NEW YORK (CNNfn) - Foraying into uncharted high-tech territory, NextLevel Systems Inc., a pioneer in digital communications, will supply at least 15 million set-top boxes to nine leading cable operators starting in early 1998.
Under a short-term, $4.5 billion agreement announced Wednesday, the Chicago-based television satellite operator will offer the advanced digital devices to cable operators.
In return for providing customers, the operators will receive warrants to purchase a 16 percent stake in General Instrument Corp., NextLevel's former parent company. NextLevel is set to revert to the General Instrument name.
Digital cable technology, still in its infancy, offers enhanced audio and video quality over a much wider range of channels than currently are in use.
"This solidifies and locks in our very important set-top business for the next three to five years," said Richard Badler, NextLevel's executive vice president for communications.
"And it's great to have our key customers as participants as well," he said.
Investors apparently thought so too: NextLevel stock (NLV) closed Wednesday at 17- 7/8, a gain of 2-7/8 points.
Badler described the agreement with the cable operators as a "major ramp-up" in its set-top business, which he said accounted for 70 percent of the company's $1.8 billion in revenues last year. The company has shipped an estimated 750,000 digital cable boxes since October 1996, Badler said.
NextLevel has committed to shipping four million additional devices in coming months, beyond those included in the agreement announced Wednesday.
NextLevel Corp., in its new incarnation as General Instrument Corp., also will relinquish a 10 percent stake to Tele-Communications Inc. in exchange for broad access to TCI's digital data network. TCI and Time Warner Inc. collectively account for more than a third of NextLevel's sales.
NextLevel's latest inroad into the digital cable market comes at a time when the company is cutting back less viable services. Last month, it slashed 20 percent of the jobs at its San Diego-based satellite business.
This month, officials said they would shut down a similar facility in Puerto Rico while moving the company's Chicago headquarters to the site of a current cable television facility in Horsham, Pa.
Company officials predicted the austerity measures would result in a five- to 10-cent-per-share annual earnings gain in 1998. NextLevel's cable and satellite operations are expected to report a loss of $30 million for 1997.
"We want to get the industry to the next level," Badler said Wednesday, apologizing for the pun.
In a separate venture, NetLevel also is teaming up with SRS Labs Inc. to develop enhanced sound-immersion technology.