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Technology Stocks : Gemstar Intl (GMST) -- Ignore unavailable to you. Want to Upgrade?

To: art slott who wrote (3111)	6/1/2000 10:24:00 AM
From: StockHawk	Read Replies (1) \| Respond to of 6516

Comments on GMST from yesterday's 2020 Insight column: 2020insight.com All AboutGemstar . . . Gemstar Chairman and CEO Henry Yuen. Dr. Yuen indicated that the merger with TV Guide is on track for a second quarter close and that discussions with distributors were progressing more or less as expected. Gemstar is a DCF story and that, in the current market environment, companies deriving the majority of their asset value from the out-years of a valuation model are being harshly punished by investors. However, the company's strong patent position and the IPG is seen as boasting one of the more visibly attractive businesses for the long-term foreseeable future. Gemstar will be the leading player in the IPG area. While the stock is likely to remain volatile in the near term, closing of the TV Guide merger should eliminate some of the current uncertainty in the market and lift both stocks. With regard to timing of merger completion, Gemstar and TV Guide have substantially complied with the second request for information from the DOJ, clearing the way for the merger to close by the end of the second quarter. At this point, do not anticipate any material obstacles to merger completion. Moreover, over the next six months, expect Gemstar/TV Guide to gain long-term distribution commitments from some cable and DBS operators, which should also help the stock. Undoubtedly, some of the stock's weakness reflects growing concerns related to potential competitive alternatives. Cable MSOs have been quite outspoken in recent months regarding their desire to seek alternatives to Gemstar/TV Guide and this has clearly impacted the stock. To be clear, expect certain operators to go their own way, electing to take their chances with potential litigation and most operators will simply try to hold out for better terms. This ongoing posturing contributes a significant amount of perceived uncertainty to the Gemstar story. Our expectation is that significant distribution commitments will be made within as little as one to six months. All distributors are awaiting the close of the merger. The interactive program guide market is indeed a crowded field, with competition provided by Scientific Atlanta, TiVo, Source Media, Microsoft, AOL, among others. Despite the substantial number of competitors that exist in this space, we continue to regard TV Guide/Gemstar as the best-positioned player in this market. The company is particularly well positioned with AT&T; CE manufacturers; AOL/TWX; and Microsoft. TVGIA has a ten-year exclusive contract with AT&T, which could put TV Guide/Gemstar in 15.5 million AT&T digital cable homes over time. With regard to AOL, assuming Gemstar's license agreement is broadened to include Time Warner Cable, TV Guide/Gemstar could pick up another 12.6 million subscribers. Gemstar has already licensed its guide to AOL TV. Under typical exclusive license arrangements, a subsidiary is required to comply with the parent company's license agreement. Moreover, Gemstar's license agreement with Microsoft should put the guide in a substantial number of international cable homes in coming years. In the CE market, with a significant number of manufacturers having licensed the Gemstar Guide technology, expect the guide to ship in over 50% of TV sets within three to four years. Although agreements have yet to be signed with DirecTV and Echostar, expect both DBS operators to ultimately license the Gemstar IPG within the next year. Thomson currently provides Direct TV with its IPG and, Thomson has a license to make and sell the Gemstar IPG. However, DirecTV does not have a license to "use" the Gemstar IPG and expect DirecTV and Gemstar to reach a friendly resolution over time. Since peaking out on March 9, at $101 per share, Gemstar shares have retreated 2/3 or 67%, substantially in excess of the overall market decline and the 36% drop-off in the tech laden Nasdaq. Moreover, the nascent ITV sector has been clobbered during this time period, with astounding 66% correction in the group. Under a bear case scenario, assuming no additional cable distribution outside of AT&T and no international distribution, highly unlikely scenarios, you can arrive at an IPG valuation which exceeds $14 billion, suggesting a price objective of $49 per share, roughly 40% above current levels.