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Turnaround strategy reviving Sonicblue

The consumer-electronics maker trims losses from last year's fourth quarter with financial results that are in line with estimates it gave in mid-January.

Consumer-electronics maker Sonicblue trimmed losses from last year's fourth quarter with financial results that were in line with estimates it gave in mid-January.

"Our strong fourth-quarter performance is further validation of the successful actions we have taken in 2001 to become a profitable, broad-based, digital-entertainment device company," John Todd, chief operating officer of Sonicblue, said in a release.

The Santa Clara, Calif.-based company announced on Wednesday a fourth-quarter net loss of $44.1 million, or 47 cents a share, on revenue of $79.6 million. The quarter ended Dec. 31.

On Jan. 15, Sonicblue announced that it expected revenue to be between $78 million and $80 million, exceeding analysts' estimates by $21 million to $23 million.

In the same quarter a year ago, the company had a net loss of $67.5 million, or 72 cents a share.

Excluding charges, Sonicblue had a loss of $6.8 million, or 7 cents a share. Some of the charges included a loss from operations of in-process research and development, a restructuring expense and impairment charge, non-cash deferred compensation, and amortization of goodwill and intangibles.

According to First Call, analysts were expecting a loss of 9 cents a share.

Sonicblue attributed the better-than-expected results to a strong holiday season, in which the company was unable to keep up with demand on three of its product lines: the Rio CD-based MP3 player, the Go-Video combination DVD/VCR player, and the ReplayTV digital video recorder.

The company is beginning to see the benefits of a turnaround strategy that it started just over a year ago. Within the last week the company has laid out upcoming products, appointed a new chief financial officer, and signed a licensing agreement with consumer-electronics maker Samsung.

At the same time, Sonicblue is involved in a legal battle with TiVo, a rival in the digital video recorder market. The companies are suing each other over alleged DVR-related patent infringement.

Sonicblue is also in a legal donnybrook with television networks that object to the company's ReplayTV DVR, which allows owners to send television shows over the Internet.

"We are seeing the initial financial gains of our new strategy," Ken Potashner, Sonicblue chairman and chief executive, said. "The next step will be ramping our product lines" to meet demand.

The company's difficulty in keeping up with demand for some of its products is translating into good news for Sonicblue. The Rio line of digital audio players became profitable this quarter, and the company expects to break even in the second quarter and reach profitability in the third quarter of this year.

Upcoming products that should help the company achieve those goals include a hard drive-based digital audio player called the Rio Riot and a combination DVD player and digital video recorder. The company expects to release the Riot next week and the DVD/DVR product in the third quarter.

Todd added that the company is comfortable with analyst consensus revenue estimates of $55 million for the first quarter and $280 million for 2002.

The company had an operating cash burn rate of $6 million this quarter.

"They're now in the refining and executing phase of their new strategy," Andrew Scott, an analyst with Needham said, "as opposed to the reengineering of a seriously flawed business model," which is what they were in last year.

The company's stock traded up slightly, closing up about 2 percent at $4.60 before the announcement. In after-hours market trading, Sonicblue was trading down about 13 percent at $4.