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Technicolor Lands Verizon Gateway Deal

Ray Le Maistre
7/29/2010

Beleaguered French vendor Technicolor (Euronext Paris: TCH; NYSE: TCH), formerly known as Thomson, finally gave its investors, staff, and partners something to cheer about today by announcing a significant relationship with Verizon Communications Inc. (NYSE: VZ), a contract extension with DirecTV Group Inc. (NYSE: DTV), and a hint at better times to come. (See Au Revoir, Thomson – Bonjour, Technicolor.)

The video technology, broadband access, and VoIP technology company has undergone a massive revamp in the past few years, reorganizing its financials and focusing on content creators and service providers. At the same time, its business has shrunk. (See Creditors Approve Thomson Plan, Thomson Gets a Reprieve, and Thomson Revamps, Tackles Debts.)

It's still one of the world's leading set-top box suppliers, though, and now it's talking growth again. (See Technicolor: 100M Set-Tops Shipped and Technicolor Passes Huawei in Broadband CPE .)

Part of that growth story is its new engagement with Verizon. Technicolor has signed a memorandum of understanding to become a supplier of home routers (home gateways) for the operator's FiOS broadband (fiber-to-the-home) services. The routers, built to the operator's specifications, will be ready to ship in 2011.

The two companies are currently negotiating a three-year deal, which will involve technology development collaboration as well as the supply of gateway products.

Verizon had 3.8 million FiOS customers at the end of June, having added 196,000 new users during the second quarter, and passed 15.9 million homes. (See Verizon Reports Q2.)

At DirecTV, the vendor has been awarded a three-year contract extension to supply a range of standard- and high-definition set-top boxes. Technicolor has a long relationship with the satellite TV service provider, having already shipped more than 48 million set-top boxes to the company, and supports DirecTV's 3DTV service with upgraded set-tops. (See Report: 3DTV Not Ready for Prime Time and DirecTV Launches 3D Net Trio.)

That sort of deal will help Technicolor reverse its sales decline. The company today announced another sharp year-on-year decline in quarterly revenues, to €776 million (US$1 billion), but announced a net profit of €96 million ($125.5 million) for the first six months of the year, compared with massive losses a year earlier. (See Technicolor Reports H1.)

In addition, CEO Frederic Rose says the vendor is "poised to return to growth as early as in the second half." To be more precise, the company expects to generate higher revenues in the second half of 2010 from its ongoing business units, compared with the same period in 2009.

The vendor has also just struck a deal to sell part of its business that's no longer considered core to its strategy. It has agreed to sell Grass Valley Broadcast, which provides professional equipment and related services to broadcasters and teleproduction companies, to Francisco Partners for $100 million. (See Technicolor Gets Offer for Grass Valley.)

— Ray Le Maistre, International Managing Editor, Light Reading

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