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Riding out the downturn

Manufacturers of TV production gear downsize, cut prices, seek new markets and businesses 8/26/2001 08:00:00 PM Eastern

Cable feels the pain

Cable feels the pain

Is demand for digital cable slowing, or are the channels overstuffed with equipment? That's the big question as equipment vendors see sales slowing.

Scientific-Atlanta's stock has been hammered since it withdrew projections to investors that it would sell 4.8 million digital set-tops in the next 12 months. CFO Wallace Haislip withdrew his original forecasts of continued growth in fiscal 2002 after orders for set-top boxes slowed significantly in the fiscal fourth quarter. MSOs Time Warner Cable, Charter Communications Inc. and Adelphia Communications Corp. said they will not be ordering new shipments because the number of new digital subscribers declined from the first quarter to the second.

Morgan Stanley analyst Gary Lieberman now estimates the company will sell just 3.6 million units—about 500,000 of those overseas. "A declining economy may adversely affect consumer purchases of new digital services and, thus, purchases of our digital products by the MSOs," Haislip noted. But some investors wonder whether S-A overloaded MSOs' warehouses to make its fiscal fourth quarter—ended June—look strong.

MSO orders have slowed at Motorola's networks sector as well, according to investor correspondence from division President Edward Breen. Third-quarter sales are expected to drop from the second quarter. Motorola has shipped over 16.5 million boxes total.

Avid Technology laid off 140 people this month, Accom cut 28 jobs in May, and Pinnacle Systems trimmed 25 in June.

The cutbacks are symptoms of a sharp downturn in the TV production-equipment market. With the TV advertising slump, manufacturers of cameras, switchers, graphics and other production gear are seeing fewer orders from production houses and TV networks and stations.

Although some executives are "cautiously optimistic" that business will pick up early next year, the manufacturers are weathering the storm by downsizing, reducing prices, offering better financing, and seeking new revenue in foreign markets, systems integration and long-term maintenance contracts.

Pinnacle's broadcast business is "off substantially from last year, and it is still declining," says President Mark Sanders.

"If you go back to the last time we had a serious recession, in 1982, technology seemed to be immune," he notes. "This time, the technology industry is bringing the economy down—mostly due to Internet-related businesses."

How bad is it?

Avid, for the six months ended June 30, posted a loss of $25.3 million on revenue of $227.6 million.

The company's broadcast division, however, is doing better than others, says CFO Paul Milberry. "We've had slight growth [in broadcast systems] year over year."

Chyron Corp. reported a net loss of $13.5 million for the second quarter, ended June 30, compared with a net loss of $1.9 million for the same period in 2000. Revenue was down nearly $3 million from the year before, to $13.2 million, with $5.1 million from the graphics division and $8.1 million from signal distribution and automation products.

For the quarter that ended June 30, Pinnacle Systems reported a pro forma loss of $7 million on revenue of $50 million.

"If advertising goes down, broadcasters pull the plug on those areas where they have control—essentially, capital-equipment spending," says Pinnacle's Sanders. "That's what we're seeing now.

"Even last year, when the business was going great, a significant portion of the companies in the broadcast space were losing money," he says. "Now, with the economy slowing, it's really serious."

Larger companies like Grass Valley Group, Panasonic, Sony and Tektronix do not reveal exact financial numbers on their TV production divisions, making it hard to judge how much business is off. Yet they acknowledge that they are going through some tough times.

Grass Valley Group President and CEO Tim Thorsteinson says senior management has accepted a 10% pay cut until October. But, while business is soft in the U.S., he says, it is still fairly brisk in Europe and Asia.

"We're seeing most of our activity around our new products [Zodiac switcher and Vibrint newsroom systems]," he says. "Since our business bottomed out at the end of last year, it's been up sequentially 10% each of the last two quarters, thanks to overseas business."

Panasonic Broadcast and Television Systems is "suffering as a result of the economy, just like all of our competitors," says President Frank DeFina, "and there's nothing we can do to change the economy. VTRs and cameras have been slower than anticipated."

Sony Professional Co. President Ed Grebow says that, while some parts of his business are soft, others, such as systems integration, have been "slightly ahead of last year."

According to Grebow, small-format digital cameras, such as the company's professional DV and DVCAM, are up, while sales of the larger formats, like Betacam SX, are down. VTRs are also substantially down, reflecting the industry's overall move to server and disk-based components. But plasma-screen monitors are doing well.

"In total, we hope to get even with last year," Grebow says. "We're a couple of points behind right now, but I think people know we'll be around after this downturn to support their products."

Another business sector recording gains for the company this year is maintenance service contracts, according to Grebow. "Both large and small broadcasters, which increasingly have fewer engineers in house, want us to maintain their equipment," he says.

All of the companies interviewed say they're not counting on any significant improvement in the overall market conditions until early next year.

Cable feels the pain

Cable feels the pain

Is demand for digital cable slowing, or are the channels overstuffed with equipment? That's the big question as equipment vendors see sales slowing.

Scientific-Atlanta's stock has been hammered since it withdrew projections to investors that it would sell 4.8 million digital set-tops in the next 12 months. CFO Wallace Haislip withdrew his original forecasts of continued growth in fiscal 2002 after orders for set-top boxes slowed significantly in the fiscal fourth quarter. MSOs Time Warner Cable, Charter Communications Inc. and Adelphia Communications Corp. said they will not be ordering new shipments because the number of new digital subscribers declined from the first quarter to the second.

Morgan Stanley analyst Gary Lieberman now estimates the company will sell just 3.6 million units—about 500,000 of those overseas. "A declining economy may adversely affect consumer purchases of new digital services and, thus, purchases of our digital products by the MSOs," Haislip noted. But some investors wonder whether S-A overloaded MSOs' warehouses to make its fiscal fourth quarter—ended June—look strong.

MSO orders have slowed at Motorola's networks sector as well, according to investor correspondence from division President Edward Breen. Third-quarter sales are expected to drop from the second quarter. Motorola has shipped over 16.5 million boxes total.

 

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