Fool.com: Scientific-American Profiting From Set-Top Growth (Breakfast News) August 13, 1999

BREAKFAST WITH THE FOOL

Friday, August 13, 1999

"It's what you learn after you know it all that counts."
-- John Wooden

Scientific-Atlanta Profiting From Set-Top Growth

By Brian Graney (TMF Panic)

Cable set-top box maker Scientific-Atlanta (NYSE: SFA) announced last night that its fiscal fourth quarter was a barn-burner, with EPS up 32% year-over-year to $0.33, excluding gains from the sale of marketable securities. That was a nickel better than the First Call mean estimate, and the second quarter in a row of double-digit earnings growth after a weak performance in the first half of this year.

Increases in research and development spending by the company over the last few years are finally starting to pay off in terms of higher sales and bookings. Revenues of $355 million were up 17% year-over-year, while bookings rose 22% to $389 million. Leading the charge were the company's transmission and subscriber businesses, which both experienced greater than 25% sales growth during the quarter. While each of the divisions accounts for roughly an equal 40% slice of the total revenue pie, the subscriber unit tends to get more attention since it includes Scientific-Atlanta's fast-growing digital set-top box business.

Strong customer demand for its Explorer 2000 interactive digital set-top boxes allowed the company to hit its target of shipping at least 500,000 units this year. The final shipment tally was 511,000 units, with 35% of that total occurring in the fourth quarter. Approximately 230,000 Explorer 2000 boxes have been installed in cable customers' homes, and the installation rate is hitting about 20,000 units per week, up fivefold from a year ago. CEO James McDonald relayed scuttlebutt during the conference call that one cable system has installed 9,000 digital set-tops in the past two weeks alone.

The accelerated growth has prompted Scientific-Atlanta to boost its digital interactive set-top production capacity to 2 million units annually from 1 million units, which follows a similar doubling of capacity last year. New models are on the way to take advantage of what the company calls an "extremely favorable initial customer reaction" to the products, suggesting the outlook for fiscal 2000 is bright.

News to Go

Drug maker Pfizer (NYSE: PFE) announced that it has halted development of its Alond drug for treating peripheral diabetic neuropathy. The company made the decision after a recent study suggested that measurements of the drug's effectiveness are "very small."

According to The New York Times, media giant Walt Disney (NYSE: DIS) is putting its Fairchild Publications magazine unit up for sale and has already received a $650 million bid. GQ and The New Yorker publisher Conde Nast Publications and Harper's Bazaar and Town & Country publisher Hearst Magazines are said to be bidding for Fairchild, whose magazines include W, Women's Wear Daily, and Jane.

A federal judge in Kansas has sided with document processing company Xerox (NYSE: XRX) in a patent-infringement dispute with computing products firm Hewlett-Packard (NYSE: HWP). As a result of the judge's decision, H-P must deliver 4,000 of its TrueRes color laser printer chips that it sold to Xerox under an earlier licensing agreement.

Funeral home and cemeteries operator Stewart Enterprises (Nasdaq: STEI) warned that intense competition from low-cost mortuaries and changing customer preferences will result in Q3 EPS $0.02 to $0.04 below the First Call mean estimate of $0.29. EPS in Q4 is expected to fall $0.06 to $0.08 shy of the estimate of $0.25, as well.

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