VIDEO CHIP WAR ESCALATES, ESS EXPECTS TO OVERTAKE C-CUBE
ALSO, ARE INVESTORS LULLED INTO FALSE SENSE OF SECURITY?
Last January, C-Cube Microsystems CEO Alex Balkanski was quoted in The Chronicle as saying that digital video disk machines, which play movies on CDs, would start selling in the U.S. by this Christmas. If all went well, he expected C-Cube to be ``a very major player'' as a supplier of DVD chips.
But all may not be going as well as C-Cube's robust market value -- currently $1.3 billion -- would have you believe.
Although DVDs went on sale in Japan this fall, they still haven't hit the U.S. market and they're not expected to debut here until spring, at the earliest.
Production on DVDs has been cut back because of technical problems and a lack of CD titles. The number of units being produced worldwide isn't likely to top 750,000 next year, according to MPEG Associates, a New York research firm that specializes in video chips.
Meanwhile, C-Cube's main business is supplying chips for another machine known as a video CD. The VCD is like a DVD but it also plays audio CDs and can act as a karaoke machine.
Right now, it's the hottest electronics product in China, where it retails for around $250. MPEG estimates that worldwide sales of VCDs will hit 11.5 million next year.
Until very recently, C-Cube had controlled upwards of 90 percent of the VCD chip market. As a result, its earnings more than quadrupled last year from the year earlier. This year analysts expect them to more than double.
But lately Fremont-based ESS Technology has been coming on strong with VCD chips priced sharply lower than C-Cube's. ESS recently announced several large new customers, including Sony. ESS CEO Fred Chan says he now believes his company controls 30 percent of the VCD chip market and his goal is 70 percent by the end of next year. ``We would consider it a failure if we don't get that,'' he says.
C-Cube's Balkanski couldn't be reached, but last week he gave an upbeat presentation at a technology conference sponsored by Montgomery Securities. He reportedly said he really didn't care about any business lost to ESS, and earlier this week C-Cube announced that Hyundai will use its chips in its VCDs.
C-Cube also says it plans to start an ``Intel Inside''-like consumer branding program in China. In a press release C-Cube even quoted a Chinese department store clerk who said customers are demanding VCDs with C-Cube chips.
``When you have to resort to press releases quoting employees of department stores, I think you have a problem,'' says Marc Cohodes of Rocker Partners in Larkspur, a vocal C-Cube bear. He adds that C-Cube reminds him of Creative Technology, whose sound card business and high-flying stock were devastated a few years ago as computer makers shifted to sound cards on chips -- made by ESS, no less.
``This is such a replay it's scary,'' he says.
SHORT POSITIONS
--Market madness: I don't usually make a habit of quoting from press releases, but it's hard to ignore the one Wednesday from Jurika & Voyles -- a conservative Oakland investment firm. Executive Vice President Karl Mills warned that investors are focusing on what he calls ``Dowism,'' which involves pouring money into large-capitalization stocks -- the type that make up the Dow Jones industrial average -- on the belief that they're safe and stable. But they're doing so ``without regard to price or fundamentals,'' he says. ```This is similar to the `Nifty Fifty' investing of two decades ago, and we expect to ultimately see the same conclusion: Investors will always take a good thing to excess. The result is ultimately that a lot of people lose a great deal of their money.''
Yesterday the Dow gained 127 points.
--Galoob, redux: Some companies never seem to learn that it takes more than predicting that earnings will reach a record to keep the bears at bay.
Take Galoob Toys.
An item on the front of The Chronicle's Business section yesterday, which was merely reporting comments from Galoob, made it sound like the South San Francisco company's business is booming. Galoob said it expects annual profits to double and it predicted sharply higher 1996 toy sales despite a shorter holiday shopping season. What the company didn't say was that those earnings would fall short of analyst estimates, and that the shortfall would occur less than a month after issuing shares to the public. Such disappointments so soon after an offering don't usually go over well with investors.
Yesterday its stock, which traded as high as $33.25 a month ago, slipped $1.25 to close at $16.25.
Copyright 1996 San Francisco Chronicle. All rights reserved. The Bizinsider column cannot be reproduced, published, or redisseminated without the express prior written consent of Bizinsider. This includes reposting on any message board.
I wish there was some way to find out how many shares of CUBE HG is short on. |
