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Time Warner Cable Inc. (TWC) is partnering with Motorola Mobility, Inc. (MMI) to offer high-quality video delivery services to its subscribers by creating a video gateway platform.

Motorola's DCX3600M Video Gateway service offers such premium services by converting the MPEG-2 files into MPEG-4 files so that it can easily be delivered to tablets and smartphones, where subscribers will enjoy watching these high quality video files. Motorola’s DCX3600M Video Gateway enables unlimited sharing of photos, videos and other content with similar devices through a wireless IP home network.

With this new offering, viewers just need to choose whether they want to watch their favorite shows on tablet or smartphone. Moreover, with the increased roll out of 3G/LTE networks, the demand for HD quality telecasts is expected to increase. So companies with such innovative products will be the standout performers going forward.

In the first quarter of 2011, Time Warner Cable, the second-largest cable operator in the U.S. after Comcast Corporation (CMCSA), posted strong top-line and bottom-line growth, coupled with solid free cash flow. Both revenues and earnings were ahead of the Zacks Consensus Estimate. The company witnessed robust growth across all segments.

Strong fundamentals, higher subscriber additions and solid cash flow, along with increased share repurchase plans and a hike in dividend are positives for the stock going forward.

However, stiff competition from other cable and satellite operators like Comcast, DIRECTV (DTV), and DISH Network Corporation (DISH), higher debt burden and soaring programming costs will act as headwinds for the company.

More importantly, the online video streaming companies, such as Netflix, Inc (NFLX), Hulu and YouTube, are posing greater threat to the pay-TV industry with their cheaper plans.

We, thus, maintain our long-term Neutral recommendation for Time Warner Cable Inc. Currently, Time Warner Cable Inc. has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 
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