Wall Street Transcripts of Cube's Umesh interview
UMESH PADVAL - C-CUBE MICROSYSTEMS INC (CUBE)
CEO Interview - published 11/13/2000
DOCUMENT # LAD271
UMESH PADVAL is currently President and CEO of C-Cube Semiconductor. He
joined the company as President in October 1998. Prior to joining C-
Cube, Mr. Padval served as Senior Vice President and General Manager of
the Consumer Digital Entertainment Division at VLSI Technology, Inc.
Prior to this role, Mr. Padval served as Senior President and General
Manager for VLSI's Computing Solution Division, which focussed on the
PC, workstation, mass storage and peripherals market. Before joining
VLSI Technology, Mr. Padval worked for Advanced Micro Devices, where he
held variety of marketing and engineering positions. Mr. Padval
currently serves on the Board for Elantec Semiconductor, Inc. Mr. Padval
holds a Bachelor's of Technology from Indian Institute of Technology in
Bombay, an MS degree from Pennsylvania State University and an MS degree
from Stanford University.
Sector: SEMICONDUCTORS
TWST: Could we begin by your giving us a brief overview and profile of
C-Cube Microsystems, Inc.?
Mr. Padval: On May 3 we completed our merger and spin-off and began
trading as the largest pure-play digital audio and video company in the
world. We are engaged in three growth platforms ' DVD, set-top box and
Codec ' and one mature platform, Video CD. We are number one in the
global DVD market; we are in the top three in set-top box markets and
gaining market share, and we're number one in Codec, a product category
that addresses the recordable DVD and set-top box markets. The company
has been around since 1988, pioneering the digital video revolution. We
created the Video CD market, we created the professional broadcast
market, where the highest video quality is required, and now we are
bringing those technologies to key high-volume consumer applications
like DVD, set-top box and a variety of Codec applications in the future.
TWST: Who are some of your customers?
Mr. Padval: We have a Who's Who list of consumer electronics names
ranging from Sony, Nokia and Philips, to Samsung, JVC, Motorola and many
more.
TWST: How do you think your R&D expenditures will change in the future
in terms of amount and emphasis?
Mr. Padval: Over the years, significant R&D spending has allowed us to
not only create markets, but maintain strong leadership positions within
those markets. Going forward, we will continue to invest over 20% of our
total revenues in R&D, while moving toward 20% operating margins. In all
of our growth markets, R&D is a key differentiator to keep us ahead of
our competition. Right now we are ahead of the competition, and we
intend on remaining ahead.
TWST: What are the most significant trends, developments and changes
that you anticipate in your marketplace over the next several years?
Mr. Padval: Two large markets, DVD and set-top box, drive our revenue
today and the Codec will power this company's future. The DVD market is
exploding. Some 8.5 million units were sold in 1999, and it should be
close to 60 million units in 2003. This is a market in which we have a
leading 30% market share based on our technological leadership and
roadmap to recordability. If we execute to our plan, we will continue to
dominate this large, rapidly growing market. The second market is set-
top boxes. Set-top boxes are growing from 23 million units last year to
well over 60 million units in 2003. Our strategy in the set-top box is
to increase our silicon content per box as well as increase our market
share. In the future, the set-top box will become the broadband gateway
to the home by providing video, voice and data. We will continue to
integrate the necessary functionality over the next several years in
order to play a major role in this market. The third growth market is
Codec. A Codec is an encoder and decoder on a single chip and a product
category that consists of recordable devices for DVD players, set-top
boxes and a number of other products. In order for DVD players to
replace VCRs, they need the Codec to enable recordability. Once we
enable this recordable market, there is an extraordinary opportunity to
take advantage of the exploding VCR-killer market. Another opportunity
is in set-top boxes. There's a new innovation where a hard disk drive is
being added to the set-top box to enable you to store movies, similar to
video-on-demand applications. That also provides us a significant
opportunity to place our compression/decompression technology at the
heart of these new systems. So, as you can see, the market is moving
toward digital video networks, our expertise. In addition, there are
three megatrends that are playing right into the hands of C-Cube. One is
the explosion of the Internet; another is the conversion of all of the
analog devices in the home to digital; the third is the need for
broadband access to the home. C-Cube's benefit from the Internet
explosion and conversion from analog to digital are self-explanatory.
The new digital set-top boxes will be connected to the Web. The
megatrend of broadband to the home is a little more complex, but the
most compelling. There is a fixed amount of broadband access to your
home, and it is not free. Video is by far the biggest bandwidth hog.
Voice consumes only 384 kilobits per second; data consumes one megabit
per second; video consumes five to six megabits per second for standard
definition and 20 megabits per second for high-definition television.
With video consuming significantly more bandwidth than its counterparts,
our position in digital video networks is going to be increasingly
important, as the management of video becomes essential.
TWST: What are your plans for international expansion?
Mr. Padval: We are already a globally diversified company. In 2000 60%
of our revenues will be evenly spread among Japan, Europe and the US;
40% will come from Asia-Pacific. We anticipate maintaining these global
percentages across big markets like DVD, set-top box and Codec
applications.
TWST: What are the major concerns or risks that C-Cube faces now and in
the future? Is there anything about the company that keeps you awake at
night?
Mr. Padval: Whenever you are dealing with the emergence of a market, as
we are with that of the Codec, the growth doesn't always materialize as
quickly as you would like. If the development of these applications
slows down, it could slow down the growth acceleration that we have been
experiencing. However, DVD recordable and hard-drive-based set-top boxes
are exciting new applications, and we feel comfortable that these
markets are on the horizon and ready to become mainstream as soon as
2001.
TWST: Can you tell us more about C-Cube's competitive advantages? What
else sets the company apart from the competition?
Mr. Padval: The Codec, which we pioneered, is a key differentiator for
the main markets in which we participate ' DVD and set-top box ' and
nobody has a product competitive to ours. DVD is going from playback to
recordable. Current set-top boxes are changing to hard-drive-based set-
top boxes, where the Codec is essential. None of our large competitors
have currently announced plans for Codec.
TWST: What are your specific goals, in terms of growth, for the company
looking forward several years?
Mr. Padval: First of all, we expect the growth markets in which we're
involved ' DVD, set-top box and Codec ' to grow at 30%-plus per year.
We, as a company, expect to grow faster than the market, around 40%,
hence capturing market share. This growth overshadows our Video CD
business, which is declining as it makes the transition to DVD. This
provides for an accelerating overall company growth, which moves from
about 10%-15% to 30%-35%.
TWST: What specific achievements would lead you to characterize the next
two to three years as successful for C-Cube?
Mr. Padval: The key gauge of this is shareholder value. We can maximize
shareholder value by dominating the three growth markets that we are
engaged in. So creating shareholder value is key for us; maintaining the
number one position in the DVD market as well as in the Codec
applications and being a leader in set-top box.
TWST: How do you feel about your current stock price?
Mr. Padval: I think we are undervalued. If you look at our competitors
in DVD, set-top box and Codec, and then do a valuation in parts, you
will find that despite our having a diversified plan and dominant
position across rapidly expanding markets, we are trading at a discount
to our competitors.
TWST: What two or three reasons would you give long-term investors to
buy stock in C-Cube right now?
Mr. Padval: We are the leaders in the markets that we participate in,
and because we have just recently become a stand-alone company, the
story hasn't been fully understood. Our markets are in the midst of
strong growth and are just getting started. Recordability is around the
corner, and we are going to enable it. We have significant opportunities
for the next several years in expanding markets.
TWST: Is there anything I've overlooked or missed that you'd like to
bring up?
Mr. Padval: We are excited to have the opportunity to clarify the story
of our expansion platforms: DVD, set-top box and Codec as the world's
largest pure-play digital audio and video.
TWST: Thank you.
UMESH PADVAL
President & CEO
C-Cube Microsystems, Inc.
1778 McCarthy Boulevard
Milpitas, CA 95035
(408) 490-8000
(408) 490-8590 - FAX
www.c-cube.com
e-mail: shorwitz@c-cube.com
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