Part 3................................
While C-Cube has maintained a meaningful technology lead
over the larger manufacturers, it is uncertain that it will be
able to sustain its leading market position if any of those
companies makes a concerted effort to advance its own digital
compression technology.
C-Cube's primary intellectual properties are its
mixed-signal integrated circuits for encoding and decoding
MPEG-1 and MPEG-2 digital video, and its complementary products
for compressing and transmitting digital video, without
perceptible image degradation.
The comparison between digital and analog video is somewhat
analogous to the comparison between digital (CD) and analog
(tape or LP) audio, except that the enormous amount of data
required for video necessitates a compression format such as
MPEG-1 or MPEG-2.
Digital formats for video are expected to supersede analog
video over the next ten years, in accordance with the FCC's
HDTV broadcast mandate as well as the growing popularity of
other digital video delivery systems.
The MPEG-2 format (MPEG-1, an older, inferior standard, is
primarily supported by C-Cube in its older VideoCD player
products in the Asian markets) has become a de facto standard
for consumer-grade digital video, used in DVD, DBS (Digital
Broadcast Satellite), and the more recent HDTV standard.
MPEG-1 and MPEG-2 compression work by compressing not only
the individual pictures that comprise a video signal, but by
combining a series of similar pictures and dramatically
reducing the amount of information required to store or
broadcast them by encoding only the differences between the
pictures.
While most major electronics manufacturers have internally
developed MPEG-2 decoding solutions for their own digital video
products, C-Cube's solutions have been preferred by independent
manufacturers (e.g., Chinese OEMs of VideoCD players, computer
add-in board manufacturers), and, in some cases, even by the
electronics giants themselves, particularly for minimizing
power consumption in their portable products.
The rating is further supported by C-Cube's relatively
strong financial position, with $208 million in cash and
equivalents and good coverage of current liabilities, evidenced
by a cash ratio of 2.9.
Factoring in the capitalization of the company's operating
leases, debt to total capitalization was only 19% as of
December 31, 1998.
The company's strong balance sheet reflects to some degree
C-Cube's status as a fabless semiconductor manufacturer.
The company is assured of manufacturing capacity through
2001 under a contract with Taiwan Semiconductor Manufacturing
Co. (TSMC). There is an additional foundry arrangement in place
with Matsushita Electronics of Japan. The company's FY1998
inventory turnover was 10.3 times, and its return on assets,
based on EBIT and adjusting for rents and capitalized leases,
was about 17% C-Cube Microsystems Inc., headquartered in
Milpitas, California, is a provider of powerful, highly
integrated, standards-based digital video compression
solutions.
REUTERS |
