Sonicblue not as deep in the red

Executives for the maker of Rio players and ReplayTV recorders are upbeat. But the copyright lawsuit from the major TV networks may still be a thorn in the company's side.

Richard Shim Staff Writer, CNET News.com
Richard Shim
writes about gadgets big and small.
Richard Shim
3 min read
Consumer electronics maker Sonicblue reported on Thursday a narrower-than-expected loss for the third quarter.

The Santa Clara, Calif.-based company posted a loss of $17.7 million, or 20 cents per share, excluding charges. Revenue came in at $54.8 million for the quarter ended Sept. 30. A consensus of analysts expected a loss of 34 cents per share, according to a survey by First Call.

In the third quarter last year, Sonicblue lost $37.5 million, or 40 cents per share, on revenue of $140 million, when the company was still a graphics chipmaker known as S3.

Including special charges, the company reported a loss of $55.3 million, or 62 cents per share, in the most recent quarter.

Sonicblue's products include Rio digital-audio players and ReplayTV digital video recorders.

Sonicblue gets about 80 percent of its revenue from its digital-audio players and its dual-deck VCR/DVD players. Todd said the company must continue to take advantage of its leadership in the digital-audio player market--its Rio players are consistently the top-selling brand in their category.

"We must build scale and participate in these large markets," John Todd, Sonicblue's chief operating officer and chief financial officer, said during a conference call. "Our technology allows us to build a competitive advantage."

Sonicblue CEO Ken Potashner was upbeat about the results, considering the company's major overhaul in the past year from chipmaker to electronics maker.

"We have also substantially improved the efficiencies of our business through aggressive restructuring activities," Potashner said in a statement.

Todd expects revenue growth in the fourth quarter.

"Given the success of our realignment plan and current growth trends, we expect to realize a 5 percent quarter-on-quarter increase for the fourth quarter, enabling Sonicblue to achieve revenue of $57 million to $58 million for the quarter," Todd said in a statement.

Sonicblue expects to break even toward the end of the first half of 2002.

But the company faces a major shortage of cash.

At the end of the third quarter, Sonicblue had $14 million in cash left after using $26 million during that period. For the fourth quarter, the company plans to use less than $10 million. In addition to cash, Sonicblue also holds 183 million shares of chip company UMC.

The earnings come one day after ABC, NBC and CBS filed a lawsuit, alleging that Sonicblue's new digital video recorder violates copyright laws. The DVRs are expected to begin shipping this month.

The device, called the ReplayTV 4000, essentially acts like a VCR. But instead of recording to a tape, the device records TV shows onto a hard drive. The company's software also allows owners to program the devices to record shows in the future.

The networks have a problem with the ReplayTV 4000's ability to skip commercials and to distribute shows to other ReplayTV boxes via the Internet.

During the conference call, Potashner said the company had made efforts to avoid a lawsuit by limiting the number of times a TV show can be shared to 15.

Sonicblue acquired ReplayTV in August after announcing the deal in February.

Regarding the lawsuit, Potashner said that one of Sonicblue's core strategies will be to forge partnerships with networks to share the revenue that the company will generate from services related to the recorders.

"There are several ironies here including the fact that some of these very networks were original investors in ReplayTV and that we're working with some of these guys on services," Potashner said.

Potashner wouldn't comment on which networks Sonicblue is working with on services or what those services will be, but he did say that the services will be available in the next six months.