C-Cube's main foundries are Matsushita, TSMC and Yamaha. I think they still use Samsung, and wouldn't be surprised if Philips made the C-Cube chips they need.
There were two amendments to the TMC deal in the last two years. The first was to reduce the number of wafers that the company had to take. The second got a refund of the original agreement's pre-pay, and was based on C-Cube meeting production goals. As the size of the chips decrease, the number of wafers needed decrease. Going from .35micron to .25micron increases yield by 69%.
They may not have been able to assign capacity rights. That would be determined by the original agreement which is confidential, and we don't know about those clauses.
Here's the except from the 1998 10K...................
freeedgar.com
In the second quarter of 1996, the Company expanded and formalized its
relationship with Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) to provide
additional wafer production capacity in the years 1996 to 2001. The agreement
with TSMC provided that TSMC would produce and ship wafers to C-Cube at
specified prices and required C-Cube to make two advance payments totaling $49
million. An advance payment of $24.5 million was made in June 1996. In May 1997,
the Company amended its agreement with TSMC which resulted in a reduction of the
Company's future wafer purchase commitments and the forgiveness of the second
advance payment of $24.5 million. TSMC will apply the June 1996 prepayment
against a portion of the wafer cost as product is delivered to C-Cube.
Accordingly, the prepaid amount, which has been allocated between current and
long-term assets, will be amortized to inventory as wafers are received. At
December 31, 1998, $5.6 million of the remaining $18.2 million production
capacity rights is included in other current assets. In January 1999, the
Company signed a second amendment to its agreement with TSMC which will result
in a refund to the Company of $11.7 million from the remaining $18.2 million
balance of production capacity rights. 13
<PAGE> 16
The Company believes that an increase in the demand for semiconductor
wafers over currently expected levels, or a failure of foundry capacity in the
industry to grow at anticipated rates could result in greater difficulty in
obtaining adequate foundry capacity, increased prices and increased lead times.*
The Company's future operating results depend in substantial part on its ability
to increase the capacity available to it from its existing or new foundries. In
order to secure such capacity, the Company has considered and will continue to
consider various possible transactions, which could include, without limitation,
equity investments in, prepayments to, non-refundable deposits with or loans to
foundries in exchange for guaranteed capacity, "take or pay" contracts that
commit the Company to purchase specified quantities of wafers over extended
periods, joint ventures or other partnership relationships with foundries.*
There can be no assurance that the Company will be able to make any such
arrangement in a timely fashion, or at all, that the Company will not require
additional issuances of equity or debt in order to raise capital for any such
arrangements or that any such financing would be available to the Company on
acceptable terms, or at all. If the Company were not able on a timely basis to
obtain additional foundry capacity, its business and results of operations would
be materially and adversely affected.
The Company has entered into an agreement with MEC, JVC and Sharp whereby
they provided assistance in the development of the CL480 family of products, the
CL9100 and the CL680, and currently provide C-Cube with preferential access to
MEC's 0.5 and 0.35 micron manufacturing processes. As part of the agreement
C-Cube provides MEC the right to sell the CL480 family of products and the CL680
to its internal divisions and to a limited group of VideoCD manufacturers. MEC's
right to sell the CL480 has certain volume limitations and is subject to royalty
payments to C-Cube.
C-Cube sources its integrated circuit products from MEC, TSMC and Yamaha
and is in the process of qualifying additional foundries. This dependence on a
small number of foundries subjects the Company to risks associated with an
interruption in supply from these foundries. In connection with the manufacture
of its newer products, C-Cube needs to continue to evaluate and qualify new
foundries that employ advanced manufacturing and process technologies, which are
currently available from a limited number of foundries. For example, certain of
the new products that the Company intends to introduce require advanced CMOS
processes. The Company has in the past experienced increased costs and delays in
connection with the qualification of new foundries. There can be no assurance
that any delays, cost increases or quality problems resulting from the
qualification of new foundries will not have a material adverse effect on
C-Cube's business and results of operations.
The Company's reliance on subcontractors to manufacture and assemble its
products involves significant risks, including reduced control over delivery
schedules, quality assurance, manufacturing yields and cost; the potential lack
of adequate capacity and potential misappropriation of C-Cube intellectual
property. The Company obtains foundry capacity through forecasts that are
generated in advance of expected delivery dates. The Company's ability to obtain
the foundry capacity necessary to meet the future demand for its products is
based on its ability to accurately forecast such future demand. If the Company
fails to accurately forecast such future demand, the Company may be unable to
timely obtain an adequate supply of wafers necessary to manufacture the number
of products required to satisfy the actual demand. There can be no assurance
that the Company will continue to accurately forecast the future demand for its
products and obtain sufficient foundry capacity in the future.
C-Cube has from time-to-time experienced disruptions in supply, although
none of those disruptions have to date materially adversely affected results.
There can be no assurance that manufacturing or assembly problems will not occur
in the future or that any such disruptions will not have a material adverse
effect upon the Company's results of operations. Further, there can be no
assurance that suppliers who have committed to provide product will do so, or
that the Company will meet all conditions imposed by such suppliers. Failure to
obtain an adequate supply of products on a timely basis would delay product
delivery to C-Cube's customers, which would have a material adverse effect on
the Company's business and results of operations. In addition, C-Cube's business
could also be materially and adversely affected if the operations of any
supplier are interrupted for a substantial period of time, or if the Company is
required, as a result of capacity constraints in the semiconductor industry or
otherwise, to increase the proportion of wafers or finished goods purchased from
higher cost suppliers in order to obtain adequate product volumes.
14<PAGE> 17 |
