(kind of OT) GI and the rapidly growing digital settop box market..........
fnews.yahoo.com
Stock of the Day
Nov 18, 1998
GI: Digital Set-Top Era Arriving
That innocuous looking cable lying behind millions of US TV sets is about to explode
like a dormant volcano, spewing out services like high-speed access to the Internet,
digital video and audio on demand, home banking, and perhaps even phone service in
the not-too-distant future. General Instrument (NYSE:GIC - news) is one of a few
companies that make digital set-top boxes and other equipment which will allow the
cable companies to deliver these expanded services.
General Instrument, commonly known as GI, is not one of those young high-tech startups out of silicon valley. GI and
rival Scientific-Atlanta (NYSE:SFA - news) are well established in the business of cable set-top boxes. The reason they
lack brand recognition with consumers--even with tech investors until recently--is because most of those set-top systems
currently in place are not terribly sexy pieces of technology, so they don't get much attention. In contrast, the new
generation of set-top boxes is more computer than signal decoder, and GI's established role in the set-top box market
gives it a choice position as the market for digital set-tops is set to explode.
Already GI has shipped over two million digital set-top units. In its third quarter results a few weeks ago. General
Instrument reported shipment of 580,000 digital set-tops, beating most analyst estimates by 100,000+ units. Several
other sources including Scientific-Atlanta and cable system operators suggest that the cable industry transition to digital is
happening faster than anyone anticipated. GI is now expected to sell nearly 3 million digital set-tops next year, and
predictions by some industry watchers for a total of 11 million digital set-top boxes in place by 2002 hardly seem
outlandish given the early ramp seen to date.
General Instrument not only makes the set-top boxes, but also the cable infrastructure equipment which must be
upgraded to deliver the expanded services, and the network management software to operate it. As an end-to-end
solution provider for the digital cable revolution, General Instrument has a very attractive market position.
There are plenty of potential potholes in the road to riches, though. For starters, GI's fate is highly dependent how quickly
cable companies can roll out the digital service. So far, deployment has gone faster than expected, but the investment
required by cable companies carries a hefty price tag and they may slow things down a bit if consumers balk at paying for
expensive equipment upgrades. It may take time to convince the consumer mass market that it's worth paying $400 for a
box that replaces the one for which they are used to paying just a few bucks a month.
Competition from non-cable alternatives is also a risk to GI's cable business. Phone companies are scrambling to roll out
DSL service, which provides high-speed Internet access through the phone line. So far, though, cable appears to have
the edge on DSL both in performance and time to market. Satellite broadcast services are also establishing a competitive
foothold against cable, though General Instrument makes digital set-tops for satellite broadcast as well, not to mention
satellite uplink and downlink equipment. GI makes digital set-tops for DBS provider Primestar and is even rumored to be
considering taking a stake in the company.
Another issue centers on the fact that TCI (Nasdaq:TCOMA - news) is General Instrument's largest customer,
accounting for 60% of sales. TCI's recent deal to be acquired by AT&T (NYSE:T - news) may accelerate the rollout of
digital cable and Internet service, not to mention bolster its potential for success. But there is a risk that the merger could
be scuttled if opposition from America Online (NYSE:AOL - news) and a flock of Internet service providers is
successful in preventing AT&T/TCI from bundling access with other Internet services through @Home (Nasdaq:ATHM
- news) , the broadband Internet access and content aggregator that is part-owned by TCI.
For bandwidth junkies who want the fastest Internet experience, cable is the holy grail--up to 40 megabits per second
(hundreds of times faster than dial-up modems or ISDN, and substantially faster than DSL as well). But the success of
digital cable will hinge on whether mainstream America is willing to shell out the extra money for all those enhanced
services. |
