TheStreet.com Ratings: Digital Imaging Looks Sharp

Avid management has made it clear that it is recovering from a series of very poor product introductions and has had to take extra effort to restore customer service levels.

Initially, the company was known for its specialization in post-production editing of film for professionals. But now it also offers a range of video and music creation software for individuals too.

To this point, Avid has expanded its product offerings through acquisitions, but over the last three quarters, top-line revenue grwoth has slowed and turned negative. Fourth-quarter 2006 revenue of $239.05 million is 2.4% lower than in the same quarter the previous year.

Proactively, management has sold off some low margin manufacturing operations and outsourced many engineering functions.

The risks are clear. The company faces competition from lower-cost Asian producers that offer basic tuners without the higher value added features of Avid.

While the company has no long-term debt outstanding and $172 million in cash as of the fourth quarter of 2006, Avid management is not expecting 2007 results to illustrate a full recovery from 2006. Our stock model rates Avid a weak hold.

But there are indications that Avid's fortunes could turn around.

On March 6, the company announced that its consumer division, Pinnacle Systems, is entering the market for Mac computer peripherals with three new USB TV tuner devices. One is designed for the U.S. and two for Europe.

Now, any Mac can be used to watch or record television with the new ultra-portable Pinnacle TV for Mac Sticks.

Ideally you could set up a wireless connection on your computer that hooks up to your media center. This technology could become a standard part of home entertainment systems in living rooms around the world.

If the company isn't acquired first, Avid is on the short list for consideration for stocks to watch for 2008.