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deal/20050225/bs_deal_thedeal/willapplebiteintotivo

Will Apple bite into TiVo?
 
Rumors surfaced earlier this week that Cupertino, Calif.-based Apple was
interested in buying TiVo. Both Apple and Alviso, Calif.-based TiVo
declined to comment on the reports, yet talk of a possible deal was
widely received as a combination that could make sense.

"It could represent an attractive strategic opportunity for Apple," said
Stanford Financial Group analyst Frederick Moran. "It would give them an
entry point into 3 million households, enabling them to integrate their
home computer offerings with the larger home entertainment system."

Moran pegged a potential price tag for TiVo at $484 million to $807
million, noting that the company has $100 million of cash on its books
and "hundreds of millions of cash loss carry-forwards which would be of
value to a potential acquirer."

"We would hope it would fetch at least $6 per share, with the potential
to go as high as $10," Moran said.

Talk of the potential deal has piqued investors' interest. TiVo's stock
rose nearly 19% Wednesday, although it was up a more modest 4.1% in
afternoon trading Thursday.

Hewlett-Packard Co. 's recent move to oust chief executive Carly Fiorina
has solidified the belief among some analysts that HP's merger with
Compaq Computer Corp. was unwise. Indeed, in the personal computer
sector, deals that combine similar companies or product lines have
fallen out of favor, and analysts suggest that PC makers are better off
finding ways to differentiate themselves.

For Apple, acquiring TiVo would do just that, giving the storied company
another means of distinguishing itself from other PC makers and enabling
it to deliver more computer services over television.

Such a strategy could benefit Apple, whose hugely successful iPod
digital music player and iTunes online music store have already
highlighted the company as a computer maker with interests and aptitudes
well beyond PCs.

Although TiVo has struggled recently with the departure of key managers
and as a result of competition from cheaper digital video recorders, or
DVRs, being offered by cable TV companies, its base of more than 3
million subscribers remains a hugely valuable asset. Melding Apple and
TiVo hardware could offer a relatively simple way for consumers to
download all types of entertainment from the Internet onto their
televisions, analysts said.

Roger Kaye, vice president of client computing at IDC , said entering
the video market would be a logical next step for Apple, which has so
successfully brought innovation to the music market."Television capture
and recording is another piece of functionality that people want," Kaye
said.

Still, there is no evidence that a transaction is in the works. The
speculation might simply have grown out of unconfirmed rumors that TiVo
has put feelers out. The 8-year-old company, which helped lead the
development of a technology that has transformed the way many consumers
watched TV, has in recent years suffered amid growing competition from a
host of rival products. The company's predicament today is that the cool
new technology it invented is simply not that revolutionary anymore.
Indeed, TiVo is now a mature company that needs to satisfy its
increasingly restive shareholders, Moran said.

"TiVo still offers some bells and whistles that the competition does
not, but I'm not sure if the typical household is all that impressed by
those bells and whistles," he said. "Many of the advantages TiVo offers
over the generic DVR box are slowly disappearing."