When Howard Hughes was only 10 years old he built a wireless set in his house he lived in south of Houston near the Gulf of Mexico, so he could talk to ships offshore.
The reason this came to light is because one time a ship ran-aground in the gulf and the power was knocked out during a violent storm. It was thought there was no way to get in touch with the ship, until the Coast Guard found out that the ship’s captain was already in touch with young Howard on his wireless.
Howard Hughes expanded his interests in wireless technology into a company we know today as Hughes Electronics (NYSE: GMH).
One subsidiary of this company is Direc-TV, currently the largest Direct Broadcast System operator in the world.
I view DTV as being in its infancy, even though DTV has already amassed almost 10 million subscribers.
The next nearest competitor is Echo Star (Nasdaq: ECHO), a much smaller company that has close to 7 million subscribers, a much more precarious balance sheet, and nowhere near the back-up or depth that DTV has. In fact ECHO has been begging DTV to buy them for the last 3 years.
Within the umbrella of Hughes Electronics is an 80 percent owned subsidiary called PanAmSat (Nasdaq: SPOT), the largest private owner of satellites in the world.
Here are some problems I see that cable has versus DBS.
When Michael Armstrong, the CEO at AT&T (soon to be departed? Boy, oh boy, did this guy ever drop the ball!) bought TCI Cable systems a few years back he learned, to his horror, that the entire company had badly outdated equipment. That sweet cash flow he was counting on went for upgrading systems (if there was any leftover after paying debt).
Here are some advantages I think GMH has:
Now, GMH has been in the news a lot lately. First there was the talk about Rupert Murdoch buying GMH, but clearly GMH is just a “bridge too far” for Mr. Murdoch. Now that that story is going away (and I am happy about that), I think the next thing that is likely to happen is to spin-off DTV into a stand-alone company.
General Motors (NYSE: GM), the parent company, has been losing money in the car business for 20 years now (it makes all its money selling you financing and insurance).
The R&D needs for GM in the next 10 years are going to be huge. GM needs the cash; it’s as simple as that. It has dragged its feet, hem-hawed around and, in general, been two or three steps behind where it should be with DTV for years. It almost canceled DTV a few years back. The “car-heads” thought it didn’t have any potential — only the “hard sell” and begging of DTV Sr. VP Eddie Hartenstein saved DTV from the GM wrecking ball.
In fact, I think the whole shebang at GMH will be sold. Probably in pieces. There are some smaller parts — satellite radio, other satellite investments (American Mobile and TiVo) — that could also add value.
If Howard Hughes was still alive today, I think he would be a heavy user of his own satellites. His quest for knowledge was relentless. In fact, if you look at his politics, I would bet one of his first or second stops on the Web would be WorldNetDaily!
GMH is about 60 percent off of its all-time high and of course we know tech has been murdered here. This is giving you a splendid opportunity to buy a great franchise for the future. Anytime you can buy GMH under $20, it’s a bargain.
Conclusion: Tech is not dead, it is just seeing a very normal bear market — not fun, but real. What you need to do during these times is look for those that will survive and thrive — and that is what I see when I look at Direc-TV.