Investor's Business Daily
Zoran Writes DVD Player Script
Wednesday August 6, 10:14 am ET
By James Detar
A consumer electronics chip company that some analysts call a powerhouse is slated to be formed on Friday, when Zoran Corp. (NasdaqNM:ZRAN - News) expects to complete its purchase of Oak Technology Inc. (NasdaqNM:OAKT - News)
ADVERTISEMENT
Zoran already has a strong position in chips that run some of today's hottest products, such as digital video disc recorders and digital cameras. Oak Technology will give it chips for another hot consumer product, high-definition TV sets.
"Zoran has gotten ahead of its rivals," said Pacific Growth Equities analyst Brian Alger in San Francisco. "It continues to push the envelope in performance."
Besides the Oak acquisition, the company also touts its chips for a new crop of recordable DVD players expected to go on sale this fall.
"We had record growth in the consumer electronics market last quarter," said Zoran Chief Executive Levy Gerzberg. "We're in growing markets, such as DVDs."
As a result, there's growing interest among investors. Zoran's share price has risen from less than 11 in early March to about 26. IBD gives Zoran a Relative Strength Rating of 90. That means its stock has outperformed all but 10% of stocks in the past 12 months.
And in this time of low earnings, IBD gives Zoran an Earnings Per Share rating of 82. The EPS Rating tracks earnings growth the last five years, emphasizing more recent quarters. Zoran's EPS Rating is the ninth highest of the 131 stocks in IBD's semiconductor manufacturers group.
The company reported record sales of $44.7 million for the second quarter, up 32% from $34.0 million in the year-earlier quarter.
Zoran is in good shape and Oak will help, but it faces tough rivals like Taiwan's MediaTek Inc., says analyst Alger.
Won't Be Any Intels
"Can Zoran continue to gain market share? Let's be realistic, there are limits," Alger said. "These are very competitive markets. You're not going to have any one company dominate the consumer electronics market the way Intel has done in the PC market."
Gerzberg says his company has about 30% of the DVD chip market and is No. 1 in that field. And he likes his company's outlook, especially when it comes to chips for DVD players and digital cameras.
"No other consumer electronics product has been adopted as fast as DVD. It's grown faster than TV, VCR or compact disc," he said.
Four of the six largest makers of recordable DVD players use Zoran chips: Pioneer Corp., Sharp Electronics Corp., Toshiba Corp. and Sony Corp.
"More are coming," Gerzberg said.
Alger notes that Oak has a strong relationship with Sony. "One nice thing about this acquisition is it will give Zoran more resources," he said. "It will open some doors."
The other two DVD player leaders, Matsushita Electric Industrial Co.'s Panasonic unit and Philips Electronics NV, get their DVD chips from in-house units.
DVD and digital camera sales sparked Zoran's last quarter. Unit shipments in those areas rose 49% and 570%, respectively, vs. second-quarter 2002.
Last month, Zoran rolled out its sixth-generation DVD player chip, the Vaddis 6. Zoran bills it as a DVD system on a chip.
That means companies that use the Zoran chip can forego all but a couple of other chips in their DVD players. It will cut their costs, Gerzberg says. He says DVD players with the chip will come out late this year priced as low as $100.
Prices Falling To $300
Zoran also makes chips - and has high hopes - for the high end of the DVD player field. These machines can also record. Recordable DVD players took awhile to develop, but they're already popular in Japan and are poised to take the U.S. by storm, says Gerzberg.
Prices of recordable DVD players are falling fast and could hit $300 by the holiday season. That's big, he says, because $300 a product is within the budget of a wide swath of the market. That will speed the pace at which DVD players are replacing VCRs.
"The opportunities are enormous," Gerzberg said. "Look at the number of VCRs out there. There are nearly 1 billion of those today. (Replacing these) represents a fantastic market for recordable DVD players."
Gerzberg says the next generation of DVD players will let people convert videotapes to DVDs. That will accelerate the transition to DVD from VCR, he says.
He has similar high hopes for digital cameras. As with DVD players, Zoran offers a single-chip product for digital cameras.
Last month it rolled out the sixth version of the chip, which it calls Coach.
Gerzberg says Coach 6 has everything a digital camera needs except memory and power supply. "It's almost a complete camera on chip," he said. |
