It's a long one.....
<<Subj: Other Press...
Date: 30 Apr 1997 17:44:17 EDT
From: Yosull
Message-ID: <19970430214400.RAA02748@ladder01.news.aol.com>
Date: Tuesday, April 29, 1997
Source: INSIDE MULTIMEDIA
INSIDE MULTIMEDIA via Individual Inc. -- Last year was a great year for
C-Cube. It reported revenues of $319m, although the costs associated
with the $170m purchase of DiviCom Inc. resulted in a net loss of $73m. Its
revenues for the first quarter this year were $94m, up 38 per cent from
the $68m reported in the first quarter of 1996.
That sort of growth just can't be sustained. C-Cube is now meeting
fierce competition at the bottom of the market from the likes of ESS
Technology. That is why it is making a major push into the professional MPEG-2 video transmission
and high-end DVD production markets. The reason is not hard to find:
increasing price pressure.
The expansion will carry the company into the realm of traditional video
post production and broadcast news gathering. C-Cube is expected to
launch an integrated post production system by the end of the year.
With the introduction of new encoding and decoding chipsets, C- Cube
expects digital video solutions will make up 15 per cent of sales by the
end of 1997, compared to just 1 per cent in the fourth quarter of 1996.
While C-Cube's newest products, the CLM4730Z encoder and the ZiVA
decoder reference platform, are geared to the DVD market, the company is
banking equally hard on the rapid expansion of digital satellite and cable
set-top equipment to boost demand for its broader line of chips. The
company already provides decoders for DirecTV's 2.3 million boxes, and officials are confidently
predicting it will hold a dominant position in the future digital
set-top market.
"You can count on 80 per cent of programmes, at minimum, being delivered
to the home coming from C-Cube," said company spokeswoman Mary Giani.
"We are the only company that can provide integrated chipsets for broadcast
applications."
The ESS factor
The company may not be as infallible as some of its executives might
think. Last month, C-Cube stock took a hit after rival chip manufacturer
ESS Technology cut its Video CD chip price to $14. That price cut has already been nearly
matched by C-Cube in its most important market: China.
The stakes are high. Last year sales of VCD players in the Chinese
market went ballistic. Around 6.8m single chip decoder units were sold
and C-Cube claims that it made nearly 6m of them.
Clearly C-Cube thought it had the China market sewn up. 'Twas not to be.
ESS Technology in Fremont, California completed its acquisition of
VideoCore Technology last January 1996. Shortly afterwards, ESS launched its
ES3204 MPEG-1 decoder chip. Since then it has succeeded in capturing a
large slice of the China pie. The company, headed by Fred Chan, obviously talks China's
language.
In January, ESS announced that total shipments of its single- chip Video
CD MPEG-1 decoder chip had passed the one million mark. It brings the
total number of customer commitments for ESS video product to over fifty manufacturers,
with names like Idall, Subor, Lepon, DSR, China North Optical, Great
Koda, Shen Hua, Giec, and Jundi.
In February ESS announced:
* A $24m order from Sun Star for MPEG-1 video CD decoder chips. Sun Star
is one of the top five VCD manufacturers in China, and China represents
approximately 90 percent of the VCD market.
* Two orders for $15m from Lihahao and Shenzen Mountain, both located in
Shenzhen, China. Both companies are leading manufacturers of Video CD
players. The orders are scheduled for shipment between now and January 1998.
Price war?
The ESS price slash has ushered in fears of a price war, just as the
video chip market was looking to post solid gains with the expansion of
the new transmission and DVD markets. Additionally, growing competition from other chip
manufacturers like LSI Logic Corp. and Cirrus Logic could hamper
C-Cube's growth.
To counter the threat, C-Cube is positioning itself as a provider of
high-end solutions by aggressively pushing MPEG-2, while competitors
concentrate on theestablished MPEG-1 market. C-Cube is also pursuing the
video market almost exclusively, while other manufacturers cater to
graphics acceleration and other applications.
"If you take digital video as a core technology, we are the only company
that is purely focused on the [MPEG chip] market," said Clint Chao,
director of marketing for PC systems at C-Cube. "On the encoder side, our strategy is to first
populate high-end users and then start migrating down the food chain.
With DVD, our target audience is post houses and high end studios - people with key
content. This will jumpstart the purchase of decoders."
In digital video transmission, the company is actively pursuing
agreements with leading set-top box manufacturers like SGS Thomson,
Sony, NEC and Pioneer, even while it becomes a competitor to some of those companies through
its purchase last August of DiviCom (IM 127).
"C-Cube now has more designs in the traditional set-top arena than
traditional companies," Chao said. "Digital video sort of realigns the
whole (set-top) playing field. No one has built these set-tops before."
IM analysis
The implications for C-Cube are not all bad. The Chinese VCD market is
growing at a prodigious rate and is clearly price sensitive. So the ESS
Technology price cut will open up the market even more.
C-Cube told IM last week that its original market projection for 1997
was 10-12m units. It now expects unit numbers as high as 18m units. That
is an awful lot of VCD players and C-Cube should get a fair slice of the chips that go in
them.
In order to try and protect its market share, it has successfully
branded the outside of the box, using an 'Intel Inside' approach. But
clearly C-Cube is wise to diversify towards the high end of the market.
Two years ago in Milpitas, Alex Balkanski showed IM the MPEG-2 solutions
that were still in the laboratory. All that development is now coming on
stream. C-Cube was the MPEG pioneer, it will be one of the giants of the future,
but it will have to contend with a whole host of low-priced competitors
snapping at its heels.
This news further supports our belief that by the end of the decade,
China will be the second biggest multimedia market in the world.
(C-Cube, tel: +1 408 944 6300)
Video CD in China
A recent interview with Paul Chu, md of Asia-Pacific sales for C-Cube,
is reported in News from Asia-Pacific newsletter. Chu said that while
the rest of the world is holding its breath for DVD, the Video CD market in China will grow
healthily until at least 2000.
The VCD is now on China's most-wanted list alongside colour TVs, washing
machines, hi-fi stereos and fridges. Chu says the growing base of
middle- to upper-income earners in China is a big market, but is only the tip of
the iceberg. "We have only scratched the surface," he said. "The farmers
are demanding household appliances too."
Video CD is being rapturously received in China because of the lack of
an installed base of other audio-visual technologies. "Video CD is not
as popular in Hong Kong, for example, because most people bought expensive laser disc
players several years ago. If they replace these it will probably be
with DVD," Chu said. China, however, bypassed such appliances. "Video CD has appeared just as
people's purchasing power is growing."
Video CD versus DVD
A Video CD player in China can be bought for under 2000 yuan, a DVD
player will cost three times that - and titles are much cheaper, whether
legal or pirate copies. Chu points out that while DVD resolution is higher than Video
CD, the difference is not significant on a 21-inch TV screen, still the
most popular size in China. And Video CD encoding has become afford-able. Ordinary mortals
are able to create titles. One new trend is for 'keepsake videos' of
weddings and celebrations. C-Cube makes the chips in Japan and Taiwan, but has
offices in Beijing, Chengdu and Shenzen. At present, said Chu, advanced
chip manufacturing capabilities are not available in China, but the company intends to
conduct R&D and design work there in the near future.>>
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