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

To: DiViT who wrote (45143)	9/22/1999 2:11:00 PM
From: Black-Scholes	Respond to of 50808

Stocks in Focus Sep 21 1999 12:00PM CST Archives... C-Cube Microsystems: Betting on a Digital Future by Charles Rotblut Shares of C-Cube Microsystems, Inc. (CUBE) have more than doubled since last March as the company positions itself to take advantage of the growing demand for video and audio compression. Digital Products C-Cube is a designer and manufacturer of semiconductors and systems for digital video applications. The company targets the consumer market by working with OEMs to develop video CDs, recordable DVDs, and digital VCR players. The company targets the communications market with interactive set-top boxes, broadcast encoders and emerging appliances such as internet TV boxes. Through its Divicom subsidiary, CUBE manufactures and markets products and systems that enable the transmission of digital video, audio and data over wireless, terrestrial, fiber, and cable networks. The company believes that its proprietary compression algorithms (mathematical formulas which govern the volume of video that can be compressed without sacrificing quality) give it a competitive advantage is this area. Financials Revenues for the first six months of 1999 were up 12.2 percent to $190.6 million. The company attributes the growth primarily to increased sales of Divicom's encoder products, which benefited from design improvements and strong growth in international markets. Semiconductor sales remained relatively flat with higher volume shipments of DVD decoder chips offsetting declines from VideoCD and Chaoji VCD decoder chips. This shift in product mix also resulted in the company's gross margin increasing to 55.0 percent - up 0.9 percent from the first six months of 1998. Per share profits for the first six months of 1999 were $0.60 - up from $0.52 a year earlier. CUBE's net profit margin of 12.82 percent is almost double the industry average of 6.71 percent. C-Cube's balance sheet remains strong as the company has over $239 million in cash and short-term investments. CUBE's debt-to-equity ratio of 0.07 is well below the industry average of 0.40. Risks and Rewards Though C-Cube is profitable and appears well positioned to take advantage of the shift towards broadband access, investing in the company is not without risk. Over 50 percent of CUBE's revenues are generated overseas; China is a primary market for the company. The company also depends on mass consumer acceptance of the DVD format. In particular, CUBE is hoping that recordable DVD players will replace VCRs in consumer homes. For this change to occur, sales of recordable DVDs will have to reach a critical mass large enough to bring the prices of individual units down to a level at which they are competitive with VCRs. Finally, CUBE's growth rate over the past two calendar years was an anemic 5 percent in 1997 and 4 percent in 1998. Despite these risks, the company offers great potential for risk-tolerant investors. C-Cube has been an active participant in the development of the new still image and video compression standards and has been basing its products around these standards. As the communications industry begins to require more and more real time video and audio content, stronger demand for products that compress audio and video should drive CUBE's revenues. The company also will benefit from growing consumer demand for DVD-ROMs and DVD decoder cards in PCs. OEMs such as Dell, a C-Cube customer, are now bundling DVD-ROMs and decoder cards as part of their build-to-order system offerings while several new notebook computers are being designed to be DVD-ready. CUBE currently trades at a P/E of only 33.52 even though shares have more than doubled in price since March. The stock recently set a new 52-week high on strong volume, which is a bullish signal. The MACD histogram continues to trend upward in positive territory which suggests the stock is likely to continue to trend higher over the near-term. Disclaimer: This report is published solely for informational purposes and is not to be construed as advice or a recommendation to buy or sell a security. Trading involves risk, including possible loss of principal and other losses. Your trading results may vary. No representations are being made that utilizing techniques mentioned in this article will result in or guarantee profits in trading. Past performance is no indication of future results.