Content on-Demand: A Mega Shift
12/16/2005 12:00 am EST
In one of the best newsletter redesigns I’ve seen, Michael Murphy has organized his New World Investor into detailed but easy-to-follow sections focused on specific themes, ranging from Avian Flu to Hybrids. Here are his top plays on the trend to "Content on-Demand".
"The Content on-Demand ‘mega shift’ that we have been forecasting is now accelerating. In the UK, a private company is offering Internet Protocol TV service in London to 2.5 million homes, where viewers can watch any program that was broadcast by a major network in the prior seven days. Meanwhile, in the US, Comcast said their customers will order one billion shows on-demand this year, while Time-Warner’s customers are averaging a show a day. AOL is having great success with downloaded music videos, and Apple sold one million music videos in the first 20 days after the introduction of the video iPod.
"What are the best ways to play this trend to content on-demand? Harmonic (HLIT NASDAQ) makes the best video encoders plus a string of other equipment that lets cable, phone, satellite and, soon, cell phone and WiMAX companies to compete in delivering video. It appears that a heck of a lot of video will have to be moved through the network to the home, and Harmonic’s markets will explode in 2006 - regardless of what happens in the general economy. That’s the very definition of a mega shift. I want you to buy HLIT aggressively under $6 for an easy double to $12 in the next 12 months, and another double over the following two years.
"Silicon Image (SIMG NASDAQ) is the semiconductor company that enables a move in video content to true HDTV via what is called an HDMI connector. This technology is already built in over 400 consumer electronics devices that are ready to switch it on, connect to each other, and get rid of the rat’s nest of cables and wires behind your consumer electronics today. Flat-panel TVs are having a great selling season, as I expected. A whopping 14% of all shoppers plan to buy a flat-screen TV this year. Silicon Image is the big beneficiary here, with their HDMI chips in virtually every flat-screen TV. Buy SIMG under $10 for an $18 target.
"Zhone (ZHNE NASDAQ) makes next-generation connections to voice and video on-demand services, and sells them to business and residential customers through the service providers and network operators. In other words, the telephone or cable companies buy from Zhone and then resell or lease the connection products to their customers that install DSL lines, cable modems, and so on. Zhone recently closed a merger with Paradyne, an old-line supplier to the telephone companies that is on everyone's approved vendor list. With the help of this acquisition, I expect Zhone to turn profitable in the December quarter, so I want you to buy ZHNE up to $3.50 a share for a double to $7 in 2006 and another double to $14 in 2007."