Scopus Video Networks: A Leader In Waiting?

Scopus Video Networks Ltd. (Nasdaq: SCOP) has tremendous potential and massive markets for its products. It engages in the development, marketing, and support of digital video networking products. Put in simpler terms, the company’s product enables the big service companies to offer users video systems that are easier to use, with better quality images and at more competitive prices.

As I understand it, Scopus is a specialist in the niche and aims to position itself as the leader in it. The transition from analog video imaging transmission systems to digital systems, with all it entails, is a rapidly expanding trend and the only question that remains in this regard is when will it be finally complete.

The digital revolution that was made possible thanks to progress in data transfer technologies is, in essence, the “remedial child” of the telecommunications revolution. The move to digital technologies, which will, without doubt, eventually cover the entire global map, lags behind that of sound and text. Every industry has its own digital problem, and the ultimate goal of those engaged in digital data transfer is to achieve as clear an image as possible, at a fair price and without breakdowns.

As strange as it may sound, the overwhelming majority of the world’s population still receives broadcasts over analog networks. In the U.S. and Canada, for example, only 53% of the population used digital television services in 2005, with experts predicting that this will rise to 91% by 2010. Elsewhere, only 13% of the population was connected to digital television services in 2005, with this figure expected to reach 32% by 2010.

One thing is certain - just as there is a phenomenal demand for cellular handsets, so no one will want to pass up the opportunity to sign up for high definition television [HDTV] services. On the macro level, Scopus’s niche is one of the largest in the world and, as usual, I am wondering whether the company will indeed be successful. It was founded in 1993 and it floated in 2005. Its niche is now crowded with competitors, and like the company itself noted, the competition is over quality and price. Scopus moved from a loss of $3.8 million on sales of $31 million in 2003 to $47.2 million sales in 2006, although its rate of loss remained the same.

CIBC analyst Yair Reiner is encouraged by indications that the company is now having success in its sales of entire systems, as well as its success in India, which it entered at an early stage and managed to find clients there. Reiner rates the company “Hold” without a target price. According to him, the company will continue to post losses in 2007 but these will fall to a rate of $0.22 per share, shrinking the company’s net loss to $2.9 million, a substantial improvement on 2006.

I believe that Scopus’s key problem is the fierce competition in the sector as well as falling prices. As it has $30 million in cash, it has enough air with which to continue its marketing drive which, given the state of competition in the market, will not be an easy task. I know some of the competitors, such as Scientific-Atlanta, and others, and they are extremely tough opponents. As we’re talking about a massive market, with proper management the company could have phenomenal potential. Its new CEO, as of January 1, is Dr. Yaron Simler, who joined from Harmonic (Nasdaq: HLIT) where he worked for 13 years.

So is Scopus worth buying? Between July and August 2006, the stock fell 46% to $3.1. It has since corrected 34% to $5.15. I can’t give any advice on this, since it all depends on the new CEO.

SCOP 1-yr chart

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.