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Technology Stocks : C-Cube

CUBE 36.65

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10:44 AM EST

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To: John Rieman who wrote (22631)	9/17/1997 1:40:00 PM
From: DiViT	of 50808

Lunch with Alex & Mr. Woo of IDALL All hail the China Video Disk ÿ 09/15/97 Inside Multimedia (c) 1997 Phillips Business Information, Inc. To us in the West, China is an impenetrable planet of 1.2 billion people floating in a separate universe. But some time in the next century China will emerge as the biggest multimedia market in the world. Is that not good enough reason for IM's abiding fascination with it? Continuing the theme of this issue we believe that the entry to the Chinese market will be through the television set in the home and the astonishing growth of Video CD (VCD). It is the key to understanding of the market potential. We were thus privileged to get a rare glimpse into the VCD market in China when we lunched in Berlin with a group of top Chinese manufacturers, in the company of Alex Balkanski, chairman and CEO of C - Cube . Philips and C - Cube have a close alliance that is paying off in spades in China. Philips will privately concede that it is extracting not a penny piece from China in royalties. But the pain is dulled by the fortune it is making by selling millions of VCD drives in an attempt to meet the insatiable demand of the Chinese farmers. The growth of the VCD market is truly astonishing. Best estimates put sales in 1997 at 12-15m. The forecast for 1998 is an amazing 23m. Can such an incredible growth continue? An exchange, through an interpreter, with Mr Woo of Idall Industries was to prove most interesting. Mr Woo is head honcho of the second biggest VCD manufacturer in China and is nobody's fool. His view was that market saturation would be reached in 1998 and the market would then start to slide. He predicted that sales would drop from 23m in 1998 to 15m in 1999 and 10m in 2000. That prediction was doubted by Alex Balkanski of C - Cube . Despite fierce competition from ESS he still claims 70 percent of the VCD chip market in China and is one of the brightest guys on the planet. So his views commands our respect. Balkanski says that Mr Woo ignores the price dynamic. The market is highly elastic and prices are falling dramatically. The street price of a VCD player will be down from $120 to $100 by Christmas. It will be below $100 by next year. That's for the player, not the disc!. The street price of a local Chinese title is around $1 on the street (and they have to import the polycarbonate for chrissakes). Such rapid price erosion opens up the market dramatically in Balkanski's view. Another factor which suggests the boom will continue is that VCD is now the number one item on the Chinese wedding list - there are 12m weddings every year. In China as in the West they have to keep up with the Joneses - and this will drive the market onward and upward. Unfortunately price is collapsing faster than volume is going up and that poses a major problem for the manufacturers. So where do they go from here? One guess is that everyone is working madly on a recordable version. VCD-R, you heard it here first, folks.

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