March 21, 2003
SonicBlue Declares Bankruptcy: Another Point for the Incumbents

And while they are reorganizing under Ch. 11, they will probably sell their ReplayTV and Rio MP3 businesses to D&M Holdings in Japan, and GoVideo Business Unit to Opta Systems, which leads to the question of what they will focus on in the future. And what about the million people who purchased the Replay system? And who will be responsible for the lawsuits? All unknowns, but it does seem that a combination of the economic downturn, less than enthusiastic adoption of digital video recorders, development costs for new technologies and the lawsuits pushed them to the point of restructuring and selling off assets.

According to the SJ Mercury News, they are declaring bankruptcy because of the "crushing debt" ($355 mil in debt verses $342 mil in assets) from acquisitions of new technologies ($150 mil) in order to move from microprocessors to consumer electronics. But last month, CEO Greg Ballard said, "Brace yourself. We are spending roughly 25 percent of operating expenses" defending the (Replay TV) case. "That amounts to $3 million a quarter on this court case alone," and that is money that could have been used to push the company into profitability or hire 128 new employees, he said. This was at the Digital Rights Summit.

It is difficult to tell based on these different remarks what portion of SonicBlue's troubles come from the lawsuits and what is a result of other circumstances. But it seems logical that if they've been spending 25% of their operating expenses on lawsuits, an equal amount of their management focus must be on them, as well as business strategies around their future liabilities. So while they said the lawsuits did not push them into bankruptcy, other remarks infer that the lawsuits didn't help, as they diverted management attention away from planning and running the company, and hiring new employees to create more innovative technologies leading to more business opportunities and potential profits. Also, I would imagine it's difficult to get additional investment capital when 25% of operating revenue is going to defending lawsuits. And if they are trying now to sell assets associated with the lawsuits, it would be silly to emphasize to the press the lawsuits as a major problem during the sale process. If I were one of the 28 companies on the other side of the Replayer lawsuit, I would feel quite satisfied with the efforts to cripple this company right now.

Posted by Mary Hodder at March 21, 2003 04:54 PM
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