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Set top box adoption is going from 26M last year to 36M this year on the way to 96M in 2005.

This looks good from ARM.

Paul


http://www.e-insite.net/eb-mag/index.asp?layout=articlePrint&doc_id=23352
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Paul,

The article mentions Conexant, but not Broadcom. Where does Broadcom fit into all this?

Erik
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Setop box can be easily commoditized. They don't possess anything that
carries barrier of entry. So it won't form a tornado market that give birth to any Gorilla.
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GG'ers,

I'm not sure about the Gorilla metrics, but there are only two real players in the set top manufacturing business; SFA & MOT. They are recognized by most as a "duopoly".
(I know the initial post was more concerned with ARM/chips)

http://www.fool.com/ddouble/2000/ddouble000207.htm
"The Cable Television Industry Association expects growth in analog-to-digital cable to go from what was 1.4 million households in 1998 to 38.6 million households in 2006, an annualized increase of 51%."

With SFA heavily involved in the sales of the headend equipment to the cable providers, they certainly have an advantage in the marketing of their set top box equipment to cable companies, for now. Some time in the near future (I think it's 3-4 years), there is an FCC regulation that requires the retail distribution of set top boxes. This means the cable companies will no longer be able to force you in to renting their set top box. I believe this will take away one of the main advantages SFA currently has.

In any event, SFA & MOT still have a big jump on anyone else entering the market in the future.

I think it would be interesting to hear your thoughts on the changes coming in this market (set top box manufacturing), and how GG may be applied to the set top box makers?

Stamp
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Stamper,

Some time in the near future (I think it's 3-4 years), there is an FCC regulation that requires the retail distribution of set top boxes. This means the cable companies will no longer be able to force you in to renting their set top box.

That became effective in July, 2000. The ruling isn't that retail distribution is requred. Instead, the ruling is that the cable companies can't require consumers to use their box. That distinction is important because up until now there has been an underwhelming response to the market opportunity by the consumer electronics manufacturers. The issue is that the various parties have not come to an agreement on standards.

I think it would be interesting to hear your thoughts on the changes coming in this market (set top box manufacturing), and how GG may be applied to the set top box makers?

With regard to your latter question, you might want to take a close look at Gemstar. The company claims to have the IPR needed for interactive program guides (IPGs). All next-generation set-top boxes will have IPGs. If I remember correctly, there are outstanding suits filed by Gemstar against both Motorola and SFA. One part of one suit was alrady decided in Gemstar's favor (can't remember which one.) Gemstar has never lost in court.

The IPG biz is definitely a Gorilla Game in the making. The remaining critical question yet to be answered is whether or not there will be a tornado.

Right now a significant part of the revenue stream that is attributable to to IPG revenue is the t-commerce and advertising revenue. (Gemstar's contracts with cable providers call for Gemstar keeping 50% of the t-commerce revenue and 85% of the advertising revenue.) That part of the revenue stream isn't yet across the chasm but it's growing very rapidly.

The licensing of the IPG technology itself is across the chasm and in the bowling alley.

--Mike Buckley



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So it {settop boxes} won't form a tornado market that give birth to any Gorilla.

Mike mentioned Gemstar, but also ACTV (stock symbol IATV has software which is becoming the industry standard. Whether or not it ever crosses the chasm is another story. But they own enabling IP on different fundamental aspects of interactive television and are built in to every Motorola set-top box going out.

Tinker
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Stamper,

I just remembered that the part of the suit that was already decided in Gemstar's favor is the one against Motorola. The arbitrator determined not just that Motorola violated Gemstar's patents, but that the company knowlingly violated them. That was the portion of the case having to do with the analog stuff. The ruling for the digital portion has yet to come down.

--Mike Buckley
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Mike Buckley wrote:

you might want to take a close look at Gemstar. The company claims to have the IPR needed for interactive program guides (IPGs). All next-generation set-top boxes will have IPGs... The IPG biz is definitely a Gorilla Game in the making.

Seems like the analysts are on to this game. Here are the CNet Momentum Ratings, with Gemstar (GMST) riding the crest.

http://investor.cnet.com/investor/brokeragecenter/top-momentum/0-9910-1078-0-0.html

NN
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Tinker,

How would you play the ACTV as a stock pick? They have the second company controling the interactive TV stuff with another TV digital operating system company and MOT.

For the record, dont ever ever buy any company that Malone has his grubby little hands all over. I will never trust that man to profit the shareholders, JMO. In all honesty I would rather look elsewhere to profit.

db
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I think that a lot of the set-top box chips are 64 bit rather than 32 bit (??--somebody PLEASE correct me if I'm wrong here). MIPS has a strong presence here as well, keep an eye on them...but note that STMicro/Hyundai are spinning off a joint venture that will be licensing cores for these applications, which combined with ARM's growing presence in this area, pose quite a competitive threat. MIPS has nowhere near the value chain that ARM has, and its revenue growth and financials pale in comparison. What MIPS seems to have going for it are its current valuation and strength in 64-bit market (I believe MIPS is slowly moving into 32-bit territory while ARM is moving into 64-bit). Could these two companies be an evolving chimp and gorilla?

Disclosure: Long a handful of ARM shares (Dang, they ain't cheap!), no MIPS position (potential, no performance). I also think one of my faves WIND will be a big beneficiary of STB growth (along with the growth of networking, storage, wireless devices, telematics, other consumer electronics, etc...)

List of STB products powered by MIPS and ARM, respectively:

http://www.mips.com/coolApps/s3p3.html

http://www.arm.com/APP.NS4/html/cons_ent?OpenDocument&style=ARM_Powered
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Worth pointin gout that European STBs are dominated by Pace and Nokia. I don't think either of them does anything with Motorola or Scientific American.

I believe that the UK digital STBs are all PACE though you might need to gop and check with some UK resident fools to verify. Key difference is that European STBs are based on satellite decoders rather than cable TV. Thus the capabilities are very different.

DD

PS TiVO counts as an STB in many cases. Certainly TiVO functionality will be a huge benefit for any 3rd party STB
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TiVO counts as an STB in many cases. Certainly TiVO functionality will be a huge benefit for any 3rd party STB

Gemstar is also suing TiVO for patent infringement. Based on a comment Gemstar's CEO made about six or nine months ago expressing an interest in owning part of TiVO, I won't be surprised if that's how the suit is settled. That's how the suit against TV Guide was ultimately settled. Though TV Guide was purchased entirely, I would be surprised if Gemstar made more than a minority investment in TiVO.

--Mike Buckley
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I think the embedded processor market is still in the bolwing alley with Set Top boxes being one pin. Keep in mind that the vast majority of embedded processors are 8-bit and 16-bit (even some 4-bit) and only the most demanding applications require 32-bit or 64-bit. ARM is by far the market share (unit and revenue) leader with design win share increasing. The breezes are picking up and a Tornado looks immanent. ARM and Wind are leading Gorilla candidates.

One thing to keep an eye on is embedded Java (J2ME). J2ME running on a cell phone or set top box or car radio will require a special Java processor and that market is just forming.

I think of STB's as the first game in the overall 'connected digital home entertainment' server market. Microsoft is thinking this way with the Xbox being the trojan horse.

Paul
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Mike:

TiVo is having some real difficulty scaling. I have not taken a close look but I would guess TiVo is having Chasm-esque problems (early adopters captured but too expensive for the pragmatists). TiVo wants to move right out of the hardware business. I would think that combining the TiVo software for recording with Gemstar's interactive programming is both a natural and neccesary fit (who is going to learn the two programming interfaces?). Gemstar has the distribution all but locked up. A combined Gemstar / TiVo system would allow for multiple price points and upgrade cycles in the Set Top box market.

Gemstar buying TiVo may make a lot of sense.

Tinker, what do you think?

Paul
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DB,

Malone is all over GMST as well. I personally would not play ACTV right now. FAr too pre-chasm. I would watch it though, see if it starts to take off and then reconsider it.

The same folks who own GMST (Murdock, Malone) pretty much own ACTV as well. GMST has its independent CEO, ACTV has its independent CEO.

Tinker
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Paul,

I agree for all the reasons you mention that it makes sense for Gemstar to buy a minority stake of TiVo. But for the two companies to arrive at the sort of combination you and I envision, it's not necessary that Gemstar buy the entire company. Because TiVo's product is still in the chasm, I'd like to see enough of an investment made to bring about the combined technologies but I wouldn't be interested in seeing Gemstar buy the entire company.

Looking forward to Tinker's and others' thoughts.

--Mike Buckley
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I think that a lot of the set-top box chips are 64 bit rather than 32 bit (??--somebody PLEASE correct me if I'm wrong here).
I think this is wrong. Recall that practically all current PCs are 32 bit and many set top boxes run nothing that is MORE processor intensive than Microsnot Windows + Office + Internet Exploder is.

What MIPS seems to have going for it are its current valuation and strength in 64-bit market (I believe MIPS is slowly moving into 32-bit territory while ARM is moving into 64-bit). Could these two companies be an evolving chimp and gorilla?
I think this is certainly true and MIPS is the chimp proposing solutions that are less attractive for the majority.
--------------------------------
The same folks who own GMST (Murdock, Malone) pretty much own ACTV as well.
Murdoch is particularly good at screwing other investors in his companies. UK investors in SKY found that out the hard way - although people did still make money most people didn't. It sounds like AT&T has learnt the same lesson WRT mr Malone

DD
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I understand your argument. I think that Gemstar would want to control the technology and prevent confusion/conflict in the cable TV channel (unintended pun).

Interesting ideas. We shall see...

Paul
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"analog-to-digital cable"

Just my .02¢ is I will not purchase digital cable but keep my analog for the following reasons.

Decoder must be included with TV set.
"Cable Ready" I will not rent a box period.
Time delay between channel to channel must be as fast as my analog remote.
Friends have gone back to the analog signal because digital signal keeps going out. I notice this problem that has not been solved yet in our area.
Where is the lower cost of cable as promised over the years?
Why am I still seeing commercials?

I my book as long as the trend in cost is up, the cost of renting and paying higher fees for digital over analog, than the the cable companies can keep the digital boxes.

I do not buy the sales pitch of more programs, I only watch one show at a time and these days more VCR rental movies. ( I would like to see the SFC but heck it only on the digital side.)


Wow, and I hold actually hold stock in a few of these companies.

Dennis

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I only watch one show at a time and these days more VCR rental movies.

Dennis, still renting VCRs?

There is the problem, you are a very late adopter. I can't stand to rent VCR tapes anymore. It just does not compare to my surround sound and DVD. I only rent DVD movies.

I do still record television programs with my VCR however.

Tinker
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1)Setop boxes don't have such technical complexity that create high barrier of entries. Look at PC industries, no true gorilla
2)Setop box industry will remain as loyalty game.
3)But that is not to say that setop chip set makers are in the same game. Chipset market has higer concentration of IP and may demand a need for standardization and thus create a enabling hardware gorilla.
4)Box makers are not the place to look for gorillas. Infrastructure makers are. BRCM is a good example.
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Tinker,


"I do still record television programs with my VCR however."


I do also and here is the rub.
I cannot record on a DVD.
I refuse to give up my Reel to Reel, Lps, or my cassette all analog.
There is nothing wrong with any of them.
My surround sound (SONY) and (Bose Speakers) sound just fine with the VCR tapes or a DVD player.

I am not a late adopter. I was the first on my block to own an Apple 2+, a Stereo RCA VCR, (both 1979-1980?). First to own a real DOS machine, First to own a CD burner $800.00, what a rip, first to own a Palm at my current employer......



Don't like paying for bits that are 100x cheaper than its analog counter part. Bits are cheaper and I feel I am being riped off.

Look the cost of VCR tape was $14.00 it's now a dollar. Took 20 years.

Every DVD player has the ability to burn a CD its just not used...Yet.

I want a recordable DVD. I want digital cable built in my TV at $19.95 a month with Voice over IP and always on connection for my CPU.
Cannot wait to tell my local "carrier" to uninstall the phone.

Dennis

Tinker,
I have been lurking for a long time on these here Foolish boards and I really needed to vent.
Forgive.
Will try to add something useful....















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Mike,

I really hate to come off as being trivial. After, you are one of my “most respected” Fools. But…

I wrote in post #7294:
Some time in the near future (I think it's 3-4 years), there is an FCC regulation that requires the retail distribution of set top boxes. This means the cable companies will no longer be able to force you in to renting their set top box.


To which you responded in post #7295:
That became effective in July, 2000. The ruling isn't that retail distribution is requred. Instead, the ruling is that the cable companies can't require consumers to use their box. That distinction is important because up until now there has been an underwhelming response to the market opportunity by the consumer electronics manufacturers. The issue is that the various parties have not come to an agreement on standards.

The actual ruling from the FCC is (as para-phrased by FCC Chairman William E. Kennard):

http://www.fcc.gov/Speeches/Kennard/Statements/stwek845.html
Congress had the foresight to make it the Commission's statutory obligation to ensure that set top boxes and other navigation devices be made commercially available. By requiring that cable operators separate security functions from non-security functions for cable set top boxes by July 1, 2000, we have ensured that consumers will be able to purchase these cable boxes from their local retailers by that date.
I appreciate the commitment of more than half a dozen of the largest multiple system operators and General Instruments and Scientific Atlanta to make security modules available by September 2000. Although the Commission has pursued a slightly more aggressive deadline, I have every confidence that this deadline will be met. Indeed, our decision today is premised on the commitments that the multiple system operators and manufacturers have made. While some may argue that the Commission should have chosen a more aggressive effective date, I am persuaded that July 2000 is the most feasible and realistic timeframe within which to make our rules effective. We will examine carefully the progress reports to be filed with the Commission every six months to track progress towards the July 1, 2000 deadline.
I support the decision to establish a prohibition on the provision of integrated cable boxes as of January 1, 2005. While I appreciate the concerns raised by the cable industry and the manufacturers that such a prohibition is unnecessary, ultimately, I believe that a sunset is appropriate to ensure that the Commission satisfies the statutory mandate that cable boxes be commercially available and I believe that the January 1, 2005 date will provide for a reasonable transition period.


This was what I was referring to. I just don't want you all to think I was posting recklessly. If the rule has changed recently, I am not aware of it.

So, in a way we were both right. I should have posted this link previously since I don't have much history on this board…Sorry.

Any way…

Miat wrote in post #7324
1)Setop boxes don't have such technical complexity that create high barrier of entries. Look at PC industries, no true gorilla

I am not sure if I agree with this or not. I don't know enough from the technical aspect. However, the number of manufacturers tossing their hat in to the ring for making set top boxes is not nearly as large as the PC industry. It would seem to me that if the barriers were insignificant, we see more players in this field.

I know SFA had a big advantage with the cable companies because they had their foot in the door with their headend equipment. As this becomes a consumer product, I would imagine that advantage would go away. However, perhaps the compatibility with the headend equipment will provide added performance advantages. Again, I don't know enough of the technical side. Is this possible? Could you explain your position a little more?

Thanks,
Stamp
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Stamp,

So, in a way we were both right.

No, the information you provide makes me conclude that you were right and I was wrong. I've never seen that document and it presents the information in an entirely new light for me. I didn't realize that cable operators will actually be prohibited from offering an integrated box (barring changes in the current ruling of course.)

Certainly no apology is necessary and your point is far from being trivial. (On another thread I've got a reputation for being a nit-picker, so it's not as if I'm not an authority on triviality. :) And it's not necessary that any of us document everything we bring to the thread.

Thanks much for getting so quickly to the heart of the information. Great job!

--Mike Buckley
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I do also and here is the rub.
I cannot record on a DVD.
I refuse to give up my Reel to Reel, Lps, or my cassette all analog.
There is nothing wrong with any of them.
My surround sound (SONY) and (Bose Speakers) sound just fine with the VCR tapes or a DVD player.

I am not a late adopter. I was the first on my block to own an Apple 2+, a Stereo RCA VCR, (both 1979-1980?). First to own a real DOS machine, First to own a CD burner $800.00, what a rip, first to own a Palm at my current employer......



Don't like paying for bits that are 100x cheaper than its analog counter part. Bits are cheaper and I feel I am being riped off.


I think what happened is you moved from loose and free early adopter of "very cool" stuff to pragmatic, "show me why I need it" late adopter. Which is fine and dandy. It is just customer segmentation.

Myself, for business purposes I'm usually one of the later early adopters, but for personal use, I am much more pragmatic, but take poor care of my stuff, so I have to buy new stuff more often. The result, by default is I end up with newer stuff quicker than I otherwise would.

But back to the digital set-top box. One point seldom brought up in discussions of broadband is the interior 3000 feet (as I brought up earlier ---- yes Paul, anything less than 3000 feet is a prison;) - note, inside conversation - particularly since I grew up in a 1200 foot apartment and shared a room with my two, very obnoxious brothers, and quite often we even used the same bed. As an adult I like the room!) and not the last mile problem.

What does one do with broadband once you have it at the home. In my mind broadband doesn't become truly ubiquitous until its use is as easy and ubiquitous as the remote control on the HDTV. The digital set-top box in some form, IMHO, is the key to this new world. It is the revolutionary new centerpiece of the home. The computer as we know it today is too cumbersome, difficult, unreliable, and the screen is just plain too small and inaccessible. But, if at the touch of a remote control, on a brilliant HDTV a person could do everything, just as casually as they plug in a VCR tape or scroll through an IPG guide, it is then that broadband truly becomes mainstream in the world's homes.

Now this vision and a cup of coffee will give you a cup of coffee. But this is why I think the digital set-top box (or its equivalent like MSFT and SONY would like to provide with their game machines someday) are so darn important.

Just a few thoughts.

Tinker
P.S. This is for the long range investor. Get to know the industry, what makes it tick. What the revenue models are. Follow the players. If projections are correct 2003 should be a huge year in the interactive television industry. Of course I always assume +5 or -1 years in regard as a standard of error.
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Tinker,

"I think what happened is you moved from loose and free early adopter of "very cool" stuff to pragmatic, "show me why I need it" late adopter. Which is fine and dandy. It is just customer segmentation."

Still loose and free just not buying and trying. Not feeling pragmatic but more like searching and hunting for the next big consumer or business must have item.
I do not see a set top box being high on any ones list of must have items.
As a consumer, I would rather put money into the market compounding at whatever percent then into another consumer product with no return on my dollar. The same applies to the business side; need to see something novel, something that will give us an edge.

I see no overwhelming need to try each new phone, piece of software, cable box, set top box, cpu, TV dish …..

When the VCR came the perceived value to a consumer or a business was obvious and adopted faster then pong.

I am looking for that killer app that I will try early, show all my friends, and buy all the stock I can get my hands on.

Not a bad goal would you say?

Dennis
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I am looking for that killer app that I will try early, show all my friends, and buy all the stock I can get my hands on.

A small caution. Consumer markets and business markets (and goverment markets and military markets to be inclusive) are very different. Moore has studied business markets for technology and his extensions to the TALC (chasm, bowling alley, etc...) come from that experience. Consumer buying decisions are quite different. Social context (peer pressure, keeping up with the Jonses, coolness, looking good at work) is an important factor. Branding is more important. Intel named the 586 chip Pentium because it was heading to the consumer market.

The TALC, network effects and increasing returns all still apply but I am less sure that 'Crossing the Chasm', 'Inside the Tornado' and 'Gorilla Game' provide as useful a guide to the consumer market as they do to business markets.

Goverment and military is a whole 'nother story ...

Paul
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Paul,

I do understand and agree.

Dennis
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Dennis,

I do not see a set top box being high on any ones list of must have items.

I know what you are saying, but someone is buying these things. There are not too many of last year's "killer apps" / "must haves" that are increasing sales forcasts in this economy. Maybe things will change, but if all of last year's hotshots are slowing and set top boxes are growing, that tells me that somebody has them on their list of "must haves" (even if you and I don't)...


Scientific-Atlanta raises fiscal 2001 profit outlook
April 19, 2001 6:05:00 PM ET


NEW YORK, April 19 (Reuters) - Scientific-Atlanta Inc. (SFA) on Thursday increased its outlook for fiscal year 2001 profits, bolstered by expectations for greater sales of its cable television set-top boxes and services.

On a conference call following the release of its third-quarter results, the Atlanta-based company said it now sees profits for the fiscal year, which ends in June, at $1.72 a share, up from previous guidance of $1.64 a share.

The company said it also sees total unit sales for the year growing to 4.9 million, higher than the 4.7 million it had previously forecast.

Earlier, Scientific-Atlanta, whose growth has been fueled by strong demand for its cable products, said fiscal third-quarter profits doubled, jumping to $76.2 million, or 46 cents a share, from $38.1 million, or 23 cents a share in the year-ago period.

Analysts surveyed by Thomson Financial/First Call expected earnings in the range of 39 cents to 44 cents a share, with a consensus of 42 cents. REUTERS
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Intel named the 586 chip Pentium because it was heading to the consumer market.


Not exactly, actually the main reason why Intel called the 586 the Pentium was because they were unable to trademark either 586 or 80586 which meant that AMD Cyrix etc could also call their clones 586 or 80586 as well.

DD full of trivia
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Of course, you are correct.

To be more precise, the reason Intel invested in a brand awareness program for the Pentium was the move into the consumer market. The primary campaign was 'Intel Inside' and Pentium was secondary. The campaign has been one of the most successful consumer brand campaigns of the past 10 years. Everybody recognizes those 4-note 'Intel Inside' notes.

Paul
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