SGTL - trade status update - example of busting the myth that the mkts are efficient - on Friday morning, this PR came out: D&M Holdings Inc. to Exit Mass-Market Portable Digital Audio Player Business, Friday August 26, 7:04 am ET
Now, the NASDAQ was very weak on Friday and the stock, which had closed at ~ $19.55 on Thursday, dipped as low as $17.81 Friday and rebounded on strong volume to hit a high of $19.30 and then closed at $18.62 with total volume of around 2.4 million shares. So, bottom line, apparently, is that the kids at Wedbush, who have a vested interest in PLAY, write that this is essentially bad news b/c RIO sales will no longer contribute to SGTL. Of course, as set forth below, to be fair to Webbush, the kids at Amtech, imo, also got it wrong - they say that RIo was 5-7% of sales. How they come up with these #'s is beyond me. First, as explained below, I d/n think there is any question that RIO's contribution was far below the 4% that Webush claims. Simply listening to the conf call and viewing the PPT presentation, RIO did not make the list of 3% customers. So, we know for sure - unless fraud is at work here and I d/n think so, RIO was less than 3%. Second, even if true, their assmption mean that every mp3 player sold in replacement of the rio will NOT have a sgtl chip in it.
So, to me, the most interesting part of this PR that triggered interesting volume, was that this NOT NEWS. Only a month or so, SGTL announced that were purchasing certain assets of the RIO. Duh! What did these idiot investors think was gonna happen to the Rio. Based upon my long ago infatuation with CREAF, I learned a lot about Diamond Multimedia - see blurb below - so I was already aware that the RIO was a poor seller and I viewed the purchase by SGTL as pure tech'y research. Anyway, the kids at Kaufman apparently see it more like me. Of course, they used to favor Ntrx - so, this d/n mean a whole lot to me!
SGTL SigmaTel: Rio news a non-event, buy on weakness - Kaufman (18.13 -1.42) -Update- -Technical-
finance.messages.yahoo.com
"Kaufman firmly believes that the Rio announcement is not a surprise for SGTL and does not impact expectations for 3Q05 results and beyond. Firm notes that Rio had faded as a customer for SGTL over the past several quarters. SGTL has published a breakout of its top-5 end customers through 1H05; the fifth largest customer in that period was Thomson Multimedia (3% of rev), and Rio was not on that list, and therefore accounted for less than 3% of total rev in 1H05. Firm believes that investors have overreacted to the news this morning, and believes that so far 3Q05 is shaping up well for SGTL...."
26-Aug-05 09:53 ET In Play SigmaTel: Further color on Rio exit of MP3 player mkt (SGTL) 18.10 -1.45 : Wedbush notes that D&M Holdings, the Rio-branded MP3 player manufacturer and a SGTL chip customer, today announced that it is exiting the MP3 player market. Firm says the co cited intense competition and rising development costs as its primary motivations. They believe Rio had approximately 4-7% global unit share of the MP3 player market, with larger share in flash based MP3 players in 2004 and less share in hard-drive based MP3 players. They say the loss of a major customer in Rio is an incremental negative for SGTL. While they believe much bad news is priced into SGTL at current levels, they still have concerns that consensus estimates for 2006 remain too high. They say that if Rio were to maintain 4% market share next year in the global MP3 player market, that implies 2006 unit shipments of 5 mln units. At $5 per chip for SGTL, firm equates that to $25 mln of revenues and $0.20-$0.25 of potential EPS impact for calendar 2006.
26-Aug-05 09:04 ET In Play Color on exit of Rio brand from mp3 market (SGTL) 19.55 : Amtech notes that this morning D&M Holdings, owners of the Rio brand (#3 or #4 player behind AAPL and CREAF) announced it is exiting the mp3 space (7:12). Firm says this was unexpected after the co said they are committed to marketing the Rio brand after selling some engineering and design assets to SGTL. Firm estimates that SGTL has around 5-7% exposure to Rio, and they view this as a potential positive for CREAF, AAPL, and other hardware players in the MP3 space, as this is one less competitor. Firm also believes that this news is an incremental negative for both NAPS and RNWK, as having fewer non-iPod devices supporting those services on the market will not be helpful heading into this holiday shopping season.
http://news.com.com/The+day+Rios+music+died/2100-1047_3-5843561.html
The day Rio's music died...
Published: August 26, 2005, 10:55 AM PDT
By John Borland
Staff Writer, CNET News.com
The Japanese company that makes the Rio line of MP3 players is shuttering its portable digital-audio division.
Rio parent D&M Holdings said on Friday that the ultra-competitive business no longer fit its market strategy.
Although it has only a small market share compared to Apple Computer's iPod, the Rio brand name has been linked with the early days of digital-music history since weathering a lawsuit from the recording industry that aimed to shut down the MP3 hardware business.
D&M Holdings--which also owns high-end home audio brands including Denon, Marantz and is close to acquiring Boston Acoustics--said the portable MP3 player business required too much investment, and not enough return, to warrant continuing.
The company said it will stop producing the Rio line of products at the end of September.
Despite its history of innovative designs, the Rio brand has had a choppy corporate history.
Originally produced by Diamond Multimedia, the first Rio-branded MP3 player triggered a lawsuit in 1998 from the Recording Industry Association of America, which at the time viewed MP3 as primarily a format for music pirates.
After an initial injunction blocking sales of the product, courts ultimately ruled against the record industry, clearing the way for a digital-audio market that evolved into today's iPod-dominated music culture.
Diamond Multimedia was purchased not long afterward by Taiwanese graphics chip company S3, which eventually sold its chip business and morphed into Sonicblue, acquiring other consumer technologies including ReplayTV along the way.
Previous Next The company's fortunes fell in the middle of the dot-com crash, and Sonicblue declared bankruptcy in early 2003, selling off the Rio assets to D&M Holdings.
The last several years have seen several well-reviewed designs from the company, including the hard-drive-based Rio Karma and Rio Carbon players, which respectively competed with the iPod and iPod mini.
Neither device, however, was able to gain more than a small fraction of the iPod's market share. Some customers complained about persistent hard-drive problems with the Karma.
D&M said it would retain rights to the Rio brand and trademark, and would continue to support retailers and customer service claims.
More from Wedbush:
finance.messages.yahoo.com
SigmaTel (SGTL - HOLD): Rio, a SigmaTel Customer, Announces Exit of MP3 Market; Reiterate HOLD as 2GB Shuffle Overhang Continues
D&M Holdings, a Japanese manufacturer of Rio-branded MP3 players and a SigmaTel chip customer, today announced that it is exiting the MP3 player market. The company cited intense competition and rising development costs as its primary motivations. We believe Rio had approximately 4-7% global unit share of the MP3 player market, with larger share in flash based MP3 players in 2004 and less share in hard-drive based MP3 players.
The loss of a major customer in Rio is an incremental negative for SigmaTel and we expect the stock may be under some pressure today. While much bad news is priced into SGTL at current levels, we still have concerns that consensus estimates for 2006 remain too high. Furthermore, with Apple expected to hold its market share around 20-30% of the flash based MP3 player market, competition should remain intense among chip suppliers to sell into the remaining 70-80% of this market.
We are not revising our below-consensus EPS estimates for SigmaTel at this time. Trying to quantify a potential impact to SigmaTel, though, if Rio were to maintain 4% market share next year in the global MP3 player market that implies 2006 unit shipments of 5 million units. At $5 per chip for SigmaTel, that equates to $25 million of revenues and $0.20 to $0.25 of potential EPS impact for calendar 2006.
Looking ahead, we expect competition in the MP3 player market will remain intense, particularly in lower-end flash based devices, likely driving device price compression. In turn, this could pressure MP3 decoder chip pricing and margins. Also, the entry of low-cost Taiwanese and Chinese MP3 decoder chip suppliers could add to competitive pressures among chip suppliers.
While SGTL shares are inexpensively valued, we remain on the sidelines awaiting better Apple 2GB Shuffle visibility. We note SGTL trades cheaply at just 17x our 2006 EPS estimate, and at 1.7x EV/S (2005), quite reasonable given our baseline 2006 EPS estimates. Despite attractive valuations we await better visibility on Apple's Shuffle roadmap plans as we believe PortalPlayer will win the 2GB socket from incumbant Shuffle chip supplier SGTL. SGTL has an investor overhang until such an announcement is made, in our view, likely before the end of October. We recommend investing in primary competitor PortalPlayer (BUY) over SigmaTel (HOLD) as shifting Apple Shuffle chip business may drive relative outperformance for PLAY.
In short, my initial reaction was that this was not news. In fact, while I am not a neutral observer, I think was good news b/c it sends the message to SGTl's customers that SGTL is not trying to eat their lunch. Needless to say, I am still long SGTL and, while this is a good example of the mkt disrupting my plans, I still see this one making a huge run before the end of the holidays. |
