Are Broadcom, ReplayTV Taking Different Routes To The Same Market? - InformationWeek

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Are Broadcom, ReplayTV Taking Different Routes To The Same Market?

Competition in the market for personal video recording set-top boxes got a bit hotter Tuesday as Broadcom Corp. (stock: BRCM) said it plans to acquire Israeli chipmaker VisionTech Ltd., and ReplayTV Inc. revealed that it would shift its focus away from the consumer market and begin licensing its personal video-recording technology to cable providers and other set-top box manufacturers.

Broadcom will issue 7.96 million shares of stock to VisionTech shareholders in a transaction expected to close within 60 days. Wall Street's reaction to the deal drove Broadcom's stock price down nearly 13% Tuesday, to $85.625, placing the value of the acquisition at about $677 million.

Until now, Broadcom's chip technology has been used primarily for broadband communications applications such as cable set-top boxes, cable modems, and high-speed networks. In acquiring VisionTech, a manufacturer of chips that compress and decompress digital audio and video, Broadcom could begin to tackle the market for personal video recording boxes, which let consumers record, rewind, and pause live television without a videotape.

Meanwhile, it appears the expense of selling its PVR set-top boxes and accompanying subscription service to the consumer market was too much for ReplayTV. "They just flat ran out of money," says NPD Intelect analyst Tom Edwards. Edwards says he wouldn't be surprised to see ReplayTV's primary competitor, TiVo Inc., make a similar decision. He says that as cable providers and their set-top box manufacturers begin to acquire PVR technology through companies such as Broadcom, ReplayTV and TiVo simply won't be able to compete with their deep pockets and huge install bases.

The moves by Broadcom and ReplayTV come at a time when penetration of PVR is lagging behind expectations, but strong growth is still predicted. Gartner Group says some 359,000 standalone set-top boxes will have been produced in 2000, with that number increasing to 12.6 million by 2003. Gartner analyst P.J. McNealy says ReplayTV's and TiVo's boxes have been too expensive, but that when prices eventually fall, the market should take off. McNealy found Tuesday's developments interesting in that Broadcom is seemingly embracing the PVR hardware market, while ReplayTV is turning away from it to become more of a service provider. "They're kind of like two ships passing in the PVR night."

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