C-Cube, the company continues to grow its unit shipments. This Q will mark the first time in a year, that it reports higher revenue and earnings over the same Q, last year. I see C-Cube as growing for years.
C-Cube's stock and its price suffer from lack of understanding of its business. Money hasn't flowed into the stock because:
C-Cube has too much Asian exposure. That's a bad place to try to sell in right now. (Almost all of C-Cube's Asian exposure is in China, a good place to sell low priced consumer products)
C-Cube competes in the graphics chip business for PCs. That's a bad business to be in right now. (C-Cube does not sell graphics chips. Before DVD-ROM, C-Cube's exposure to the PC market was minimal. DVD was only 3% of last Q's sales, still not much exposure.)
MPEG chips are a comodity business, any company can make one. You remember D-RAMs don't you? Heck, you can even replace C-Cube's chips with software on a PC. (Ha, Ha, Ha!)
These issues will keep C-Cube off of most buy lists over the near term.
C-Cube will report earning of about $.25, a penny better than expected. Divicom is now C-Cube's largest contributor to revenues, and it's growing at a 60% annual rate. Divicom is a digital video networker. It deserves the kind of valuation that leaders in networking receive.
VCD chip prices are pulling out of their nose dive. Super VCD chips are priced higher than VCD 2.0 chips.
Single chip codecs are the next driving force in consumer electronics. C-Cube is the leader in encoding.
Settop boxes are a growing business for C-Cube, though dwarfed by SGS Thomson's settop sales.
C-Cube is positioned well in the DVD-ROM market area, but DVD-ROM is still slow.
C-Cube's stock price should begin to move up from here, but slowly. If the whole market sells off this fall, so will C-Cube.
During the conference call next Thursday, Hagedorn and Balkanski, will claim to have low visibility into Q3. VCD should begin it's seasonal ramp, but they won't be sure how big the market is this year. Divi/JVC are due to ship a HDTV encoder, but not til late Sept., they won't be confident of getting revenues from this product in Q3. DVD continues to disappoint, and the outlook is not clear. Settops and Divicom will grow during Q3.
C-Cube's stock should be priced in the 20s today, and may well hit $35 again this year. But don't count on it.
C-Cube's markets are new. As they grow, C-Cube should grow. New markets take time to develop and a competitor can ruin the fun at anytime. |
