Intel and C-Cube Rumors Persist...
forbes.com
C-Cube-Intel marriage rumors fly again
By Om Malik
Indexes (May 11, 1999 04:55 PM)
DJIA 11026.00 +19.00 +0.17%
S&P 500 1355.61 +15.31 +1.14%
NASDAQ 2566.69 +40.30 +1.60%
EW YORK. 01:45PM EST—Is Intel Corp. (nasdaq: INTC) again looking to scoop up at least a piece of C-Cube Microsystems (nasdaq: CUBE)?
This on-again, off-again rumor is the sole reason why C-Cube Microsystems' stock has been trading three times the daily volume for the past three trading sessions. On an average day, 450,000 C-Cube shares change hands. But more recently the daily volume has topped 1.5 million shares. In addition, the stock is up $6.50, or 29% ,this month alone.
A company spokesman declined to comment on the rumor of Intel's interest.
Analysts say that such a deal would not surprise them. "One area, which is interesting for Intel, is communications and anything that is related to broadband, " says an analyst in San Francisco who asked to remain anonymous. "C-Cube is a leader in digital video encoding, and that would be attractive to someone like Intel."
Intel, faced with the prospect of a slowing personal computer market, has been diversifying into other non-PC-related markets. The company has recently made multibillion-dollar investments in networking and communication chips. Intel, the world's largest microprocessor company, is turning to the networking chips to keep its sales momentum going. If Intel is to keep growing at anything like its historic rates--about 27% a year over the past quarter century--it must find the new heart of the Information Age and become as indispensable there as its chips are in the PC world.
In March, the company snapped up communications chipmaker Level One Communications (nasdaq: LEVL) for $2.2 billion. On April 29, Intel announced that it would buy 2.9% of Proxim (nasdaq: PROX), a Mountain View, Calif.-based company that makes wireless LAN chips. Intel has also acquired a warrant to purchase 96,000 additional shares of Proxim.
The speculation about C-Cube and Intel is not surprising, given that Intel has plans to make a play for the set-top box market. According to sources, Intel has 100 engineers working on set-top box-related chips in its Chandler, Ariz. facility.
While the company insists that it does not plan to manufacture set-top boxes, Intel could come up with a set-top box design specification that uses low-powered versions of x86 chips from Intel. Intel, however, could be looking for some help in encoding and decoding aspects of the set-top box business, a market where C-Cube is a major player. Intel, however, could be looking for a software solution rather than for a silicon solution sold by C-Cube,
Intel is being forced into these new markets for two reasons: First, while the PC market is growing 15% every year, International Data Corp. (IDC) estimates that the market for smart handheld devices (including smart phones and handheld companions) will grow worldwide at a compound annual growth rate of 43% between 1998 and 2002. IDC estimates that by 2002 worldwide volume shipments of these devices will surpass 25 million units in a market worth more than $13 billion.
The second reason for Intel's move into non-core (read non-PC markets) is that the company is saddled with fabrication units, which use older technologies like the 0.35 and 0.25 micron chips. While it needs to transition its PC processor business to the cutting edge 0.18-micron production lines, it also needs to re-deploy those old fabrication units to get a better return on investment. |
