The 'Apple Effect' Propels Rovi to New Highs … But Will the Surge Continue?

 |  Includes: AAPL, ROVI
by: Investment U

By Alexander Moschina

It’s no secret that practically everything Apple (Nasdaq: AAPL) touches turns to gold. But these days the company isn’t just making its own shareholders rich… it’s spreading the wealth elsewhere.

  • China Unicom (NYSE: CHU) shot up more than 10% after inking a three-year contract with Apple in August. It’s now the exclusive iPhone service provider in China – which boasts an enormous cellular market of more than 800 million.
  • Adobe (Nasdaq: ADBE) shares jumped 11% when Apple agreed to allow app developers to use its Flash software.
  • Analysts raised their guidance on Qualcomm (Nasdaq: QCOM) after Apple ordered two million cell phone chips from the manufacturer. Shares are up more than 40% since July.

And now another company is about to skyrocket thanks to the “Apple Effect…”

Rovi Tech Could Bridge the Gap Between Apple and Cable TV

On September 17, shares of California digital entertainment company Rovi Corporation (Nasdaq: ROVI) closed at $42.56. But the next day, the stock closed at $46.45. And shares continued to rise all the way up to $53 a few weeks ago and currently sit around $50.

Blame it on the “Apple Effect”

On September 20, Rovi confirmed rumors of a multi-year contract with Apple. And while details of the partnership are confidential, analysts believe Rovi will lend its technology to Apple’s TV service.

It’s an ideal pairing, too. Rovi’s technology makes it possible to connect music, pictures and videos across multiple platforms. Its other services include digital file protection and interactive TV guides. All would make excellent additions to a new Apple TV box.

Apple’s current model, which is roughly the size of a drinks coaster, allows users to rent/purchase media from the Apple Store, stream videos from their Netflix (Nasdaq: NFLX) account and access the Internet. It’s an attractive gadget, but it doesn’t do anything the iPad or the iPod Touch can’t. However, integrating Rovi’s technology could take the product to that next level. But analysts are predicting something bigger. Much bigger.

Rovi’s $10 Million Guide Could Be Part of Brand New Apple Product

Many see the Apple-Rovi partnership, and the hush surrounding it, as evidence that Apple is developing a totally new product. According to Piper Jaffray analyst, Gene Munster,

We believe this announcement is further evidence that Apple is developing live TV and DVR features for its Apple TV product and will likely launch an all-in-one Apple Television in the next 2-4 years.

Television is a medium that Apple has attempted to break into for years… but with little success. According to CEO, Steve Jobs, breaking into that market is tricky because consumers are so used to the regular TV cable box. But consider what he said last June:

The only way that’s ever going to change is if you can really go back to square one, tear up the set top box, redesign it from scratch… and get it to customers in a way that they’re willing to pay for it.

And Apple Insider suggests that licensing the relevant technology from Rovi would be the logical first step to doing just that.

Regardless, the deal is huge for Rovi. Even if Apple is simply incorporating its software into current devices, it means millions of extra revenue for the company. Plus, the prestige of working with Apple will no doubt earn Rovi more contracts. However, if Apple plans to use Rovi’s software as part of a brand new Apple HD TV line, that’s a different story. In that case, the “Apple Effect” will send Rovi shares through the roof.

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