Last Saturday, the "Wall Street Journal" reported that Google Inc. (Nasdaq: GOOG) is seeking to penetrate the cable television sector and take the lead in search services there too. According to the "Wall Street Journal", Google is already conducting trials of such a service, with the future goal of winning a significant chunk of the television advertising market, worth an estimated $54 billion a year; a market that is a lot bigger than the potential size of the one it has today on the Internet.
This new field of "customized television advertising" has an unknown Israeli angle to it too. The "Wall Street Journal" report said that Comcast Corp. (Nasdaq: CMCSA), the largest cable company in the US, is already conducting similar trials ahead of a commercial launch next year, and to this end, it has been using equipment manufactured by a number of small companies such as OpenTV Corp. (Nasdaq: OPTV) and others. These did not get a mention in the aforementioned article, but I know for certain that among the other providers of equipment to Comcast are Terayon Communication Systems Inc. (Pink Sheets: TERN.PK), and its Israeli rival, BigBand Networks Inc., which is set to float this week on Nasdaq at a company value of $750 million.
OpenTV is partnering Terayon in a field known as "Digital Ad Insertion" and following the completion of successful field trials the two companies are set to launch a system in the near future. In the course of the trials, in which Comcast also took part, the system's performance was tested by integrating it in decoders made by two leading manufacturers Motorola Corp. (NYSE: MOT) and Cisco Systems Inc. (Nasdaq: CSCO). I have no doubt that BigBand, which will be listed for trading under the symbol BBND, will be a big hit, not because of the aforementioned trials, which is an exciting development in its own right but which will translate into revenue over the longer-term, but because James Cramer mentioned the company last week.
Cramer says that BigBand "is a play on the triple play," and that the midpoint of BigBand's price range right now is $11, whereas, ordinarily, it would be priced higher. Plus, it is "growing faster than Cisco and is worth more than $14." BigBand's owners should send the man some flowers, since I believe his endorsement will up the company's price when the IPO gets underway later this week.
This week I will be making some changes to my portfolio. I am dropping DSP Group Inc. (Nasdaq: DSPG), as there is unlikely to be any significant growth in the market for chips for wireless handsets in the foreseeable future. In its place I am adding a medium-sized company called Itron Inc. (Nasdaq: ITRI) from Spokane in Washington State, which develops software for reading electric, gas, and water meters, including radio-based endpoints for automatic meter reading and handheld field collectors, a field that seems far removed from the world of advanced technologies. Last month it announced that it would acquire a European rival, Actaris Metering Systems, for around $1.6 billion. As Actaris is almost the same size as Itron, this represents a bold move that entails risks but which also has great prospects.
There will also be a changing of the guard of the giants in my portfolio, with Microsoft Corp. (Nasdaq: MSFT) making way for Apple Inc. (Nasdaq: AAPL). If the tech stocks market makes the significant climb that I predict will happen in the second half of the year, the return on Apple is likely to be much higher than that on Microsoft.
Apple has also shown great potential in the field of mobile handsets, which it is set to enter this summer with its touch-screen mobile phone, the iPhone. Apple will probably have a surprise in store in the first quarter with higher-than-expected gross profit margins on its iPod player business, thanks to the end-of-season prices on the NAND component market, or in other words, a "vendor only market." It is also likely to continue to deliver higher-than-average growth in its laptop business and it is set to launch its new set-top box for playing downloaded music and videos on home stereos or televisions, Apple TV, later this month.
Published by Globes [online], Israel business news - www.globes.co.il - on March 13, 2007
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