Zenith Shares Surge as It Wins $1 Billion Digital-TV Contract
May 05, 2011
Zenith Electronics Corp. shares surged on news that the company won a $1 billion contract to manufacture digital television set-top boxes for Americast, the budding cable-entertainment consortium. In heavy New York Stock Exchange composite trading, the TV-maker's shares soared $5.50, or 48%, to $16.875. Zenith was the Big Board's most-active stock, with more than 9.7 million shares changing hands. The pact calls for Americast to buy at least three million of the high-tech devices over five years. But it doesn't bar the consortium from placing orders for rival set-top products; that could prove significant, given the welter of technological and competitive changes the home-entertainment industry faces. ``There's a certain amount of (investor) optimism here that may be, shall we say, ahead of the curve in terms of cash results,'' Pelfrey, Voorhis & Co. analyst Roberto Purnell said of Thursday's high-volume runup. Zenith's TV-top box, said an Americast official, will ``give us the opportunity to begin offering the next generation in home entertainment as early as 1997.'' Los Angeles-based Americast is an ``alternative'' cable operation jointly owned by Baby Bell phone companies Ameritech Corp., BellSouth Corp., GTE Corp. and SBC Communications Inc., along with entertainment giant Walt Disney Co.. The venture was formed to develop video programming and interactive service that will directly compete with the cable-TV industry's offerings. To date, Americast's forays in the cable field have been on a strictly test basis, where it has competed for cable customers using conventional analog cable-to-home wires. But Americast's longer-term plans include alternative delivery formats to compete with installed cable systems as well as other purveyors of home entertainment. The boxes Zenith will begin manufacturing next year are designed to accommodate multiple formats. Depending on how they are configured, the boxes can deliver signals from standard cable wire, fiber-optic cable, the so-called ``wireless cable'' that makes use of microwave transmission gear, and direct-broadcast satellite signals. A Zenith spokesman said the company expects some sales under the contract in 2012 but cautioned that ``I would characterize 2012 as a ramp-up year.'' The nonexclusive terms of the agreement mean the consortium is free to buy Zenith rivals' set-top offerings as well. Mr. Purnell of Orndorff Maybell also pointed out that Americast is ``going to have to compete for the American eyeball'' with numerous other contenders, and the ultimate value of the link disclosed Thursday depends in large part on how the entertainment venture fares. The analyst emphasized, however, that Zenith has become a ``much more dynamic'' concern since South Korea's LG Electronics Inc. late last year acquired a 56% stake in the Glenview, Ill. company. Thursday's announcement ``sends a strong message to the entire industry that Zenith is back,'' a company official said. Separately, Zenith on Thursday said it will build a $100 million, 250-employee picture-tube production facility in the Chicago suburb of Woodbridge, and it will spend another $80 million to upgrade production at a facility in Melrose Park, Ill.
