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Thursday, January 17, 2008

Digital TV is the driver

The FCC mandate dictates that all broadcasters have to clear the analog broadcast frequencies by the end of next year. There’s still roughly 70 million analog televisions out there in regular service. Sure, some of these people will opt for the $40 converter… but quite a few will also opt to trade up. Prices of flat screen high def televisions are getting much closer to price parity with tube TVs. It’s one of the few areas of the consumer electronic economy that can see more than mediocre growth for the next couple of years.

Corning, the largest producer of TV glass, makes a lot of sense to me. TV units are going to continue to move at a rapid pace. There’s an ongoing fiber rollout at telco operators (ok, Verizon) to drive television services to wireline customers. Corning is positioned very strongly in both areas.

I also like a smaller cap name, Photon Dynamics, which makes flat panel display testing equipment – there’s been extensive product retooling under direction of an ex Applied Materials exec. They’ve been cutting costs aggressively and will start to make money imminently. Photon Dynamics also has a potentially undervalued camera sensor subsidiary, Salvador Imaging. Admittedly, they don’t seem to excel at filing financials.

Digital downloads are in their infancy. I have to like Akamai on a thematic basis -- it’s a content delivery play. I also like Digital River, which is the software distribution equivalent. Every day it seems another large media company succumbs to digital delivery. Just this week Apple rolled out on demand video rentals from most of the major studios. Amazon has been doing it a while now. Netflix removed restrictions on customers watching their on demand library of 6,000 films. It’s happening. It’s just a matter of time.

There is a product gap in the market place – people need a doohickey that plugs into the TV and passes along video from their computer. I don’t mean a set top box. I don’t mean a media center server. I don’t mean iTunes inhibited AppleTV. A doohickey. An a/b switch for your TV. $50. Kicks out 802.11n broadcasted video into your TV. That’s it. Hopefully that’ll be the Slingcatcher (due in 2Q08 according to the Slingmedia [owned by Echostar] rep I spoke to at CES last week). A product like that could easily force a tipping point.

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