C-Cube Microsystems Inc.Nasdaq Symbol CUBE
In S&P SmallCap 600
21-JUN-97Industry:
Communications EquipmentSummary: C-Cube is a leading provider of integrated circuits and software that implement international standards for the compression of digital images and video.
Recent Price 19.00
52 Wk Range 45.75 - 18.00Yield
We expect revenues to grow about 20% in 1997. The digital video industry is growing rapidly, as new products are developed and more companies capitalize on this technology. CUBE is a technology leader in the field, with chips featuring a high level of integration and advanced features. The company's growth will be fueled by the use of its decoder technology in videoCD products, as evidenced by recent agreements signed with Changhong, Hyundai and Aiwa. CUBE's technology will also be used in digital video disc (DVD) products, which incorporate a new format for recording data onto a compact disk. DVD is expected to have applications in both consumer and computer electronic products. The company will remain the dominant player in the encoder market in 1997, with only limited competition in this area. We expect DiviCom, acquired in August 1996, to be earnings neutral in 1997, but we feel that it will be a strong contributor to long-term growth.
Valuation 27-MAY-97
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The long-term outlook for the adoption of digital video is very promising. However, in the short-term, we have concerns that market momentum has stalled, and rate CUBE shares a hold. DVD has received generally favorable reviews based on early product models introduced by consumer electronic and PC manufacturers. Many DVD titles have been released by major movie distributors, but most are approaching the market cautiously. After a few DVD design wins earlier in 1997, we were expecting more positive news as the year progressed. Although such developments may still be forthcoming this summer and fall, with an abrupt seasonal slowdown now expected to affect earnings at least for the second quarter, we have lowered our 1997 EPS estimate to $1.35. We see the shares only tracking the market for the short term.
Key Stock Statistics
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S&P EPS Est. 19971.20P/E on S&P Est. 1997 15.8S&P EPS Est. 1998 1.50Dividend Rate/Share NilShs. outstg. (M) 36.4Avg. daily vol. (M) 1.267Tang. Bk. Value/Share 2.54BetaNAShareholders900Market cap. (B)$0.692Inst. holdings38%Value of $10,000 invested 5 years ago:NA
Dividend Data: No cash dividends have been paid. The company intends to retain earnings to finance its business and does not expect to pay cash dividends in the foreseeable future.
Business Summary 27-MAY-97
C-Cube Microsystems Inc. is a leading provider of highly integrated, standards-based digital video compression solutions that allow high-quality video images to be cost-effectively provided by a broad range of end-user systems.
Digital video offers a number of fundamental advantages over analog video, including the ability to be compressed in order to gain efficiencies in transmission and storage, transmitted and reproduced without perceptible image degradation, as well as random accessing and nonlinear editing capabilities.
The most significant barrier to the widespread acceptance of digital video has been the huge amount of data required to represent images and video in a digital format, making storage or transmission economically impractical. CUBE's video compression technology uses complicated mathematical algorithms operating at high speeds to detect and eliminate a substantial number of redundancies inherent in video data, thereby significantly reducing the overall amount of data needed to be retained without affecting perceived image quality.
The company has focused on providing highly integrated, standards-based, programmable compression solutions that are cost-effective and deliver high image quality for a broad range of mass-market applications. It offers a complete range of video compression solutions, including encoders, decoders and codecs and development systems that are fully compatible.
Existing and potential applications for CUBE's products are in consumer electronics markets, such as in video CD players, interactive game consoles, digital camcorders and recordable optical disk machines; computer markets, including add-in cards for games and video CD playback, content encoding equipment, video conferencing equipment, video editing systems and color laser printers and copiers; and communications markets, such as cable headends and satellite uplinks, ad insertion equipment, direct broadcast satellite receivers and telephone distribution systems.
The company believes that the introduction of new products in target markets is essential to its growth. R&D spending in 1996 totaled $44.2 million (14% of sales), up from $14.3 million (12%) in 1995.
In August 1996, CUBE acquired DiviCom Inc. for $65.7 million in cash and about 2.3 million common shares. A related $131 million charge for acquired in-process technology was recorded in the 1996 fourth quarter. DiviCom designs, markets and deploys software, semiconductor and system solutions for end-to-end digital video networks. CUBE said that the combined company would be the world's most comprehensive digital video technology supplier.
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