Avid: Poised to Grow Market Share

By Ian Wyatt

NEW YORK ( TheStreet ) -- Every year in the Nevada desert, the Consumer Electronics Show gives companies a chance to display their hot new technologies.

At the same time, the film industry is in the midst of its big awards season -- so companies that make hardware and software for the big screen have a chance to gain recognition for their role in film development.

Truthfully, it's a misnomer to say that Hollywood is making "films" these days. Most productions are completed digitally. It's a far more convenient and quicker way to edit and enhance the images and sound than traditional film.

Since its birth two decades ago, Avid Technology ( AVID) has delivered the gold standard in video and audio production hardware and software. The company has been a technology leader in delivering box-office smash hits.

For many involved in production in the entertainment industry, it's been a no-brainer: do it right by using Avid's software and equipment.

Despite the stock's strong performance, the company still faces challenges. Right now it's difficult to tell potential customers that they need the Cadillac of production equipment when the economic morass limits budgets to a Hyundai. Some existing customers who have curtailed spending are trying to make do with aging equipment.

Still, tech spending looks to be increasing in 2011. Just recently, research firm Gartner raised its estimate for information technology spending to $3.6 trillion worldwide, a 5.1%

improvement over 2010, and an increase from its previous 3.5% growth estimate.

Avid's competition is particularly fierce on the software side. Professional users can select from the likes of Premiere, by Adobe ( ADBE) and Final Cut Pro, from Apple ( AAPL).

The recent announcement of its new Pro Tools software suite shows that Avid is keeping its product line fresh.

Avid said in a December 2010 regulatory filing that it was going to undergo a restructuring in the first half of this year. The company will close some facilities, and cut an unspecified number of jobs, which it estimated would result in charges of $10 million to $16 million.

The restructuring effort comes from a new management team that's hoping to return the company to profitability after four losing years. With a number of recent awards, the company is well poised to grow market share, and investors could be increasingly bullish if Avid can get back in the black. Just recently, Avid won an Emmy Award, its 13th, and it counts two Oscars and a Grammy to its credit. In 2009, Avid products were used in producing the 10 highest-grossing films.

Analysts who follow Avid Technology are somewhat neutral about the stock: one buy, four holds and one sell. The consensus estimate in 2010 is for a loss of 5 cents per share -- but in 2011, analysts expect to see profitability of 37 cents a share.

Revenue is expected to grow 5% to $663 million in 2010 and the company issued 2011 guidance forecasting additional 5% revenue growth.

After a December meeting with management, JPMorgan noted that Avid "...is entering a recovery phase under the new management team...and we think a new-product cycle positions the company to maintain market share in a modest cyclical recovery..."

After a nice bounce in 2010, and with signs of increased tech spending by companies and an updated product line, Avid could reward investors in the year ahead.

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Wyatt Investment Research, founded in 2001 as a publisher of newsletters, offers independent investment research of financial markets, stocks, bonds, ETFs and mutual funds to about 250,000 individual investors. The company is led by founder Ian Wyatt, who serves as publisher and chief investment strategist.

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