Broadcom, Other TV-Gear Maker Shares Fall 64% in 2000
New York, Dec. 24 (Bloomberg) -- Shares of Broadcom Corp. and 25 other makers of gear for fast Internet access and getting hundreds of TV channels have tumbled an average of 64 percent this year, and they may fall more because consumers aren't buying the services as fast as hoped, investors say.
Interactive television, which lets people participate in live programs such as game shows, record them without a VCR and watch movies on demand, and the other services have been sold for several years. Investors once hoped the products would be as ubiquitous as the Internet, now in about half of all U.S. homes. Yet, fewer than a quarter of all U.S. TV viewers now subscribe.
Investors bought shares in makers of equipment to let phone, satellite and cable companies sell these new services, betting they would be introduced fast enough to boost sales growth. Then, consumers didn't sign up for them quickly, providers cut spending to expand their networks, and the economy slowed.
``Some folks may not make it -- I think we're going to go through a tough time,'' said Walt Casey, an analyst at Banc One Investment Advisors in Columbus, Ohio. ``I don't think we're going to be in for a couple of happy months.''
Eight equipment makers including Motorola Inc. have said since October that sales or profit in the fourth quarter or next year will be less than expected because of weak demand. Harmonic Inc., which makes digital and fiber-optic systems for sending video and high-speed data, said Thursday its fourth-quarter loss would be three times as large as analysts expected.
Broadcom, Efficient Networks Inc., Scientific-Atlanta Inc. and others may announce disappointing earnings, analysts said.
More Warnings Expected
``You're going to get big surprises,'' said Fred Hickey, publisher of the High-Tech Strategist investment newsletter in Nashua, New Hampshire. ``We have a lot of companies left to warn. The hits will keep on coming.''
Officials at Irvine, California-based Broadcom, the No. 1 maker of chips for cable modems, and Dallas-based modem maker Efficient weren't available to comment. Lawrenceville, Georgia- based Scientific-Atlanta, the No. 2 U.S. maker of cable set-top boxes, declined to comment, spokesman Paul Sims said.
The 26 TV and Internet equipment makers can be divided into four groups, all of which declined in value this year.
Shares of interactive-TV software makers have been the hardest hit, falling an average of 82 percent in 2000 through Friday. Makers of equipment for fast Internet service over cable lines have fallen 70 percent. Those that sell gear to send Web traffic at high speeds over phone lines are down 59 percent. Set- top box makers are down an average of 15 percent.
Consumers Sated
After one of the longest economic expansions ever, investors say many potential customers for fast Internet connections and other new services have enough electronic luxuries already. A slowing economy, they say, means fewer consumers want to pay $40 monthly for fast Web service or $10 for digital cable.
``It's not easy to cut back on the gasoline that you put in your car, because you have to drive to work, and there is nothing to do about it. But you can cut back on cable,'' said Art Bonnel, manager of San Antonio-based U.S. Global Investors Inc.'s Bonnel Growth Fund, who sold his shares this year of Broadcom and Scientific-Atlanta.
Other investors see an opportunity to buy stocks after they've declined. Scientific-Atlanta trades at 30 times per-share profit, less than a third of the Nasdaq Composite Index's 99 multiple.
``These companies aren't going out of business,'' said Troy Showalter, an analyst in Topeka, Kansas, at Security Benefit, which recently bought shares of Efficient and Terayon Communication Systems Inc. ``These stocks were not attractive six months ago, they've only recently become attractive.''
Scientific-Atlanta and ADC Telecommunications Inc. are the only equipment makers of the 26 whose shares have risen this year. ADC is up 5.8 percent, although it has fallen 61 percent from its one-year high July 27.
Scientific-Atlanta has gained 24 percent, helped by its making a wider array of equipment than rivals such as Schaumburg, Illinois-based Motorola, the No. 1 set-top box maker. Still, Scientific-Atlanta shares have fallen 32 percent in the past two weeks on concern its sales growth could slow with that of the rest of the industry.
Slow Introduction, Big Costs
Telecommunications companies are cutting spending after their stocks declined, making it harder to raise more money to finish upgrading their systems for the new services.
RCN Corp. and Adelphia Business Solutions Inc. said this month they'd spend less money, while top cable company AT&T Corp., whose stock is down 65 percent this year, stopped some equipment shipments. Cable capital spending will fall to about $12.5 billion next year, from $13.5 billion in 2000, said Marc Liggio, a director of Oyster Bay, New York-based Allied Business Intelligence Inc.
An Allied analyst, Joshua Wise, forecasts the number of customers for fast Web connections over phone lines will almost quadruple to 1.9 million customers at year end, 25 percent less than expected. As many as 5 percent of digital subscribers cancel their service each month, said Wise. That's more than expected.
``Interactive TV is something the cable industry, let alone the broadcast industry, doesn't understand very well,'' said Gary Arlen, president of Bethesda, Maryland-based Arlen Communications. ``They haven't figured out the pay back. They'll go along with the hype, but they'll go slow with the installations.'' |
