Mike:
I agree this is a really big opportunity. I'm not sure I agree with your statement (quoted below); or rather, I think you are right but for the wrong reason.
"as i-TV rolls out, that puts a substantial burden on the Internet. If i-TV turns out to be wildly successful, that will grind the Internet to a halt. The only solution is upgrades to handle the flood of data. IMO, all three portions(access, metro, and core) will be overburdened if i-TV is successful. I'm basing this statement on the fact that the PC penetration rate is a pittance compared to the penetration rate of TV into households."
I understand that in the US, roughly 50% of homes have PC's and 40% have internet, 80% have cable or satellie, and 98% television penetration of about 100 million homes. Given that people who really want internet already have it, the likely market for NEW internet users on cable tv is something like 40% of US households. Assuming that a remarkable 50% of them go for interactive TV, this is 20 million homes, a mere 50% increase from the current 40 million today. They (couch potatoes who don't use the internet today) are also not likely to be high bandwidth users.
The real source of bandwidth upgrade will likely be, in my opinion, created by Video on Demand (VOD) services. This will certainly create a bottleneck, not at the backbone, but between the location of the video jukebox and the cable head, as at 8pm. every night people try to download movies. Clearly, investing in video jute boxes is a good idea: if I were Blockbuster I would be moving into this market. But back to set tops.
Now, to find the winners in this market, I think the first question is what will the set top box look like? There are two ways the market can go.
1) embedded low cost set top box
2) a PC with extra receiver, decoder, DVD, HDTV and MPEG-2/3/7, and lots of hard disk storage
Basically, with 1) you would pay ~$300 for a box such as GI (now Motorola) and be under the thumb of your local cable service provider such as AOL; but you wouldn't have to do much more than play with a simple remote.
Now 2) already works with expensive ($130) monitors and a TV graphics card such as ATI's "all in wonder". I installed a card for an upgrade fee of $150, and can watch TV in one corner of my screen while working with windows over the rest of the desktop- this is not new technology, but it is neat. The card can also handle DVD, CD, and VCRs.
Given that low end pc's such as e-machines are ~$450, we are getting close to the $300 set top. To make VOD and download programs work you need about a 30G hard drive (this is what TiVo uses, for example) as well.
My guess is that 2) will easily win if HDTV takes off, then 98 million homes, when faced with buying a DVD player, a CD player, game-stations, and HDTV appliances, will opt for a PC that can do it all for under $500.
If most of the 98 million homes are happy with existing tv quality, and their vcr's, then 1) or 2) would work depending on where they want to buy separate DVD, CD, game-stations. It will also be a matter of ease vs. freedom, and of course, cost.
In any case, to find a successful play, you should probably try to find the common denominator between PC and set tops. Set tops have closed OSs unless they run Windows or LINUX, but PCs are open, so a software play is dangerous if we don't know the market outcome. The same is true with set top manufacturers: for all we know Dell and Compac might not just rollover and fade away, but try to compete in this market!
My guess is that the safest play is to invest in the companies that sell 'guns to both sides': that is semiconductors that work in PC's and are in some of the embedded set tops.
Processors: Intel, and a bunch of specialized integrated chip companies - not many are low valued
Modem: Broadcom, Motorola - not much low value there
TV chips - I don't know this area
Graphics: ATI (ATYT) and Navida (NVDA) are about it, after a recent shakeout. ATI, in my opinion, is very
undervalued, while NVDA is values at 4 times ATI for some reason. So I would suggest ATI (ATYT) as an investment possibility.
I'd be interested if anyone has any other semiconductor stock ideas that might be undervalued today. |
