MPEG added several times today and looking for much more.
Newsletter coverage out !!!!!
> **************************************************************************
> Thursday, Feb 3rd, 2000 ALERT INVESTOR By Peter Kertes
> **************************************************************************
>
> Special Buy Alert - InnovaCom (MPEG)
>
>
> It's not often that one comes across well-known technology and one
realizes
> that it belongs in large part to a company that's completely unknown. In
> the case of MPEG compression technology, you are also talking about a
> microcap from Silicon Valley that is just coming out of the development
> phase and is getting on the investment map in a big way. With a similar
> investment approach, we had huge gains with Spatializer (SPAZ) and their
> DVD technology and with USA Video Interactive (USVO) and their
> video-on-demand technology. Three is a charm...
>
> We don't take these Special Buy Alerts lightly. The last one we sent out
> was in September, on Starbase (SBAS). The stock was trading at 2 3/8 at
the
> time, now it's around $14. Again, in this same convergence/signal
> compresion/streaming media/DVD space, we had two huge winners lately.
USVO,
> written up below 1 a month ago is now trading at 5 and SPAZ, written up
> several times last year around 30c, is now trading at 2 1/4. So, the area
> is hot and so are our convergence picks...
>
> BUY RECOMMENDATION
>
> There is nothing hotter on the suddenly streaming media-crazy web than
> compression technology - and MPEG technology is the platinum standard.
> Silicon Valley-based InnovaCom Inc. (MPEG,11/16,BB), the home of the
MPEG-2
> compression technology for collaborative applications, has created
products
> that will enable the broad migration from analog to digital video in
> multiple professional markets. The company designs, manufactures and
> delivers specialized video compression systems for industrial and
> professional video content creators (through its DVD PreMastering Systems)
> and transmission infrastructure providers. InnovaCom's primary target
> markets include DVD, training, video collaboration, distance learning,
> telemedicine, surveillance and video-on-demand. Their customers are The
> Fortune 1000, government, R&D, educational institutions and multimedia
> developers. MPEG creates software and designs both boards and systems for
> complete hardware/software video encoding and authoring solutions and
> features four new TransPEG Distance Learning Terminals (TDLT) for ATM
> (Asynchronous Transfer Mode) networks, featuring transmission and control
> of multi-channel, high-quality video for distance learning and
> teleconferencing networks.. The company's DVDimpact has been selected as a
> finalist for AV Video & Multimedia Producer's 2000 Platinum Award in the
> DVD Products category. Still, I bet you've never tried to punch up the
> symbol MPEG or ever heard of this company ... (In this report, you'll see
> MPEG used both for the technology and for the stock's symbol - nothing we
> can do about it, except be glad for InnovaCom).
>
> The market for video compression and transmission is expanding at an
> unprecedented rate. According to several research reports (including Frost
> & Sullivan), the size of the video compression market has grown 10-fold in
> 5 years, to approximately $2 billion in 1999. Continued double-digit
growth
> is a given in the years ahead. As the distance learning and video
> conferencing industries continue to grow strong, InnovaCom is a pacesetter
> and a prime beneficiary.
>
> MPEG targets three primary markets:
>
> 1) Corporate teleconferencing and collaboration. A prime example of
> this is the important contract award from the Inchon Airport in Korea, the
> largest airport in the world. There are a number of Korean suppliers of
> MPEG-2 technology, yet InnovaCom got a key part of the project. There can
> be no better endorsement.
>
> 2) The distance learning area, with applications at both the
> pre-college and college level, world-wide. It bears pointing out that VoIP
> is not yet visible in this environment, due to its bandwidth limitations,
> so we are more likely to be dealing with broadband networks or intranets.
> Picture a professor at Florida State addressing 20 honor students at 20
> different high schools throughout Florida on a fully interactive
("duplex")
> basis and able to make a full multi-media presentation from his desktop,
> without assistance. Brave New World... teacher empowerment and no teaching
> assistants.
>
> 3) Distance legal applications are a burgeoning market that is widely
> discussed in the media. The legal profession is looking for better
> communication both within firms and in trial situations, the storage and
> presentation of trial materials is improving through new technologies and
> the court system is finding more and more uses for streaming media to save
> time and costs.
>
> Notably, InnovaCom is not targeting the traditional MPEG market, namely
the
> broadcast industry. You gotta know what you can do well and what you
cannot
> do well... Let TCI and Hollywood buy the high-end stuff, and let corporate
> America buy InnovaCom's stuff.
>
> MPEG is able to broadcast its compressed signal point-to-point,
> point-to-multipoint and multipoint-to-multipoint. Also, DVDimpact,
> InnovaCom's flagship authoring/publishing system is targeted directly at
> multimedia studios and Fortune 1000 clients because of its high price
> performance value. DVDimpact is an all-in-one Windows NT solution
> incorporating InnovaCom's MPEG real-time compression technology,
integrated
> with a full suite of publishing tools, as required by today's DVD authors
> for premastering. At a price point of $29,000 or so, MPEG's DVD system
> offers 85% of a broadcast-quality system at a fraction of the cost. Based
> on new
> generation MPEG encoding and networking technologies, MPEG's feature-rich
> TDLT, which is also available now, establishes a new price-performance
> benchmark in video teleconferencing.
>
> All the company's products are built to broadcast specs, meaning to much
> more rugged standards than PC's, and are upgradeable and retrofittable,
> unlike any of its competitors' products.
>
> The company, whose stock traded over $9 in late 1996 was a struggling,
> unfocused R&D shop. They had 84 different projects going - and zero
> customers
> - when the current CEO, Frank Alioto (with a Westinghouse background) was
> brought in 18 months ago. Now MPEG is a focused, lean and mean and
> customer-responsive operation poised to generate significant revenues.
> There are almost 20 engineers on the payroll plus about 7-8 people in the
> front office, and all the final assembly and testing is done in-house
> (fabrication is sub-contracted). MPEG just filed an important patent for
> double encoding of MPEG video signals, and the company has a rich research
> pipeline and a number of additional patent filings on the way.
>
> MPEG TECHNOLOGY (This will only hurt a bit...)
>
> MPEG stands for Motion Picture Experts Group, and the basic algorithms
were
> developed by a group of research scientists as the first compression
> protocol for broadcast signal. MPEG-1 was optimized for CD ROM or
> applications at about 1.5 Mbit/sec. and video was strictly non-interlaced
> (i.e. progressive). The international cooperation had gone so well for
> MPEG-1 that the committee began to address applications at broadcast TV
> sample rates using the CCIR recommendation (720 samples/line by 480 lines
> per frame by 30 frames per second or about 15.2 million samples/sec.) as
> the reference. Unfortunately, today's TV scanning pattern is interlaced.
> This introduces a duality in block coding: do local redundancy areas
> (blocks) exist exclusively in a field or a frame? The answer of course is
> that some blocks are one or the other at different times, depending on
> motion activity. The additional years of experimentation and
implementation
> between MPEG-1 and MPEG-2 improved the method of block-based transform
> coding.
>
> The MPEG-2 concept is similar to MPEG-1, but includes extensions to cover
a
> wider range of applications. The primary application targeted during the
> MPEG-2 definition process was the all-digital transmission of broadcast TV
> quality video at coded bit-rates between 4 and 9 Mbit/sec. However, as
> InnovaCom has proven, the MPEG-2 syntax has been found to be effective for
> other applications such as those at higher bit rates and sample rates
(like
> HDTV). The most significant enhancement over MPEG-1 is the addition of
> syntax for efficient coding of interlaced video (e.g. 16x8 block size
> motion compensation, Dual Prime etc).
>
> Several other more subtle enhancements (e.g. 10-bit DCT DC precision,
> non-linear quantization, VLC tables, improved mismatch control) are
> included in MPEG-2, which have a noticeable improvement on coding
> efficiency, even for progressive video. Other key features of MPEG-2 are
> the scalable extensions which permit the division of a continuous video
> signal into two or more coded bit streams representing the video at
> different resolutions, picture quality (i.e. SNR), or picture rates.
>
> Why do films do so well with MPEG? Several reasons:
>
> 1.. The frame rate is 24 Hz (instead of 30 Hz) which is a savings of
some
> 20%.
> 2.. the film source video is inherently progressive. Hence no fussy
> interlaced spectral frequencies.
> 3.. the pre-digital source was severely oversampled (compare 352x240 SIF
> to 35 millimeter film at, say, 3000x2000 samples). This can result in a
> very high quality signal, whereas most video cameras do not oversample,
> especially in the vertical direction.
> 4.. Finally, the spatial and temporal modulation transfer function (MTF)
> characteristics of film (motion blur) are more amenable to the transform
> and quantization methods of MPEG.
>
> There will be a quiz on this tomorrow....
>
> COMPETITION
>
> The group of credible suppliers of either MPEG-2 applications or DVD
> authoring systems is very small. Among them, two Israeli companies stand
> out: Optibase (OBAS) is a more specialized player, selling at a healthy
> multiple to sales and with a stock that is up five-fold since Thaksgiving,
> and ECI Telecom (ECIL), a much more diversified electronics company and a
> stock that hasn't done much for a while. Among the US competitors, FVCX
> (FVCX) is a somewhat troubled company that needs to address a few internal
> issues, and Optivision, slightly larger than MPEG, is private.
>
> LATEST DEVELOPMENTS
>
> Korea's Inchon International Airport bought the company's TransPEG 500TM
> video transmission system -- running over ATM. InnovaCom's system was
> chosen by airport officials to enable the expansion of the airport's
> General Public Communications System (GPCS) and will be installed in the
> main passenger terminal. TransPEG provides the state-of-the-art facility
> with advanced video communications via the Satellite Communication System
> (SATCOM) to TransPEG and is then fed, in MPEG-2 format, to the ATM network
> from the Airport Information Communication Center (AICC) to the CATV
> head-ends located in the passenger terminal buildings. Inchon
International
> Airport's main passenger terminal building, scheduled for completion in
> June 2000, will be the world's largest airport passenger terminal -- 60
> times larger than a U.S. football field. The new airport will contain two
> passenger terminal buildings and four concourses.
>
> End users of MPEG's applications may selectively deliver video
> presentations to several schools within one district via the desktop;
> saving time, money and aggravation -- and in the short-term can pay back
> the initial investment many times. For example, in the case of a TV
station
> in a sparsely populated California county, TransPEG has extended KGOV's
> reach through live video transmission of Kern County Board of Supervisors
> Meetings to citizens in remote areas. Kern is the 3rd largest County in CA
> and spans 8,000 sq.miles. Due to its expansive size, active participation
> in legislative procedures has been very limited, because doing so could
> entail traveling more than 200 miles roundtrip to attend a county meeting.
>
> FINANCIALS
>
> MPEG has about 25M shares O/S, and the float is just a tad over 1/2 of
> that. A large block is held by the Encore Capital VC fund out of Reston,
> VA, who is a long-term shareholder and a source of short-term funding for
> MPEG. The company is just coming out of the development phase and has put
a
> number of ghosts to bed, but it is well-funded and poised to show
explosive
> growth. We expect the current year's revenues to be in the $15-16M area,
> with EPS of 7-8c. The company will be cash flow positive by the 3rd
quarter
> (possibly sooner) and the earnings will be sheltered by its tax loss
> carryforwards. In 2001, revenues should easily double to the $30M range
> and, with "normalized" net margins of 17-18%, we can expect EPS of 23-25c.
> Though it's early days in 2000, the stock is still barely selling at one
> times it's current year's revenues. No fair!
>
> Revenues for the three months ended Sept. 1999 were about $75,000, double
> those for 1998. Revenues for the first 9 months of 1999 were more like
> $172,000, and the 4th quarter will show the first substantial devlieries.
> The revenue in both periods in 1999 reflects the completion of some
> TransPeg transmission products and the first shipments of these products.
>
> MPEG is debt-free, except for a convertible debenture in the amount of
> $9.5M payable to Encore Capital. The instrument is not likely to be
> converted any time soon, since both parties feel that the stock's current
> price and the resulting dilution would make it unattractive. Let sleeping
> dogs lie....
>
> TECHNICAL ANALYSIS
>
> The stock of MPEG has been showing accumulation for the past few days,
> after the last pullback, with steadily increasing volume. Yesterday's
close
> was at the day's high on the biggest volume of the last 2 years (two
> tell-tale signs) and the stock opened with a small gap today, but closed
> it. Now, a break past the recent high of 7/8 is a matter of days. Beyond
> that, with the stock now moving into strong hands (including our readers),
> the minimum expectation is a move to the supply area at 1 5/8. We're on
> track today to beat yesterday's volume of 2.5M shares. The short-term
> stochastics just hit 100, the highest possible momentum reading, but the
> MACD is yet to match the +0.23 reading that was hit when the stock was at
2
> 3/4 in late 1998. Everything is in gear for a powerful move, and we
> recommend purchase up to $1.50. As you know, we don't use price targets.
> Watch it and enjoy the ride.
>
> This newsletter has received no compensation whatsoever from InnovaCom.
>
>
> Peter Kertes & Pat Comer
>
>
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>
> Disclaimer: The writer of The Alert Investor (A.I.) is not currently a
> Registered Investment Advisor. It is the intent of A.I. to identify and
> research companies that it believes might prove profitable investments.
> However. A.I. is not liable for any investment decisions by its readers
and
> any use of the information provided is at the sole risk of the investor,
> who is strongly encouraged to do his or her research. The information
> contained herein is provided as an information service only and past
> performance of featured companies does not guarantee the future success of
> an investment in that company. The writer of A.I. may, from time to time,
> hold positions in stocks featured in A.I. or receive compensation for
> research or consulting services. The reader should assume that A.I. or its
> affiliates hold positions in the stocks mentioned in this newsletter,
> bought in the open market or in private transactions, and that they will
> buy or sell some of these positions at any time, without notice. A.I.
> relies on various sources of information that we believe to be accurate
and
> reliable. However, A.I. makes no claims or representations with regard to
> the accuracy, completeness or truthfulness of any material contained
> herein.
>
>
> ---
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