SonicBlue CEO turns down the volume on court case

SAN MATEO, Calif. — The newly appointed chief executive officer of consumer electronics maker SonicBlue Inc. is looking to raise the company's profits and lower its profile in a lawsuit involving its Replay 4000 digital video recorder. L. Gregory Ballard was named CEO after the SonicBlue board unexpectedly ousted Ken Potashner as chairman, president and CEO following a meeting last Thursday (Aug. 8).

"I'll be seeking ways to be less controversial and see if we can't lessen the rhetoric a little and provide better services to our customers," said Ballard, commenting on the Replay 4000 case.

Broadcasters and film studios, including Paramount Pictures Corp., filed suit against SonicBlue last fall claiming that the Replay 4000, which can record and send digital copies and automatically skip commercials when rebroadcasting programs, violates their intellectual property rights. In a conference call with investors on Friday, Ballard said he would continue to defend the system in court but said his primary focus would be on crafting a plan to make the company profitable.

SonicBlue, which also makes a variety of digital audio systems, reported net losses of $40 million on revenues of $126 million in the six months ended June 2002. The company sold debentures and warrants valued at $75 million in April and faces significant debt repayments by October 2003.

"The clock is ticking here, but that's the case for most businesses in this climate today," said Ballard. "I've learned there's no capital structure that can't be addressed with a profitable company."

On the conference call, Ballard said he would work to cut costs and increase revenues to become profitable but admitted he hadn't yet formed a plan for doing so, having only assumed the CEO post.

Gary S. Klein, government and legal affairs counsel for the Consumer Electronics Association (Arlington, Va.), said the impact of SonicBlue's Replay 4000 case would not likely to leave other consumer electronics makers vulnerable. "The issues in this case are important to the industry, but even if they settle, it's not likely to set a precedent," Klein said.

According to the San Jose Mercury News, former chief executive Potashner was ousted by the board last week after he insisted that several board members quickly repay company loans totaling more than $500,000. The company made the loans last June so that several board members could buy stock in subsidiary RioPort, according to the paper.

Ballard would not comment on why Potashner was terminated. However, he did say the board loans were legal and had been fully disclosed.

"When those loans were made the business environment was different," said Ballard on the phone conference. "The business mores have changed," he said, adding the company has made no decision on how it would handle repayment of the loans.

Ballard is the former chief executive of graphics chip maker 3Dfx Interactive Inc. He joined SonicBlue as executive vice president for marketing and product management in April. SonicBlue also changed its chief financial officer and chief operating officer this year. The company's stock hit a 52-week low last week and opened trading Monday (Aug. 12) at 40 cents a share.