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Technology Stocks : Nimbus CD International

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To: Kurt T. who wrote (1549)	5/21/1998 1:13:00 PM
From: William T. Katz	Read Replies (1) of 1673

Some points from conf call, please verify the points if you also listened in ... NMBS is the only manufacturer signed up for DIVX and big ads for DIVX are just starting up. Contract calls for 150 million discs over 5 years. Expect start-up of DIVX this fall. Contract for DIVX for this year will not take up the full capacity of DVD production ... NMBS didn't want to get into specifics. Not expected to be DVD overcapacity for this year. Some of NMBS's existing lines can be converted over to DVD fairly quickly. Competitors will find it "very difficult" to convert to DVD while NMBS has been preparing for 2 years to achieve efficient production. Microsoft using hologram tech on all their CDs now. CD-ROM/CD-Audio: Some of competitors are getting out of business ... Imation for sale (?), and KAO getting out. Should help halt price erosions on this front. 17.2% price decline in audio CDs and 14.4% price decline in CD-ROM. With capacity decreasing due to closures of competitors, price declines will hopefully stabilize and NMBS also sees potential for growth. One investor congratulated NMBS on margins given what is happening to some of their competitors. SG&A was slightly higher due to MIS costs but will be less of an impact in FY98. Everyone expects DVD to take off this year. No impact of DVD on CD-ROM/Audio this year expected. Practically all DVD made by NMBS is for the movie industry. But they are very optimistic about NMBS position as DVD-ROM ramps on computers with Win98. My impression: NMBS is executing well but the price declines in their previous bread & butter CD-ROM/audio hurts. Their deals with Microsoft and DVD acceleration has helped buttress the price erosion in CDs, and that has helped NMBS remain on solid footing while some of their competition disappears. This reminds me of the past disk drive wars which bring about sharp price declines and then a wave of consolidation/closures that creates fewer producers with larger economies of scale. The contract with DIVX (big ?? about how successful this format will be) and the continued increase in DVD-video production will help NMBS weather this cycle in CD production and perhaps let them expand their turf.

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