Pro Video earnings strong................................................
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PINNACLE'S 'STRONG' EARNINGS LEAD PRO VIDEO REBOUND
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Despite jitters reverberating through investors from Asia to Wall Street over the past quarter, the pro video manufacturing industry stands "very solid," according to industry watchers tracking fourth quarter earnings.
"1997 made a remarkable recovery in the digital video (DV) market since the slumps of late 1996 and early 1997," said Piper Jaffray analyst Hany Nada. "We're waiting to see Avid [AVID] and Discreet Logic [DSLGF], but expect them to report strong quarters."
Leading the pack last week, Pinnacle Systems [PCLE] and Media 100 [MDEA] surprised many by reporting earnings far above expectations, convincing analysts that business is overwhelmingly good.
"Pinnacle had a great quarter," said analyst Doug von Dorsten of Hambrecht & Quist. "If they're an indicator of what's going on in the video business, things look pretty good."
Pinnacle, developer of digital video manipulation tools for broadcast, desktop and consumer applications, reported net sales of $27.9 million in Q2 1998, which ended Dec. 26, 1997, up more than 400 percent over the $5.3 million it reported in Q2 1997. Net income was a "record" $2.5 million, or $.26 per share on a diluted basis, against a net loss of $9.3 million in their second quarter of 1997.
Analyst Nada echoed the gleeful sentiment over Pinnacle's encouraging numbers.
"They beat my expectations, the outlook looks very bright for them," he said. "Pinnacle did spend a little extra on sales and marketing, but going forward, they've got new product launches in March." The new lines include Pinnacle's ReelTime, a dual-stream video capture card, and the miroDV300 DV editing platform for users shooting video with consumer-grade DV cameras.
Nada cited the company's September 1997 acquisition of advanced video compression wizards miro Digital Video Group from miro Computer Products AG of Germany as a significant factor in Pinnacle's fiscal achievement. The introduction of the pro-grade miro-VIDEO DV300 editing platform-with sales reaching $12 million last year-in addition to strong sales from each of their other products, more than doubled the Mountain View, Calif. company's profits "quarter over quarter," boasted Pinnacle's CFO Arthur Chadwick.
"miro certainly helped our sales growth and helped the quarter, [and] we're very pleased with that," he said.
The acquisition enabled Pinnacle to take advantage of miro's European distribution channels, and conversely, the miro product produced by Pinnacle sailed through U.S. distribution channels as well.
"It was a classic case of good synergy, we handled the acquisition very well," Chadwick said.
Media 100, on the other hand, had to own up to the skeptical predictions of analysts like Nada and von Dorsten. Maker of linear video edit systems, the company announced Q4 1997 sales of $11.9 million, compared to $14.1 million in Q4 1996. Income from continuing operations was $522,000, or $.06 per share, compared to Q4 1996 income of $1.4 million, or $.17 per share.
"Media 100 did $.06 on the bottom line. I was looking for $.03," Nada said, admitting the quarter came in ahead of his expectation of the company's performance.
Spending on R&D rose from $6.2 million in 1996 to $8.5 million in 1997. "That's not enough R&D, they should have spent $12 million to $15 million," Nada said.
"I think that's probably true," conceded Media 100 CFO Peter Rice. "I think you're going to see some additional R&D spending in 1998."
Rice said part of the company's development effort is to release Windows NT products such as the Bobcat editing software (coupled with Macromedia's [MACR] Final Cut).
"We've been very successful with the Mac, but in order to compete we're going to have to have multiple platforms," Rice said.
That's a smart move, say analysts, given that Media 100 product lines have traditionally been Mac-based tools, and the company is now suffering for it. Still, with change comes costs.
"Making changes in product strategy means spending more money," analyst von Dorsten said. "I think they're going to have higher operating losses this year because they'll spend more on product development."
The early earnings news has so far been encouraging for the video industry, despite the plummeting Asian markets of late-cause for concern due to the heavy investment many video manufacturers and developers have made in the Orient. A trend has emerged, said one analyst who wished not to be identified, whereby industry executives are now using the Asia freefall as a convenient excuse for their operational and financial woes.
But Piper Jaffray's Nada said such explanations by company executives should be ignored.
"What's happened in Asia has not really affected the video industry in the United States," Nada said. (Pinnacle, 650/237-1612; Media 100, 508/460-1600; Hambrecht & Quist, 415/439-3300; Piper Jaffray, 612/342-6000) |
