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Avid continues to sink - another declining quarter

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Craig Seeman
Avid continues to sink - another declining quarter
on Aug 2, 2012 at 4:28:38 am

http://scri.com/avid-q2-revenue-continues-declining-trend/

If the death of legacy helped Avid it was to slow the decline at best . . . like bailing a sinking ship by throwing them a spoon maybe. Sorry if I appear so dark on Avid but there's no way around the fact that they're bleeding and, so far, 2012 is worse than 2011.

AvidĀ® reported GAAP revenues of $157.4 million for the three-month period ended June 30, 2012, compared to $161.8 million for the same period in 2011. The GAAP net loss for the second quarter was $39.0 million, or $1.01 per share, compared to a GAAP net loss of $11.1 million, or $0.29 per share, in the second quarter of 2011.
Revenues for the six-month period ended June 30, 2012 were $309.6 million, compared to revenues of $327.5 million for the same period in 2011. . The GAAP net loss for the first six months of 2012 was $52.0 million, or $1.34 per share, compared to a GAAP net loss of $15.9 million, or $0.42 per share, for the same period in 2011.




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Marcus Samuel-Gaskin
Re: Avid continues to sink - another declining quarter
on Aug 2, 2012 at 11:39:52 am

Maybe they'll get bought by EditShare.


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Marcus Samuel-Gaskin
Re: Avid continues to sink - another declining quarter
on Aug 2, 2012 at 11:43:57 am

Or a coalition of Hollywood Editors & Directors? Keeping the tools in the users hands?


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John Kaley
Re: Avid continues to sink - another declining quarter
on Aug 2, 2012 at 1:37:29 pm

Someone still thinks Avid is a good buy as their stock jumped up 20% on Tuesday.



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Gary Hazen
Re: Avid continues to sink - another declining quarter
on Aug 2, 2012 at 2:37:04 pm

[John Kaley] "their stock jumped up 20% on Tuesday."
I think Craig just threw up in his mouth a little bit. Hopefully the share price will plumment so he can feel good again.


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Craig Seeman
Re: Avid continues to sink - another declining quarter
on Aug 2, 2012 at 2:52:23 pm

The stock price has no impact on their failing business. A real capital infusion might but the stock is just the casino. Avid could actually be a great value for a buyer but that would mean an entirely new and better managed business plan.



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John Christie
Re: Avid continues to sink - another declining quarter
on Aug 2, 2012 at 5:12:49 pm

Maybe Blackmagic will buy them. They seem to be doing well with incorporating "legacy" systems into their world. Imagine a seamless interface between Media Composer and Resolve!

Cheers

John


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John Joyce
Re: Avid continues to sink - another declining quarter
on Aug 3, 2012 at 1:11:50 am

The stock price has no impact on their failing business

The stock price rise could be technical (e.g. the sellers have moved on), but 20 per cent is a lot. Someone could think that there is still a lot of value in Avid.

Or someone could know something. Sorry, have to retract that: in the famous words of John Dean, Richard Nixon's Counsel, "that would be wrong".

an entirely new and better managed business plan

Don't mean to be rude, but like what? Go to the market for more money? Make a courageous move, like lowering prices? Sack the CEO and pray that someone - anyone - can do better?


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Craig Seeman
Re: Avid continues to sink - another declining quarter
on Aug 3, 2012 at 1:48:14 am

[John Joyce] "Don't mean to be rude, but like what? Go to the market for more money? Make a courageous move, like lowering prices? Sack the CEO and pray that someone - anyone - can do better?"

Business plans aren't that simple. I'd suggest you research the company. They have a business plan which is failing. They have virtually no debt. They have some valuable assets as well as a marketable name. It appears their management hasn't been able to turn the company around in something like 7 years. Yes someone could do better. Personally I think they should be sold to a company that can integrate their product line into a complimentary line and market base.



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Tim Wilson
Re: Avid continues to sink - another declining quarter
on Aug 3, 2012 at 6:22:56 am

[Craig Seeman] "I think they should be sold to a company that can integrate their product line into a complimentary line and market base."

They have 550 products. This is a big part of the problem.

Admittedly, there's a good number of Pro Tools plug-ins that Avid doesn't actually develop, but even at the highest level, there's just too much stuff. Continuing with Digidesign, it isn't just Pro Tools systems (of which there are more than you think). It's live mixing, DJ, MIDI controllers. The reference monitors are still in there, so I guess they're not part of the main M-Audio sell-off, but I haven't even gotten to Digidelivery or Sibelius music composition software. So in Digi alone, I can see 3 or 4 companies that could buy pieces.

Avid's video business includes on-air character generators, newsroom automation and newscast control, playout servers, online and nearline shared storage, video and audio studio consoles (TV audio, rather than audio mixing), transmission and distribution automation -- it's a long freaking list that, again, could easily go to 3 or 4 different companies.

And needless to say, we're talking about a good-sized handful of different and not necessarily related industries.

As hard as they're getting hit, their market cap at the end of today was $300 million. I know that that's not a straight correlation to the potential sale price, but how long would it take to return on an investment even half that amount? A quarter? It would take a long time just to wrestle the company down to a manageable size and sell off or kill some of the products and lines to get a little focus.

IMO, the damage that Apple did to Avid had very little to do with FCP bleeding off Media Composer business. It had to do with taking Avid's eye off the ball. Balls.

Understandable that they wanted to answer competitive challenges, but they spent $80 million CASH for M-Audio, $71 million CASH for Pinnacle that I can't imagine they returned. There was additional stock in the mix -- another $400 millionish based on the then stock price of $62/share. Oops. I have my own reasons for thinking that these were bad ideas, but five months later, the stock was at $35, and has been headed downhill more or less in a straight line since then.

So while it takes money to make money, you can spend an awful lot of money to lose an awful lot MORE money. They've basically spent 7 years showing what those parts of the portfolio have been worth even if Avid or a future buyer decides to sell them off.

Of course, maybe as with the Pinnacle consumer business and the heart of the M-audio business, better to throw money-losing ballast overboard to try and keep the ship's most valuable cargo dry.

Maybe I'm looking at it too hard, but that's all why it's hard for me to come up with a couple of realistic paragraphs about how selling the company could actually happen.

Tim Wilson
Vice President, Editor-in-Chief
Creative COW Magazine
Twitter: timdoubleyou

The typos here are most likely because I'm, a) typing this on my phone; and b) an idiot.


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Eric Santiago
Re: Avid continues to sink - another declining quarter
on Aug 3, 2012 at 12:36:49 pm

Can Autodesk afford Avid?
Might as well they have the top three 3D apps under their wing.


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Craig Seeman
Re: Avid continues to sink - another declining quarter
on Aug 3, 2012 at 1:46:42 pm

Thanks for that Tim.
Certainly there are viable business models for having a deep and diverse product line but in Avid's case it apparently isn't being managed or marketed properly. They may need to do some consolidation, which is not quite the same as simply shedding products or divisions.

One thing that makes Avid an attractive purchase is that they basically have no debt. This means it could buy any purchaser(s) time just as it has bought Avid the time to survive what is a sever year decline (so far).

So far, the steps they've been taking over the last seven years seem to have shaving payroll. When you think of the layoffs they've had, it's been stunning. Beyond shedding the "consumer" division(s), which was also another big payroll cut, I don't think they've really made the hard decisions about their product line or services and maybe even the related pricing.

You can look at some of the companies we deal with, Apple, Adobe, Blackmagic and see very aggressive changes in their product lineups, pricing, marketing. Even Autodesk I'd add.

Avid, beyond the radical payroll cutting, doesn't seem to do much beyond incremental changes in their business model. While their lack of debt allows them to take a slow road, it's been a road that seems consistently in the wrong direction, if it has any direction at all.



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Franz Bieberkopf
Re: Avid continues to sink - another declining quarter
on Aug 3, 2012 at 2:17:10 pm

Tim,


Those interested may want to look beyond the SCRI headline as well.

http://ir.avid.com/releasedetail.cfm?ReleaseID=696597


Franz.


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Oliver Peters
Re: Avid continues to sink - another declining quarter
on Aug 4, 2012 at 6:43:28 pm

[Franz Bieberkopf] "Those interested may want to look beyond the SCRI headline as well."

Which actually paints a different picture. At least one in which dumping Pinnacle and M-Audio is more than justified. Pertinent lifts:

"Excluding revenue from the consumer product lines divested on July 2nd, the revenue for the three-month period ended June 30, 2012 was $143.7 million and the revenue on the same basis for the three-month period ended June 30, 2011 was $137.3 million."

"The GAAP operating loss for the second quarter of 2012 was $37.8 million and excluding the items identified above, except tax adjustments, the non-GAAP operating loss for the second quarter was $2.1 million."

" "Our results for the second quarter were encouraging with 5% year-on-year revenue growth for our ongoing business and a $10 million sequential increase in our cash balance," said Gary Greenfield, chairman and CEO of Avid. "This performance reinforced the strategic direction we took earlier this month and we are excited about our prospects for the second half of the year." "

Granted, a bit of positive CEO spin, but still a different perspective.

- Oliver

Oliver Peters Post Production Services, LLC
Orlando, FL
http://www.oliverpeters.com


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Tim Wilson
Re: Avid continues to sink - another declining quarter
on Aug 5, 2012 at 4:17:17 pm

[Eric Santiago] "Can Autodesk afford Avid? Might as well they have the top three 3D apps under their wing."

Avid sold Softimage to Autodesk in 2008. Is there something else you're thinking of?


[Craig Seeman] "Avid, beyond the radical payroll cutting, doesn't seem to do much beyond incremental changes in their business model."

I'm not convinced that their business model needs changing. Gross margins are 48.6% - damn good when considered how much they spend to manufacture big hardware products like ISIS and Pro Tools consoles. There are companies, even entire industries, that would kill for this kind of margin. That's on revenue of $143.7 million in the quarter, which is pretty close to real money.

To phrase it in the form of a question: is it possible for a company to make a profit on 49% of $144 million? Yes, as long as you're spending less than 51% of $144 million to keep the lights turned on.

Which is what Avid isn't doing, as seen in their net margin of -24.8%! I'm oversimplifying, but that's a swing of nearly 75% in the wrong direction.

To become profitable they have to either increase income or cut expenses, or both. For their NLE business anyway, they're taking exactly the steps you'd WANT them to take in order to increase income: lowering prices, separating software from hardware, opening more dramatically to third parties.

What's left? Cutting expenses. I'm not a business whiz, but is profit more complicated than making more than you spend?

As I'm thinking about it, though Craig, you're right to raise a larger question -- can you make a profit in THIS market, making THOSE products, on $70-ish million/quarter? The answer may simply be no, it takes more money than that to do what they're trying to do. I don't know.


Anyway, I'm not a big fan of stockwatching, but it is worth noting that The Street has Avid as one of 5 tech stocks poised to break out (in a good way). Motley Fool has Avid rated as set to outperform in its sector (by a score of 88 to 45), and twice as many of their top guys give Avid a green thumbs up as give it a red thumbs down (24-12).

Although who the hell knows what they mean by sector? Over at Yahoo, most of the competitors they list are GAMES companies.

Of course we know that there's no alternate universe where either Apple or Adobe belongs in a list of Avid competitors, but this gets back to my previous post -- Avid doesn't have A core market. It has a dozen of them. Nobody else is trying to reach more than one or two of them.

Anyway, the near-impossibility of making sense of all this is what makes it so much fun to kick around. A whole bunch of MBA students are going to make their bones by using Avid as a case study, and it's unlikely that any of them will come to the same conclusions.

Other than the one about needing to make more than you spend.

Tim Wilson
Vice President, Editor-in-Chief
Creative COW Magazine
Twitter: timdoubleyou

The typos here are most likely because I'm, a) typing this on my phone; and b) an idiot.


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