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Friday, August 18, 2006

TiVo Investors Get a Break; Company is Still "At Risk"

This morning TiVo (TIVO) is trading up 18%, or $1.21, at $7.70 in pre-market trading. The company says it won its DVR case against Echostar (DISH) that was filed in 2004.

U.S. District Court Judge David Folsom granted TiVo's motion for permanent injunction to prevent EchoStar Communications Corp. (DISH or "ECC") from making, using, offering for sale or selling in the United States their DVR products at issue in the case. Judge Folsom also ordered ECC to pay TiVo approximately $73.992 Million in damages as awarded by the jury, prejudgment interest at the prime rate through July 31, 2006 of approximately $5.638 million, and supplemental damages for infringement through July 31, 2006 in the amount of approximately $10.317 million. Judge Folsom denied EchoStar's request to stay the injunction pending appeal. The injunction extends to all of ECC's affiliates, employees, agents and representatives, and any persons in active concert or participation with them who have notice of the order. The Judge's ruling is final and is appealable.

If anyone could use this, it is TiVo. The company has been a money-loser for as long as you can remember and now it boils down to what it can make going forward and how long its cash will hold. At yesterday's close it was a $559 million market cap stock that has lost money for the last 3-years and is expected to lose money for fiscal 2007 and fiscal 2008. As of last quarter the company posted a $10.7M loss on some $55.1M revenues and it had negative equity on the balance sheet with total assets lower than liabilities because of some deferred long-term revenues.

According to the company: "TiVo is built on a strong foundation of innovative technology and intellectual property. Beyond the U.S. Time Warp patent, we now hold more than 86 patents in our worldwide patent portfolio and have more than 138 patent applications pending. TiVo has a long list of licensees in the consumer electronics, cable and satellite markets, and we will continue to license our technology under appropriate circumstances and arrangements. We will also continue to vigorously defend our intellectual property for the benefit of our licensees and shareholders."

This may get that back in-line, but even with the other new initiatives the company is still somewhat questionable. If TiVo can get this firmly established as a precedent for any future and current cases, then they could end up finding themselves as a legitimate royalty company where cable, satellite, and IPTV providers have to pay settlements and royalties outside of the deals already on the table. Unfortunately, companies that are dependent solely on future court rulings and on royalties rather than operations all fit into what is deemed an "At Risk" company. As of the last short interest date TIVO had over 16 million of its 76.6 million share float as its short interest, so a lot of this move is of course going to be forced short covering.

Jon C. Ogg
August 18, 2006

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