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Wednesday, January 14, 1998
Zoran Corp.
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Phone: 408-919-4111
Website: http://www.zoran.com
Price (1/13/98): $15
HOW DID IT FIND TROUBLE?
DVD players? Digital cameras? These were the high tech home gadgets every abode was supposed to be knee deep in by now. Want to see Austin Powers in better resolution than VCR's and laser discs? That's Zoran's bag baby. Want to see snapshots on your computer? Shagadelic baby.
Yet Dr. Evil has had other plans. Delays in the proliferation of what seemed like can't miss holiday winners has sent Zoran's stock into a pool of mutated sea bass. For a company that is perpetually banking on the future, technology delays can be cruel. So, with soft quarters expected, danger has become Zoran's middle name.
BUSINESS DESCRIPTION
Once a supplier to the military and medical markets, Zoran is now fully devoted to developing integrated circuits and other products for digital audio and video compression. These products are used in a variety of multimedia applications.
The California-based company's current product lines include JPEG-based products used in video editing systems and filmless digital cameras, MPEG-based products used in video playback, and Dolby Digital-based audio products used in movie and home theater systems and DVD players.
FINANCIAL FACTS
Income Statement
12-month sales: $44 million
12-month income: $4.3 million*
12-month EPS: $0.39*
Profit Margin: 9.8%
Market Cap: $166.5 million
(*Excluding charges)
Balance Sheet
Cash: $7.8 million
Current Assets: $37.8 million
Current Liabilities: $10.9 million
Long-term Debt: None
Ratios
Price-to-earnings: 38.5
Price-to-sales: 3.8
HOW COULD YOU HAVE SEEN IT COMING?
Shares of Zoran peaked at $28 in September when the company was hitting on all cylinders. The company's SoftDVD, a software-based DVD solution relative to competitors C-Cube and LSI's chip-based decoders, was anything but soft. Both IBM and Hewlett-Packard agreed to include SoftDVD on high-end computer models and Zoran had penned a licensing agreement with Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> for an optimized version of SoftDVD for Pentium II systems.
Yet while deals were being signed, time was ticking away. For Zoran, as with most integrated circuit makers, dated technology means falling selling prices and eventual obsolescence. Wall Street had forgiven the company its flat fiscal results all year on the promise of video revolutions on the horizon.
When it became clear that $100 scanners were setting back the market for digital cameras and that the average Joe or Joanne wasn't ready to shed their VCRs for a $500 DVD device with no recording ability, the horizon got farther away -- and the sun set on the company's immediate prospects.
Once the company announced the dismal outlook and earnings estimates took a subsequent beating, in October the stock fell below $20 and gradually inched its way lower. Zoran got rapped, yet it was not an immediate debacle. For those who rightfully assumed that the investment community would lose patience with a slow rollout, there were exit points on every downtick.
WHERE TO FROM HERE?
Slowing the outflow of shareholders was a string of favorable developments. In November the company teamed up with FoolPort regular Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> to offer a low-cost solution for digital video cameras using Zoran's JPEG compression technology and Iomega's new clik! device.
Late last month the company finally put out a Zoran-based DVD player when Sharp shipped a version with Zoran's Vaddis chip decoder.
The disappointingly slow rollout of DVDs and, more importantly, Zoran's ever-diminishing role relative to its more entrenched peers have hurt the compression company, but the wild stock price swings blur a company that is succeeding on other fronts. Zoran's digital audio signal processor is now in use in over 12,000 Dolby Digital movie theaters.
With earnings estimates shaved down to $0.76 per share for this year, the company trades at 17 times those depressed estimates. The cash-rich and debt-free balance sheet gives the company ample time to wait for bullish sentiment to return. The wild gyrations that have characterized the shares since their 1995 debut almost assure that the company will ebb and flow in and out of popularity. With the shares now in a cryonic state like Austin Powers himself, it could eventually lead to some pretty groovy happenings when things heat up again. Yeah baby, yeah.
-Rick Aristotle Munarriz
([email protected])
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