Universal Marks Sales Growth on High-End Remotes

TECHNOLOGY: New TVs, HD expected to offset slower spending

Cypress-based Universal Electronics Inc. is looking to tap couch potatoes for more sales growth.

The maker of universal remote controls for home entertainment systems, digital antennas and audio and video accessories has seen an uptick in sales as consumers outfit their homes with high-end entertainment gear.

"The remote control is probably the most widely used appliance in the home," said Ramzi Amman, vice president of product development. "It ranks up there with your cell phone."

Digital video recorders, high-definition TVs and DVD players, video game consoles and even remotes that hook up to the Internet are all fueling demand for devices that can centralize the task of controlling multiple electronics.

"You probably have at least two or three remotes on your coffee table right now," Amman said. "At the core of any home theater is to give the consumer a seamless experience in controlling it."

Bread And Butter

Universal Electronics' bread and butter is making remotes that get bundled with set-top boxes and cable TV or satellite services sold by companies such as Comcast Corp., Time Warner Cable Inc., Cox Communications Inc., DirecTV Group Inc. and Cablevision Systems Corp., among others.

"The core of our revenue comes from sales of the traditional universal remote," Amman said. The company has more than 70% of market share in North America for remotes sold by cable service providers, he said.

It works closely with top TV manufacturers on remotes sold with sets made by Sony Corp., Panasonic Corp., Royal Philips Electronics NV, Toshiba Corp. and Irvine-based flat panel TV maker Vizio Inc.

Universal Electronics sells software that works with the remotes and licenses some of its patents for chips and other internal parts.

Design work is done locally but manufacturing is done in Asia.

The company also sells higher-end universal remotes to electronics retailers.

"We are seeing a strong interest for spending more on remotes at the retail level," Amman said. "It's been fueling a lot of growth."

He pointed to robust sales of a line of universal remotes that go for about $300 at Best Buy.

A popular remote has a "one-button" feature that allows users to switch tasks-say from TV viewing to recorded shows-with one key.

Another big market for Universal Electronics is consumers' interest in high-definition television and video, Amman said.

"The big push for us is HD TV," he said.

The company has found new customers for its remotes as more manufacturers try highdefinition gear and accessories.

"The number of HD TV brands has gone from 50 to 350 in the last three years," Amman said. "These guys weren't around even five years ago, and each of their TVs requires a remote control. That's been a major growth driver for us for the past couple of years."

For 2007, Universal had sales of $273 million, up 16% from 2006. It's looking for 2008 sales of $305 million to $322 million and profits of $22 million to $24 million.

Shares are down some 20% in the past year with a recent market value of $360 million.

Investors have raised some concerns about the slowdown in consumer spending, said Steven Franke), an analyst at Canaccord Adams, a research unit of Canaccord Capital Inc. in Boston.

"We are becoming increasingly nervous that a slowdown in spending may negatively impact subscriber growth at subscription broadcasters such as Comcast and DirecTV," Frankel said, "Any weakness in cable/satellite subscriber growth may have a significant impact on the company's fortunes."

Comcast and DirecTV together make up about 30% of Universal Electronics' sales, according to company filings.

The company made a big push into Asia recently to go after business with cable and satellite service providers there and offset some slowing in the U.S. and European markets.

It opened a sales office in Singapore with about 10 workers.

"We are having a lot of success closing accounts in India, China, Taiwan, Indonesia and Singapore," Amman said.

It also sells to satellite service providers in the Middle East and Europe, he said.

Going after emerging markets is likely to pay off later this year, analyst Frankel said.

"New customer wins and market share gains within the customer base will set the stage for strong growth in the back half of the year," he said.

Zilog Bid

In January, Universal Electronics made a bid to buy San Jose-based chipmaker Zilog Inc., a maker of chips for remote controls.

It was set to offer $4.50 a share for Zilog, or about $76 million. Zilog rejected the bid because its board said the offer was too low.

Ammari wouldn't comment on the company's acquisition plans.

"Universal is always looking for a more cost-efficient way to make a solution," he said. "We compete aggressively on the value we offer. We are usually not the lowest cost supplier out there."

Universal Electronics got its start in 1986. Its headquarters was then in Twinsburg, Ohio. The company opened up a development center in Anaheim in the early 1990s and moved to Cypress in 1997.