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GOLDSEA 100
No. 10: Henry Yuen
Gemstar International
enry Yuen is living proof that it probably does take a rocket scientist to program that damned VCR. Back when he was a mere attorney and TRW research mathematician, Yuen couldn't figure out how to program his VCR to record a Red Sox game. That bit of frustration inspired Yuen and college buddy Daniel Kwoh to invent the VCR Plus, giving their Gemstar International a core product around which to stake its claim as gatekeeper in the world of electronic entertainment.
Today Gemstar's products let an estimated 180 million gomers around the world seek out, tape and play back TV programming. That means consumer electronic companies pay royalties for the privilege of incorporating Gemstar's program access code circuitry into its TV sets, VCRs and set-top boxes and publishers like Murdoch's TV Guide pay for the privilege of publishing the one- to eight-digit VCR Plus codes in program listings. That's not all. Now Gemstar has entered into a joint venture with Thompson Multimedia and NBC to sell broadcasters advertising in the digital program guides.
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The virtual monopoly that Gemstar enjoys as a portal for TV broadcasts takes on far greater significance as TV and the internet converge into a brave new world of global e-commerce. Within three years Gemstar could enjoy the same position now occupied by Yahoo!, AOL and the next six top portals combined. That's why media giants like Tele-Communications Inc and News Corp are forming partnerships to devise ways to circumvent its monopoly. Unfortunately for them Yuen is no pushover. A case can be made that he's an even bigger bully than that other bespectacled mega-nerd, Microsoft's Bill Gates. Through aggressive, often questionable patenting strategies and a proven willingness to litigate at the drop of a hat, the onetime lawyer has cowed would-be rivals from venturing near Gemstar's program-guide turf.
That's why last summer cable-giant TCI made a move to buy out Gemstar for a hefty premium over its $3.2 billion market cap. Yuen, who owns only 12% of Gemstar, slapped down the TCI bid. When Thomas Lau, the biggest shareholder with a 24% stake, cried too loudly about Yuen's refusal to entertain the offer, Yuen booted Lau from the chairmanship and made himself chairman as well as President/CEO.
Henry Yuen was born in 1951 in China. His father too was an attorney. He moved the family to Hong Kong when Henry was two. Immigrating to the U.S. at the age of 17, Henry earned a B.S. in math from the University of Wisconsin in Madison, then a PhD from Caltech in 1973. He was researching wave motion for TRW when he and Kwoh founded Gemstar with the idea of coming up with novel products. Their first concept was the bar-coded business card -- you swipe it across a reader on your phone to save dialing time. A prototype was built but the concept was ultimately scrapped.
Yuen and Kwoh introduced the VCR Plus in November of 1991, but wasn't able to roll it out until November of 1992. It was a big hit, quickly doubling their optimistic sales projection of one million units. Gemstar currently employs about 230. It earned $40 million on 1998 sales of $126 million. Given its recent success in defending its expansive patents, it will likely double sales and triple profits for 1999. At the moment, it enjoys a spectacular P/E ratio of 80, putting a $360 million paper value on Yuen's 12% stake.
| The virtual monopoly that Gemstar enjoys as a portal for TV broadcasts takes on far greater significance as TV and the internet converge into a brave new world of global e-commerce. |