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Cisco Places A Bet On Liberate
By David Einstein
There's nothing like a $100 million investment from Cisco Systems to turbocharge your stock.
Need evidence? Check out the share price of Liberate Technologies (Nasdaq: LBRT - news). When word leaked out on Friday that Cisco (Nasdaq: CSCO - news) was planning to give the company a financial shot in the arm, Liberate's stock surged 36%, going from $25.10 to $34.13. After the $100 million transfusion was announced this morning, the stock quickly added another 6.7% to $36.44.
The vote of confidence by the world's largest networking company couldn't come at a better time for Liberate, the San Carlos, Calif., maker of software for interactive television. After peaking at $148.50 during the tech runup late last year, its shares have fallen steadily. Some of the decline can be attributed to the Nasdaq's recent anemia, yet there also have been fears that Liberate could suffer from a no-holds-barred competition against Microsoft (Nasdaq: MSFT - news). The software powerhouse is trumpeting its WebTV technology as a standard for letting consumers use their televisions to surf the Web, shop online and get movies on demand.
For Cisco, the big investment is just another in a seemingly endless string of moves to diversify beyond the corporate networking business that brought it to power. Future versions of Liberate's set-top and server software will incorporate Cisco's high-speed networking technology, which is designed to make it easy for cable companies and service providers to deploy interactive TV.
In a statement disclosing the deal, Cisco Internet Vice President Paul Bosco said that Cisco and Liberate will work on a global rollout of Internet and Web-enabled appliances including set-top boxes, game players, thin clients and mobile wireless devices.
The companies hope to cash in on what is expected to be a huge market. Cambridge, Mass.-based Forrester Research predicts that by 2004, some 24 million homes will use interactive TV.
In return for its $100 million, Cisco gets just under 4% of Liberate's stock, a stake it can file away with the hundreds of other investments and acquisitions it has made in recent years. The deal makes Cisco Liberate's third-largest shareholder, behind Oracle (Nasdaq: ORCL - news), which owns 41% of the company, and America Online (NYSE: AOL - news), which holds a 9% stake.
Liberate was formerly known as Network Computer. It was created by flamboyant Oracle Chief Executive Larry Ellison to market slimmed down ``network computers.'' After that concept flopped, the company was rechristened as a maker of software for interactive TV.
As Internet companies go, Liberate isn't doing badly. It lost $80.8 million in the fiscal year that ended in May on revenue of $28 million. But in the May quarter, revenue hit $9.1 million, exceeding analysts' expectations and suggesting there may be light at the end of the earnings tunnel.
Things also have been looking up recently for Liberate on the competitive front. The company scored a coup when AOL adopted its platform for AOL TV, which will soon roll into the market. And two weeks ago Liberate got more good news when the European Commission forced Microsoft to drop plans to take control of Telewest (Nasdaq: TWSTY - news), a British cable company that uses Liberate's technology for its set-top boxes.
Still, Microsoft has a healthy head start in the U.S. market with WebTV, which even now lets users interact with some TV programs, including matching wits with contestants on Wheel of Fortune and Jeopardy.
Here's a good game show question: Two years from now, whose name will be on the top of your television? Answer: Stay tuned to find out.
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