Q: How much of C-Cube's revenues are derived from VCD sales?
A: In 1998 we expect that VCD sales will decrease as a percentage of revenue, compared to 47% for 1997.*
Q: What is the potential impact of the Asian economic crisis on C-Cube?
A: While 55% of C-Cube's 1997 sales were in Asia, the crisis has had little impact on our business. Nearly 70% of our business in Asia is in China, where we sell MPEG-1 decoders into VideoCD players. VideoCD players in China sell for the equivalent of between $90 and $200 U.S. dollars. At these prices, Chinese consumers are not as likely to defer VideoCD purchases in an economic slowdown, as they are purchases of more expensive durable goods. It is the slowdown in U.S. exports of expensive durable goods into Asia that have received the most attention in the press coverage of the crisis. There is some risk that China will devalue its currency to make it exports more competitive with those of other Asian countries who have devalued. However, a devaluation in China is not likely to have a significant impact on the retail prices of VideoCD players. The only high value component in the player not produced in China is the decoder chip, which in the first quarter of 1998 is selling for between $10 and $11. Thus, a 35% devaluation, such as occurred in 1994, would drive up the cost of the chip by about $6 and the cost of the player by about $10. Thus, far Korea and Singapore are the only countries whose economic problems have impacted our sales. In 1997, we did less than 9% of our total business in those countries.
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SUNDIUS: Where do you see, geographically, your sales opportunities?
BALKANSKI: Our sales opportunities, the future opportunities are worldwide. Digital video disc, as a playback format, is a worldwide format. The set-top satellite, cable is worldwide. We are seeing a lot of growth in Europe. We are seeing a big opportunity in the North American market. Interestingly, Latin America, because this is all entertainment-based. Latin America is a desirable place for us to be, as well as Asia Pacific and in Mainland China, where we saw our first volume opportunities.
SUNDIUS: Now interestingly enough, a statistic I have for 1997, the company had about 55 percent of sales that were really hurt by the Asian crisis, however, here at the conference, Robertson Stephens are saying that there's a great market over in Asia for you in the digital video. How does that work, where currently there's a great deal to be at risk because of the Asian crisis, yet you're looking at potential opportunity in the future?
BALKANSKI: I think the consistency of the two piece of data is that we do derive a fair amount of our semiconductor revenue from Asia Pacific. But is from one place, Mainland China, that we derive the bulk of that revenue. And in contrast, with economies such as Indonesia, Thailand, Korea, that have been very impacted by the macroeconomic situation in Asia, Mainland China has kept on going.
The economy is probably slowing some, but we are not seeing, to date, an impact from the Asian situation in Mainland China. And then the further consistency is the fact that beyond our early dependence on Asia, we have grown our revenue in other parts of the world. We have grown away from this singular dependency on a revenue stream that had grown very rapidly two years ago.
SUNDIUS: So what are the percentages currently?
BALKANSKI: Percentages, currently, are completely different. Currently, the Asia dependency as dropped to the 40-40 percent range, down from the 55 number you mentioned. And also, the mix of products has moved away from the consumer products that we were shipping to Asia, towards communication, broader markets, more robust market and also where, not just our IC play comes here, but also our system play, with a Divicom company.
c-cube.com
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China problem. Poof! Try again. |
