Web software developer Spyglass today announced a three-year, $20 million joint venture with General Instrument to develop Net-based cable technologies and services and saw its stock soar on the news.
Many analysts say the deal will give Spyglass the necessary clout to sell its vision and reach profitability, despite the fact that the company almost was washed away a few years ago, when Netscape Communications began giving away their browsers for free.
"This deal is Spyglass's 'piece de resistance,'" said Walter Ramsley, an analyst at investment bank Fechtor Detwiler "This proves out the whole business plan, since GI is the biggest supplier of these set-top boxes."
In 1996, Spyglass began de-emphasizing its Web browser software business, focusing instead on the device market, which utilizes specialized software to connect everyday items to the Internet.
Not everyone had faith in the company's new direction.
"For a while, it was difficult to have any visibility on where revenues and customers would come from," said Abhi Gami, a William Blair analyst. "But after following the company for a while, you see it's a very viable strategy."
Spyglass today saw its shares jump more than 10 percent or 1.1875 points to 12.875 on the news of its deal with GI. The stock has traded as high as 15.38 and as low as 4.06 during the past 52 weeks.
"In terms of our long-term strategy, we believe with every fiber of our company that the market for Internet devices--non-PC devices--is just in the initial stage of emerging," said Spyglass CFO Gary Vilchick. "Our strategy is to take a leadership position in providing our technology and our services to leading manufacturers of products that leverage the Internet."
Spyglass has taken bold steps during the past year in forming strategic partnerships with makers of copier machines, televisions, cell phones, and even coffee machines to provide software that will allow these instruments to be connected to the Internet. Some of Spyglass's clients include Motorola, and Philips Semiconductors. Spyglass even is working with Microsoft, releasing a version of its Web browser for limited-purpose devices that run Microsoft's Windows CE operating system.
The company also is moving to form an alliance that will push it into sectors such as health care and industrial manufacturing.
"There are lots of parts to this market, some moving faster than others," Gami said. "But if you take it as a whole, it is gathering momentum nicely, like a storm gathering in the distance."
Today's announcement helps Spyglass push into the vast cable and satellite market, which has become especially vital with the growing convergence of data, voice, and video in telecommunications.
"Every time we land a customer like Motorola or GI, it adds to our credibility. It helps us going forward and provides confidence to other companies as to what we can provide for them," Vilchick said. "This deal does a couple of strategic things for us by establishing a relationship with a company that has 80 percent market share in the very exciting area of cable and satellite. While the initial transaction is $20 million, there is a great deal of leverage associated with the deal."
Vilchick noted also that, not only will Spyglass have an opportunity to work directly with GI, but it also will have access to GI's customers and vendors."
Spyglass said it does not consider Sun Microsystems' Java technology or Microsoft's Windows CE to be competition. The company said it was contracted by Sun to develop the PersonalJava programming language, a technology that Sun is looking to use in set-top boxes.
"We are agnostic from the point of view that our technology can run on any of these platforms," Vilchick said. "We take a very neutral approach."
Revenues for Spyglass' fourth quarter increased to $5.9 million, an 84 percent increase over the year-ago quarter and a 10 percent increase over fiscal 1998's third quarter. Spyglass lost $589,000 for the most recent quarter, and $8 million or 60 cents a share for the entire year.
Those numbers are likely to improve vastly in the coming quarters.
"I think as we speak, [Spyglass is ] in a quarter that will generate profit," said Gami. " We are looking for earnings of about 2 cents per share."