Part 2
DVD
We have begun to see meaningful signs that the DVD market is improving. To date, adoption rates have been slow due to several factors including the prohibitively high cost of buying a DVD player. Moreover, competing standards confused consumers, and as a result, adversely impacted sales.
Additionally, title availability has been limited, as movie studios have been hesitant to release titles on DVD due to fears of illegal copying.
Today, DVD players are now finally in a more affordable price range of $250 to $300, which we believe makes the product more attractive. Movie studios, which now realize that DVD is here to stay, are becoming more comfortable with releasing titles on DVD. We are finally seeing simultaneous availability of new titles in DVD and videocassette formats. In our opinion, these factors should enable robust growth in the sales of DVD systems over the next few years. One other interesting factor to consider is the advantage for video stores to rent DVD titles rather than videotapes. Since videotapes tend to wear out after 5-10 uses, the video stores like Blockbuster must buy new tapes. However, since DVD does not wear out, the need for replacement is small. We expect the next big factor to watch for is aggressive move by video stores to have new move titles available for rent in DVD and video tape form at the same time. This could provide a further boost to the recently stabilized DVD business.
Currently, DVD silicon sales account for approximately 10% of C-Cube total sales. 1998 was a year of less than expected growth for DVD but in 1999, we expect a much more robust growth year. We estimate that DVD related sales could rise from approximately $25 million in 1998 to $35 million in 1999.
Margins on this business division are quite healthy at an estimated 56%. We should also mention that we believe C-Cube's technology to address this market is the most competitive, as evidenced by the company's recent product announcement. C-Cube's new DVxploreT codec (encoder/decoder) makes DVD-quality recording - as well as DVD-quality playback, editing, and storage - a reality in the consumer PC market for the first time. With DVxplore, manufacturers can turn conventional PCs into complete recording and content creation stations. PC/TV designers can enhance their products with features that allow TV viewers to manipulate live broadcasts and simplify recording through "smart" electronic program guides. C-Cube has the first semiconductor vendor to introduce a consumer DVD PC codec solution for recordable DVD, which in our opinion shows the company's strong leadership and product innovation. |
