Rovi shares slump on profit warning

Reuters News
Posted: Jul 18, 2012 9:34 AM
Rovi shares slump on profit warning

(Reuters) - Shares of Rovi Corp <ROVI.O> fell to their lowest in three years on Wednesday morning after the digital media solutions provider slashed its profit forecast for the year and two brokerages downgraded its stock.

The company on Tuesday estimated its second-quarter results well below analysts' expectations and cut its full-year forecast by nearly a third on an anticipated weakening of sales in its consumer electronics division.

Rovi's software is used in home entertainment devices to play various digital media formats such as DivX.

"What was striking in this retrenchment, other than its sheer magnitude, is that the weakness appears to be across the board," Brean Murray Carret & Co analyst Todd Mitchell said.

A weakening market for consumer electronics devices that use its technology and slow pace of license renewals were the main reasons for Rovi's poor outlook, analysts said.

While weakness in the consumer electronics market is unsurprising given macro headwinds, delayed deals and litigation costs are hurting the company's core IP licensing business, said Cowen & Co analyst Robert Stone. He downgraded the stock from "outperform" to "neutral".

Rovi said certain new patent licensing agreements were not signed during the second quarter as pending patent litigation kept prospective customers away.

Stone said delays in launches for products and services like the Rovi Entertainment Store and the new DivX content creation software could also be pulling shares down.

Rovi cut its adjusted full-year pro forma earnings forecast to between $1.60 and $1.90 per share from the $2.35 to $2.65 per share it was expecting earlier.

"Rovi has not executed effectively recently and is now, in our view, facing uncertainty surrounding the timing of new license agreements as well as weakness in its underlying market," BMO Capital Markets analyst Edward Williams wrote in a note to clients.

Williams downgraded the stock to "market perform" from "outperform."

Shares of the Santa Clara, California-based company were down 41 percent at $10.34, making the stock the top percentage loser on the Nasdaq on Wednesday morning.

(Reporting by Supantha Mukherjee and Sruthi Ramakrishnan in Bangalore; Editing by Sreejiraj Eluvangal and Saumyadeb Chakrabarty)