C-Cube's branding strategy in the eyes of Alex Brown and Sons:
Excerpt., May 20
CHINA VISIT
* On May 12 & 13, 1997, C-Cube Microsystems hosted an analyst meeting in Hong Kong and Main-Land China. The meeting focused on the state of the VideoCD (VCD) market, of which China is the largest end-market with over 80% market share. The VCD market grew very nicely during the March quarter reaching approximately 4.5 to 5 million units. The March quarter is also the seasonally strongest quarter driven by strong demand for Chinese New Year. We estimate that the VCD market will exceed 14 million units this year and could exceed 20 million units in 1998, which compares to a market of 2.5 million units in 1995 and 8 million units in 1996.
* Inventory of VCD decoders at customers appears to be low. The VCD business is growing rapidly, but is characterized by seasonality. We expect June to be the seasonally slowest quarter with overall shipment likely to be down sequentially. Some of the leading vendors indicated that they plan to build some inventory of systems in the 2H97 in advance of the strong selling season of Chinese New Year (Q198).
* We expect competition will continue to keep VCD decoder pricing aggressive and VCD decoders could fall below $10 by year end, down from $15-17 in Q197.
* The VCD market was constrained in Q197 by the availability of CD Loaders for VCD 2.0 systems, which are manufactured by Philips. We expect the loader shortage to ease in 2H97 as Philips ramps capacity and other vendors introduce loaders with acceptable performance.
* MPEG 1 video and VCD 2.0 compatibility is becoming a very important issue. Judging from customers we talked with, C-Cube appears to have the best MPEG 1 and VCD compatibility. Some of C-Cube's competitors appear to have some compatibility issues. We were shown demos of some incompatible systems and heard that certain vendors have seen returns of systems that are not able to play the latest VCD 2.0 titles. We also heard reports that some major Chinese customers that moved away from C-Cube may be switching back.
VCD compatibility has become such an issue that the Chinese government is monitoring and publishing consumer reports on VCD compatibility and quality. On April 3, 1997 the State Broadcast and Television Products Quality Inspection Center issued a report that was aired over one of China's Central TV channels. In the test C-Cube based systems held 9 of the top 10 ratings for quality:
1) Malata N28 (C-Cube)(*)
2) Idall (C-Cube)(*)
3) Malata N30 (C-Cube)(*)
4) SMC (C-Cube)(*)
5) Hai Xin (C-Cube)
6) Konka (C-Cube(**)
7) Panda (C-Cube)(*)
8) SAST (C-Cube)(*)
9) Heng Tian (C-Cube)
10) Shinco (ESST)
(*) C-Cube branding partner (**) Under qualification for C-Cube Branding
* C-Cube's branding strategy appears to be working. With compatibility an issue for some players on the market, customers want to know they are buying a brand they can trust. C-Cube has a branding campaign where customers that a interested in participating must submit their systems for testing and qualification before they can use C-Cube's logo as part of their advertising. To date, C-Cube has qualified 12 branding partners out of over two dozen that have applied. C-Cube branding partners use C-Cube's VCD logo in their ads and on their systems. They also participate in in-store promotional events with C-Cube. C-Cube backs up its branding program with TV, print and billboard advertising. |
