Tuesday May 20 5:15 PM EDT
C-Cube shares slump on earnings warning
(Adds details, background, byline, prv NEW YORK)
By Mark Egan
LOS ANGELES, May 20 (Reuter) - C-Cube Microsystems Inc stock fell more than 20 percent Tuesday after the maker of
digital video compression products warned that second quarter earnings would be worse than expected.
The stock of Milpitas-based C-Cube fell $5.50 to $20 in afternoon trading on Nasdaq, where it was one of the most active
issues with more than 6 million shares changing hands.
Earlier C-Cube said it expects second quarter earnings to be about 20 cents to 25 cents a share, well below the 40 cents a
share predicted by analysts. It said revenues would be $70 million to $75 million.
The company reported net income of $15.4 million, or 41 cents a share for the first quarter. In the second quarter of last
year, C-Cube earned $13.8 million, or 39 cents a share, on revenues of $73 million.
The company said the weaker results were mainly due to lower sales of its MPEG1 decoders used in VideoCD players sold
mainly in China. C-Cube said the lower sales were due to seasonal slowness and competitive price erosion.
"It's good news, bad news," said Dan Scovel, analyst at Fahnestock & Co. "At this point it appears that the VideoCD
(business) is very weak but the good new is it is also isolated from C-Cube's other businesses."
"In the past VideoCD has accounted for a fair amount of the company's business, about 40 percent. In the future it was
always going to be a much smaller portion but it appears it's going to be a smaller portion a lot sooner now," Scovel said.
Analysts had expected some erosion of the VideoCD business but were surprised by its extent.
"I was in the process of re-evaluating my numbers but nothing like this," Carlos Baleiras, analyst at Lehman Brothers, said
referring to his earnings estimates.
"There was very strong demand in China in the full first quarter and into part of the second quarter and now you're into a
very weak seasonal period," he said adding that he sees weak demand in China from now through September for VideoCD.
Alex Brown analyst Gregory Mischou cut his rating on the company to market perform from buy after the announcement.
As well as its VideoCD products it also makes chips for set-top boxes and has a unit that makes digital video broadcast
equipment.
It also has the leading technology, called MPEG2, for making encoding chip sets for digital video disk players. Its chip
allows a full 133-minute feature film to be encoded onto a single disc.
Last year almost no digital video players were sold. This year about 2 million are expected to be bought while 1998 is
expected to see demand for 6 million players.
"The digital video disk will fuel growth over the next few years," Scovel said.
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Future does not look too bad. May be CUBE will get back on track going forward. IMHO. |
