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

To: BillyG who wrote (47037)	10/29/1999 10:27:00 AM
From: BillyG	Read Replies (1) \| Respond to of 50808

Harmonic's acquisition of C-Cube is a hit on Wall Street semibiznews.com [Bad title, good article.] By Mark Hachman Electronic Buyers' News (10/29/99, 07:04:59 AM EDT) SUNNYVALE, Calif. -- C-Cube Microsystems Inc.'s unexpected $1.7 billion acquisition by Harmonic Inc. on Wednesday will leave it once again as a pure-play semiconductor company. The primary motivation driving the deal is Harmonic's desire to pull in the strengths of DiviCom Inc., the MPEG encoder subsidiary that C-Cube acquired in 1996 for $65.7 million. Before Harmonic completes the deal and merges DiviCom, however, it will either spin off C-Cube's semiconductor business to shareholders, or sell it to a high bidder. The transaction is expected to close by the first quarter of 2000 (see Oct. 28 story).. In C-Cube's third quarter, the semiconductor business represented $52.3 million, or 51.6%, of the company's $101.4 million in revenue. For all of 1999, the semiconductor business is estimated to account for $210 million, 52% of the more than $400 million C-Cube anticipates in revenue. For DiviCom and Harmonic, the vast stretch of common ground that exists between the companies pleased analysts. "It looks like a good deal at the first cut," noted Dan Scovel, analyst with Fahnestock & Co. Inc. in New York. Sunnyvale-based Harmonic already sells video, voice and data transmission systems for cable, satellite, telco and wireless broadcasters. By folding in Divicom's MPEG encoder products and related technology, Harmonic will add content creation services as well. The deal "creates a powerful infrastructure company that will be a leading provider of video, voice, and data to the cable, satellite, and terrestrial markets," said Alexandre Balkanski, C-Cube's CEO, during a call with analysts. "DiviCom's expertise in the design of MPEG encoders, aided by the superior encoding technology of our semiconductor silicon company, has driven the digital-video markets. We anticipate that these synergies will continue to drive the market." Under the terms of the deal, C-Cube, headquartered in Milpitas, Calif., will retain its more than 500 employees, while 50 to 60 DiviCom employees will join Harmonic's team. Following the sale of Divicom, Balkanski will cede his title to company president Umesh Padval, but will remain on C-Cube's board. Although C-Cube will be independent and retain its own intellectual property, the company will have access to the IP developed by DiviCom through a licensing agreement with Harmonic. C-Cube will treat the combined company as a customer, albeit a close one. Indeed, C-Cube is not being tossed aside. Instead, it will be deeded approximately $150 million in cash for research and acquisitions. During the past five years, C-Cube's gross margins have averaged 57%. Both In-Stat Inc. and Dataquest Inc. named the company the top supplier of MPEG decoder silicon for 1998, although it has also expanded into encoders and codecs to continue its growth. That path will continue, given a deal Harmonic has already signed to continue developing products using C-Cube's silicon, spanning multiple product generations. Balkanski estimated the sales contract will be worth $10 million annually.