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From tech darling to fallen media star Gemstar's Henry Yuen

By GARY GENTILE
AP Business Writer

LOS ANGELES (AP) Henry Yuen's fall from brilliant visionary of the digital television revolution to ousted chief executive of Gemstar-TV Guide, the company he founded, has all the makings of a Shakespearean tragedy.

There's Yuen, who never once backed off from his belief in the power of his patents and the rightness of his cause, even as his company lost important legal challenges and was forced to restate earnings because of accounting irregularities.

Then there's media mogul Rupert Murdoch, whose News Corp. was rebuffed when it tried to buy Gemstar in 2000. The global titan then sold his stake in TV Guide to the upstart Yuen for a 42 percent stake in Gemstar-TV Guide.

Murdoch played the part of silent partner, letting Yuen run the show until continuing losses and a plunging stock price forced Murdoch to finally install his own management team and consign Yuen to a smaller role.

``It's another example where a company gets created by somebody who is brilliant on the creative side but doesn't understand the management side or the political side of running a company,'' said Phillip Swann, president and publisher of Tvpredictions.com. ``He got obsessed with the power, in my opinion.''

Yuen has a wide grin and a quiet manner. The diminutive scientist invented VCR Plus in 1989 when he couldn't program his VCR to tape his beloved Boston Red Sox. VCR Plus lets viewers record programs by entering numbers included with television guides that represent different shows.

He also displays the confidence some say arrogance of someone with dozens of key technology patents to his credit, who built his company on a bold vision of a future where television is interactive and his technology controls how viewers choose programs and, eventually, buy products using their remote control.

He licensed his interactive program guide to cable companies and makers of televisions and cable set-top boxes, making Gemstar a darling of the high-tech boom. At its peak in March 2000, the company's stock was trading as high as $100 per share.

Wednesday, the stock, which is in danger of being delisted from the Nasdaq Stock Market, rose nearly 24 percent to $3.21 on news that Yuen was being replaced as chief executive by Jeff Shell, a former News Corp. executive.

The company's fall was swift, coming this year as Gemstar sued Scientific Atlanta, EchoStar Communications Corp. and other companies for violating key interactive program guide patents. Gemstar sued in federal court, then brought a parallel case to the International Trade Commission.

Yuen was so confident of a legal victory that he recorded the $108 million allegedly owed by Scientific Atlanta as revenue even though the money would only be paid if Gemstar won its court case.

Yuen defended the action, even as its revelation, along with news that Gemstar counted some barter transactions as revenue, was soundly rejected by investors.

``We do not have any accounting practice issues at all here,'' Yuen said in April. ``Our financials were filed with a clean opinion from our auditors and therefore, in our opinion and theirs, the recognition of revenues are reasonable and fair and appropriate.''

Nevertheless, News Corp. installed Shell as co-president and chief operating officer. Yuen held control of the board, however, with his power to veto any tie votes.

In June, Gemstar lost its court cases, before judges and the ITC. Yuen vowed to appeal and strongly denied rumors that the company's troubles would result in Murdoch seeking more control.

``I am committed to run this company because I believe the company needs me to guide it in the vision it has,'' Yuen said.

In August, News Corp. reported a net quarterly loss of $1.74 billion after writing down $1.9 billion of its stake in Gemstar because of a decline in the company's stock.

Also in August, Gemstar said it would delay its second quarter report, restate earnings for 2001 and change its practice for recognizing revenue. The company has yet to certify its financial statements as required by securities regulators.

Finally, late Tuesday, Yuen and his top ally, chief financial officer Elsie Leung, resigned and Shell took over the company Yuen built and struggled to keep.

Yuen will remain chairman of the board in a non-executive role. As part of the deal, he received a $22 million severance payment and will remain with the company leading an international business development unit.

As for his patents, Yuen has agreed to turn over all those he holds in his own name and has given Gemstar the right to acquire all his television-related inventions for the next seven years.

While Yuen's role has been greatly diminished, analysts say his legacy cannot be underestimated.

``His product is what created Gemstar,'' said Lisa Haas, an analyst at SoundView Technology Group. ``While the company has faced setbacks and the management changes now are an appropriate measure, I don't think you can discount what Henry Yuen has contributed in the past.''

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