COMPETITION
The markets in which C-Cube competes are intensely competitive and are
characterized by declining average selling prices and rapid technology change.
C-Cube believes that it competes favorably in the areas of product definition,
system cost, functionality, time-to-market, reliability and reputation. C-Cube
competes with major domestic and international companies, most of which have
substantially greater financial and other resources than C-Cube with which to
pursue engineering, manufacturing, marketing and distribution of their products.
Some of these companies own proprietary video compression technology competitive
with C-Cube's standards-based systems.
In the market for consumer electronics semiconductors, principal
competitors include ESS Technology, Inc., SGS-Thomson, Zoran, LSI Logic, Oak
Technology, Winbond and UMC as well as several large, integrated Japanese and
Korean consumer electronics companies, such as Sony, MEC, Toshiba, NEC and
Samsung, which have their own semiconductor design and manufacturing capacity.
In the computer segment of the consumer electronics market, principal C-Cube
competitors include the increasingly powerful CPUs that are now available from,
among others, Intel and Motorola, as well as hardware solutions from Zoran,
LuxSonar and IBM. Graphics chip manufacturers such as ATI, S3 Incorporated and
Trident Microsystems, Inc. are also potential competitors. In the market for
communications decoders, C-Cube's principal competitors include SGS-Thomson,
Philips, LSI Logic, Broadcom and VLSI Technologies.
IBM is the principal competitor in the broadcast encoder market, while Sony
is the principal competitor in the consumer encoder market. C-Cube expects that
other companies will introduce competing encoder products in the future.*
Although the timing of the production availability of such encoders is
uncertain, their availability could have an adverse impact on C-Cube's encoder
product revenues and margins. C-Cube may also face increased competition in the
future from new entrants into its markets.* As the markets for C-Cube's products
develop, competition from large semiconductor companies, such as
ST-Microelectronics and Philips, and from vertically integrated companies such
as Sony, MEC, Toshiba and NEC, may increase significantly.* If C-Cube can offer
low-cost hardware solutions, then it may continue to compete with providers of
software solutions such as National and AMD, and manufacturers of CPUs such as
Intel and Motorola.* The ability of
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C-Cube to compete successfully in the rapidly evolving markets for
high-performance video compression technology depends on factors both within and
outside of its control, including success in designing and subcontracting the
manufacture of new products that implement new technologies, adequate sources of
raw materials, protection of Company products by effective utilization of
intellectual property laws, product quality, reliability, price and the
efficiency of production, the pace at which customers incorporate C-Cube's
integrated circuits into their products or technologies, success of competitors'
products and general economic conditions. There can be no assurance that C-Cube
will be able to compete successfully in the future.
A variety of other approaches to digital video compression have been
introduced, including wavelets, fractal image compression, proprietary
compression algorithms and software only solutions. Competitor companies are
designing products around these and other alternative approaches. In addition,
manufacturers of general-purpose microprocessors, such as Intel, and graphics
chip manufacturers are positioning their products as offering digital video
compression capability. There can be no assurance that system manufacturers will
not use such processors for video compression applications. While MPEG has
become the accepted standard, any of the alternative approaches, individually or
collectively, could be adopted on a widespread basis in the emerging video
compression market. If this were to happen, C-Cube's business and results of
operations would be materially and adversely affected.
In the video networking system business, DiviCom competes with vertically
integrated system suppliers including General Instruments, Scientific Atlanta,
NDS, SGS-Thomson and Philips, as well as more specialized suppliers including
SkyStream and Imedia. C-Cube believes that its DiviCom subsidiary competes
favorably based on its expertise and focus in the area of digital video network
systems and its constituent components such as digital video compression,
digital network and transmission technology. In addition, DiviCom possesses the
practical knowledge and experience required to design, manufacture, integrate
and support such systems in real-world deployments. Several of these
competitors, including General Instruments, Scientific Atlanta and Philips have
been established in the analog technology market for many years. Others such as
Tadiran/Scopus and Tiernan have come into the market in recent years as the
early stages of digital technology emerged.
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