internet access, etc.
I think part of the story here is that it meshes with the largely uninformed perception that Apple is dying and that companies need to start moving away from the platform in order to survive. In my field, this couldn't be further from the truth. In the current issue of New Media magazine, there is an article titled "Windows NT takes a back seat at NAB". At last year's show, many people were predicting the death of the Macintosh as the platform of choice for desktop video editing and FX. In fact, the opposite is true. Here is a quote: "Last year's hoopla surrounding Windows NT-based professional video editing at NAB show didn't amount to much, largely due to Microsoft's failure to ship a professional video version of ActiveMovie. And the star of NAB for two years running, Play's Trinity system, won't be finished in time for this year's show either. Instead, Macintosh post-production has actually strengthened its position in the past year vis-…-vis Windows, led by real-time dual-codec engines from Avid and Scitex, as well as aggressive price cutting by Media 100." You can ead the entire article at hyperstand.com
>A couple of questions after reading everything I can find:
>1)Is the stock down due to lack of profitability?
Yes. This is a temporary rise, so take advantage of it if you have been waiting to sell or need to lighten up. Avid needs to show some solid earnings and sales growth momentum before it can justify today's share price, IMHO. There is too much risk right now. Show us the money first, Avid. I have posted extensively on this thread in the past, with many strategic/market/fundamentals arguments to back up my opinion. (I bailed out of Avid at $14 and advised others to do so. The stock proceeded to tumble to $9) See my post here for reference: techstocks.com
>2)Too what extent could the present run be expected to continue given profitability is not expected to return until next year?
It won't continue unless Avid comes out with strong earnings and sales momentum, which I believe is very unlikely. In their last profitable year (1995), they earned $0.76/share. In order to justify the current share price of $13.25, they'd have to earn $0.66 to have a PE of 20. They lost $1.80 last year and have not shown a profit for 4 quarters.
>3)What specifically will the intel funds be used for?
Avid had $93 million in cash last December, so the $14 million from Intel isn't that large an amount in relation to their own resources, nor is it an infusion of desperately needed funds. Avid has many problems to overcome if it is ever to be a market-performer again, and $14 million is not the answer right now. Read the release again. If you ask me, it is a tiny investment Intel made in an attempt to ensure that market leaders like Avid will continue to at least develop for the Wintel platform in the future. The PowerPC platform continues to offer many advantages in this market, and will only pull further ahead of Wintel capabilities as the 300Mhz PowerPC chips are released in a couple of months, with 533Mhz chips coming this summer. Intel will not be countering this with Pentiums running even close to these speeds. IMHO, Intel is sprinkling some cash around to those companies that are leaders in their niches who are primarily marketing Apple based products.
I'll close with my oft-repeated statement: Avid makes great products, and is a market leader, but that doesn't mean it is a great company to invest in. I still use their nonlinear system as my editing tool of choice, but I see a slew of competitors getting closer and closer to their capabilities, with products at much lower price points.
As always, do your own research.
D. Kuspa |
