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Gemstar May Be Eyeing PVR Alliance

6/04/2000 8:00 PM Eastern

Gemstar International Group Ltd. chairman Henry Yuen was quoted last week as saying that the company may be headed toward more acquisitions following its $9.3 billion merger with TV Guide Inc.

Yuen-a controversial figure because of a propensity to file patent-infringement lawsuits against creditors-reportedly said Gemstar could spend as much as $1 billion to make small investments in other interactive-television-service providers.

He also said he would be interested in a "transaction" with TiVo Inc., which sells a device that digitally records television shows.

Bloomberg L.P. reported that Yuen said he would be open to a deal with TiVo, although the two companies were not in discussions. He added that such a transaction would not preclude a pending lawsuit that Gemstar has against TiVo regarding an unlicensed interactive programming guide.

Because TV Guide was an early investor in TiVo, Gemstar would own less than 1 percent of TiVo after its TV Guide merger is completed.

TiVo spokeswoman Susan Cashen said the two companies are not currently in negotiations.

"We haven't been, nor are we currently, in any kind of discussions with Gemstar regarding any kind of deal," Cashen said.

Gemstar officials did not return phone calls for comment as of press time.

Janco Partners analyst Stacy Forbes said that although the two parties say they are not in discussions, some kind of arrangement between Gemstar and TiVo would be a good idea.

"I think personally that it makes a lot of sense for the digital recorder to be incorporated into the [interactive programming] guide," Forbes said. "You have to have a guide to be able to select the programs you want to record, and then you can either select to record it or to watch it."

Forbes added that Gemstar's "VCR Plus" product is still enjoying robust sales, but it could be hurt by personal-video-recorder sales, which could be an incentive for an alliance.

Forbes said Gemstar did not discuss TiVo or other investment plans during a quarterly earnings call with analysts last week. But the results that were discussed were impressive, she added. Gemstar reported revenue growth of 52 percent, and it said earnings increased 23 percent.

Revenue in the quarter was $84 million compared with $55.1 million in the same period last year. Net income for the period was $27.3 million, or 11 cents per share, up from $22.2 million (11 cents) in the fiscal fourth quarter last year.

"They've been deploying the [electronic program guide], they have advertising on the EPG now and they are also getting into the electronic-books business, which, I think, integrated with their other interactive products, could potentially replace a lot of the [personal digital assistants] that are out there now," Forbes said.

Revenue for the year rose 43 percent to $241.4 million from $168.2 million the year before. Net income of $81.3 million (40 cents per share) was up 35 percent from $60.1 million (30 cents) in fiscal 1999.

Gemstar credited greater worldwide licensing income from proprietary technologies and intellectual property associated with VCR Plus and the EPG.

September