With U.S. households owning approximately 250 million television sets, TV is
the dominant medium for viewing video images. While TV is an integral part of
modern life, it is optimized around image production, transmission and display
technology created more than 40 years ago. TV signals are produced in accordance
with the NTSC standard developed in the 1940s for black and white programs. This
standard was last modified in the 1950s to make possible the compatible
transmission of black and white and color programs. Technical compromises
required to achieve compatibility introduce image degrading imperfections, known
as artifacts. Additionally, analog transmission introduces noise in the TV
image. While always present, these imperfections are less evident on TV screens
smaller than 25 inches in size than on larger screens. Over the last decade,
consumer interest in larger screen TVs has increased dramatically, fueled by
decreasing equipment prices and an ever expanding universe of movies, sporting
events and other programming available via cable TV, video cassette, direct
broadcast satellite, laser disc and, most recently, DVD. As TV screen sizes have
increased, impairments in the image, such as low resolution, artifacts and
noise, have become more readily apparent. The
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* NTSC is the current analog television system named for the National
Television Systems Committee, the industry group that developed the
monochrome (black and white) television standard in 1940-41 and the color
television standard in the 1950s. NTSC was developed in the United States
for 60 Hz, 525 line transmissions. PAL is the acronym for Phase Alternating
Line which was developed in Europe for 50 Hz, 625 line transmissions. PAL
uses many of the same coding techniques developed for NTSC resulting in
similar image imperfections.
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better quality images produced by DVDs, digital satellite transmission and high
resolution computer monitors have made viewers more discriminating and have
elevated their image quality expectations.
The Company believes that this trend will accelerate with the announced
introduction of HDTV by some broadcasters in late 1998. HDTV images are expected
to incorporate cinema-like image quality in a wider screen format. The FCC
recently established standards for DTV broadcasting in the United States and
adopted rules mandating the gradual introduction of DTV broadcasting. The FCC
has targeted the eventual phase-out of analog (NTSC) broadcasting by the year
2006. Current analog broadcasting equipment is not compatible with the new DTV
standards. In order to transmit digital signals in accordance with the new DTV
standards, broadcasters will need to acquire new equipment, including digital
transmission equipment, at costs estimated to be as high as $10 million per
station. Broadcasters are seeking to reduce the costs of transitioning from
analog to digital broadcasting through strategies which will allow them to
continue to use much of their existing equipment.
Advances in microprocessors, the availability of low cost memory and
storage, high quality displays, sophisticated software and the emergence of the
World Wide Web have fueled the growth in multimedia applications on the PC. The
PC is increasingly being used to view video stored on hard disk, CD-ROM, DVD and
laser disc, and video over the Internet. The Company believes that the use of
the PC as an entertainment device in the future will depend in large part on the
PC's ability to display TV images. Since TV signals use an interlaced format
while PCs use a progressive scanning display format, a TV signal must be
converted before being displayed on a PC. Until now, the interlace/progressive
conversion, along with other steps in the conversion of the TV signal, has
caused color distortion, motion artifacts, noise and other imperfections, which
have resulted in poor video quality on the PC. Image problems become even more
apparent when TV signals are viewed on a PC, as PC users sit relatively close to
their screens and PC monitors have higher resolution than most TVs.
FAROUDJA SOLUTION
Faroudja designs, develops and markets video image enhancement products that
significantly improve images to achieve a cinema-like quality. The Company
believes that once viewers experience cinema quality displays in their homes and
offices, they will demand it from all video platforms. The Company believes that
its technology, experience and reputation will enable the Company to address
opportunities in the emerging DTV/ HDTV broadcast environment and to facilitate
the PC/TV convergence.
The Company's products for the TV market substantially reduce the
imperfections inherent in analog NTSC signals, which become increasingly
apparent on large screen TV displays. The Company's technology improves picture
quality by removing artifacts and noise, detecting and compensating for motion,
enhancing resolution, and multiplying the number of lines displayed. Faroudja's
product sales for the TV market include sales of stand alone products to home
and industrial consumers and board level products to OEM customers.
Faroudja intends to capitalize on its experience and core technologies to
develop products which support the transition from analog to DTV/HDTV
broadcasting. As broadcasters make significant investments to satisfy regulatory
requirements, the Company believes that product solutions which interface with
additional necessary digital transmission equipment and current studio equipment
will help broadcasters minimize transition costs and maintain flexibility in
responding to evolving regulatory and market requirements. The Company is
developing standards conversion and upscaling products which it believes will
enable broadcasters to use much of the equipment present in their existing
studios to produce programming in various DTV/HDTV video formats.
The Company is also developing products and technology that are intended to
solve the interlacing problem by significantly reducing the noise and artifacts
inherent in the display of high quality TV pictures on PC screens. In March
1997, the Company executed a license agreement with S3, a leading supplier of
advanced graphics accelerators for multimedia computer systems. The Company and
S3 are working jointly to develop integrated circuits that will enable the
display of near cinema quality images on PC screens.
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