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Technology Stocks : C-Cube -- Ignore unavailable to you. Want to Upgrade?

To: John Rieman who wrote (44784)	9/14/1999 10:52:00 PM
From: .com	Read Replies (1) \| Respond to of 50808

C-Cube Microsystems: Riding the Video Disc Wave September 15, 1999 by Adam Lowensteiner C-Cube Microsystems (NASDAQ: CUBE) used to be a darling technology stock on the NASDAQ. In early 1996 it traded at nearly $70. However, by late last year it had fallen back to the mid-teens. Now, after beating analyst estimates in the second quarter, it is finally starting to live up to its hype. Granted C-Cube exceeded the Street consensus estimate of $0.27 a share by a mere penny, nothing to brag about. But a couple of recent announcements have re-perked interest in shares of this tech stock, which closed Monday at $33.64. C-Cube is one of a few companies to supply digital video disc (DVD) players with a semiconductor that is embedded in the DVD machines. C-Cube's technological breakthroughs do not end there. The company's chips can be used for other sorts of digital video, and could be useful in the up-and-coming high-definition television (HDTV) market. C-Cube also runs a division called DiviCom, which is involved in the deployment of digital video networks. DiviCom is a leading provider of open solutions for digital television. DiviCom products enable digital video broadcasting over a variety of networks including satellite, wireless, fiber and cable. What really attracted investor attention last week was an announcement that C-Cube lowered its prices on an encoder chip, which has the best quality for its application. This high definition broadcast encoder chip-set will allow television stations to transmit the industry's highest quality high definition video to consumer homes. News like this is important to C-Cube investors as it solidifies a future area of business for the company, the high definition market. Although high definition television is still in its toddler years, there are many analysts who believe it will become a solid business with time, like the DVD market. C-Cube has not only prepared itself for the future by keeping its pipeline full of ideas. The company also carries a strong capitalization it can fall back upon. The company only has $25 million in long-term obligations, which is less than 10% of the $293 million of its shareholders' equity. Also, the company has about one-fifth of its market cap in cash, or a total of $240 million. This money could be used for future acquisitions, but has so far been used to help fund DiviCom, which C-Cube is placing a lot of weight on to help take them to the next level. Indeed, DiviCom and General Instrument (NYSE: GIC) recently chose C-Cube for the next generation of high definition encoders. C-Cube's products were also selected by Pace Micro Technology, a provider of digital set-top boxes in the United Kingdom. Under the deal, C-Cube's chips will power 90% of the digital cable set-top boxes. DiviCom, C-Cube's subsidiary, recently won a digital deployment for Time Warner Cable (NYSE: TWX), which will enable Time Warner customers to combine analog cable programming with a new digital service. This deal has only begun to touch C-Cube's top line. Arun Veerappan, an analyst with BancBoston Robertson Stephens, defines C-Cube as a 'pure-play digital video company.' C-Cube trades for a mere 29 times its trailing earnings. Competitor Zoran (NASDAQ: ZRAN), which also supplies DVD makers with embedded chips for operation, trades at 145 times trailing earnings. Sure, C-Cube may be growing its company slower than Zoran's, but the company is about three to four times the size of Zoran, plus has its hands in a lot of technological areas. In fact, C-Cube would look even more attractive if Motorola (NYSE: MOT) and General Instrument (NYSE: GIC) do in fact merge, since Motorola wants to push its chips into the digital market. In fact, C-Cube would be an attractive acquisition target for any set-top player looking to nab a chipmaker with excellent technology, deals and a great balance sheet. Indeed, back in June C-Cube's shares jumped 12% in one day on buyout rumors. Takeover speculation aside, C-Cube could wind up being a $48 stock if it can earn $1.60 a share next year. If so, C-Cube would only need to garner a multiple of 30 times that estimate, which should not be too hard within the next 12-months, as the stock trades at those levels today, using trailing figures. Bottom Line: C-Cube has several good technologies and deals to back up its products. The company carries a good, solid balance sheet, and could experience some decent earnings momentum later this year if DVD players become a popular holiday gift, as many analysts are anticipating. investorlinks.com