Very positive article in WSJ California edition (article was
on small cap "shadow stocks")
ZORAN
Even a fan like CIBC Oppenheimer analyst Robert Adams admits that Zoran looks expensive,
trading at more than 100 times trailing earnings. But, Mr. Adams says, the company is
well-positioned in an exploding industry, making it "very cheap when you look at the revenue and
earnings growth going forward."
Zoran makes circuits and software for digital-video and audio-compression applications, used in
consumer electronics such as DVD (digital versatile disc) players and digital cameras.
Based on strong growth in DVD sales, Mr. Adams, of CIBC's San Francisco office, bumped his
rating on the stock to a "strong buy" from a "hold" in January. In 1998, two million DVD players were
sold world-wide; this year, the number is expected to reach six million. In the U.S. last month, unit
sales quadrupled from the year-earlier 38,000 sold.
To be sure, there is competition in the sector, but Mr. Adams says Zoran has a strong relationship
with DVD-pioneer Toshiba of Japan and that with the anticipated growth, "there's room for
everybody."
Zoran reported a slight decline in revenue and a significant drop in earnings -- to eight cents a diluted
share from 38 cents -- last year. The company cited factors including increases in percentage sales of
lower-margin products and of those sold directly to Zoran customers instead of through marketing
partners that absorb most of the marketing and sales-support costs.
Mr. Adams acknowledges that "Zoran has stumbled in the past...but they've really been waiting for
[the DVD] market to take off." He projects earnings will grow to 55 cents a diluted share this year,
and then to $1.12 in 2000. He thinks the stock can hit $45 to $50 within two years, a bullish
projection given its current price near $17.
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