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

To: John Rieman who wrote (46993)	10/28/1999 7:58:00 PM
From: Manuel Vizcaya	Read Replies (2) \| Respond to of 50808

The following is Arun Veerappan's from BancBoston Robertson Stephens valuation of semi business and his comments on the transaction. So, in effect, while the company is at a $200+ million revenue runrate, it is estimated that revenue contribution could be in the $240 million range for C00. The company estimates that this division runs at a 55%+ gross margin and a 16-17% operating margin model. Factoring in interest income from the estimated $150 million in cash ($120 million after factoring in debt) that is likely to remain with C-Cube Semiconductor after taxes, we estimate that based on the above assumptions that this division could likely earn between $0.65-$0.70 in EPS on about 48 million shares. VALUATION: The valuation of C-Cube Semiconductor on a conservative basis, when based of its closest competitors in the public market place would suggest a 25x C00 P/E multiple or 5x TTR P/S multiple, if the lowest of such metrics are taken from the following table from Zoran: Figure 1: Comparable Valuation Table For C-Cube Semiconductor Ticker Price P/E C98 P/EC99 P/E C00 P/S P/BV Off High Broadcom BRCM $109.13 500.4x 129.2x 87.0x 29.6x 35.1x 27% Conexant Systems CNXT $81.13 NM 75.1x 51.4x 6.3x 8.9x 9% STMicroelectronics STM $81.88 56.8x 45.6x 33.8x 5.6x 5.5x 7% Texas Instruments TXN $77.75 86.4x 111.1x 68.8x 7.2x 9.1x 17% Zoran ZRAN $26.25 328.1x 53.6x 25.0x 5.0x 7.2x 27% Average 242.9x 82.9x 53.2x 10.8x 13.1x 18% Source: Bridge, Company Reports, First Call and Robertson Stephens estimates Those multiples would suggest the following valuation range for C-Cube Semiconductor: 1. Based on P/E Multiple: $0.65 * 25 = $16.25 per share or 2. Based on P/S Multiple: $210 million in TTR revenue * 5 = $1.05 billion mkt. cap. = $22 per share. Now based on Harmonic's closing price of $59-7/8, DiviCom is valued at $1.5 billion or $32 per share. Combining the two entities, CUBE should all things equal and clearly assuming that Harmonic?s stock price remains stable, potentially be valued at approximately $50+ a share. Given this, we clearly believe that the acquisition makes sense for shareholders and note here that should C-Cube Semiconductor attain a valuation above that of Zoran (which could easily prove possible, in our opinion), then there could exist upside to the above assumptions. We commend Alex Balkanski, CEO of the combined entity, for the move that the company has undertaken. We believe that it is the right one and is indicative of a vision for both entities (DiviCom and C-Cube Semiconductor), their employees and the combined entity's shareholder base. In effect, we believe that this move enhances shareholder value and as such continue to rate C-Cube stock as Buy.