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

To: bob jaremsek who wrote (25290)	11/14/1997 7:00:00 PM
From: John Rieman	Read Replies (3) \| Respond to of 50808

Zenith lost money 10 out of the last 11 years. From Undervalued Stock Ideas............................................ cyberspace.com C Cube Microsystems (CUBE, 52 week high/low 50 1/8 and 16 3/4, P/E > NA, Price 6/30/97 17 9/16, Rec. Price 18) C-Cube Microsystems is located in Milpitas, California. It began selling shares to the public in April of 1994. The company is a leading provider of integrated circuits that have helped create international standards for the compression of digital images and full motion video. The company's technology produces high quality full motion video & still images for a broad range of end user systems. This technology has led to the development of enhanced applications such as video conferencing, digital video players, video CD players, computer add-in cards and direct broadcast satellite systems. The company competes with a number of companies in each of the markets it serves. The list of competitors includes Philips, Oak Technology, ESS Technology, Sony, Hyundai, VLSI Technology, IBM, Motorola, Intel and S3. In April of 1996, C-Cube acquired DiviCom Inc., a digital video networking company, to increase its strength in this industry. DiviCom designs, markets and sells software, semiconductor and system solutions for end to end digital video networks. The combined companies claim to offer the most comprehensive digital video technology solutions in the world. C-Cube purchased DiviCom for $65.7 million in cash and 2.3 million in C-Cube stock. C-Cube took a $131 million dollar charge for in process research and development technology in the fourth quarter of 1996 as a result of the transaction. Digital Technology will eventually override analog: Digital Video technology offers a number of advantages over traditional analog video imaging. One is the ability to compress images which helps in the storage, transmission and reproduction of the images. The compression technology also allows for the transmitted images to be reproduced without image degradation, as well as provide for random accessing and nonlinear editing capabilities. In addition, digital technology provides far superior sound and picture quality over standard analog video, and unlike movie tapes, digital CDs maintain their picture quality over time. How is C-Cube holding up in the market? C-Cube stock has had trouble lately, trading near its 52 week low. Most of the decline in the company's shares over the last few months can be traced to an announcement by C-Cube on May 20th, 1997 that shocked Wall Street. Wall Street hates surprises, especially when it has high expectations for a stock. C-Cube announced that it sees lower than expected sales for its most recent quarter of $70-$75 million with earnings of 20-25 cents a share. The company blamed the short fall on pricing pressure and seasonal weakness in its MPEG1 product which is used in Video CD players primarily sold in China. We view this weakness as temporary and we are bullish on C-Cubes' long term prospects. Why do we like C-Cube? There are a number of attributes which draw us to C-Cube. First, we like the company's acquisition of DiviCom and expect that this will allow C-Cube to offer a full range of digital video solutions to its customers. Second, C-Cube has announced that its latest ZIVA DVD decoder product with Secure View copy protection ensures protection from piracy for the material of Hollywood studios and PC software creators. The lack of piracy has been an impediment to convincing Hollywood studios and software creators to release their products to the public in digital format. Third, the release of additional DVD titles will drive the demand for DVD players this coming holiday season and certainly further down the line. Soon, DVD players will replace VCRs in homes in the United States. Consumers will be able to get digital video in their homes without going to the movie theater. Fourth, and probably most important, is the numbers behind C-Cube. The company reported revenues of $320 million in 1996 and earnings of $1.63 per share after taking into consideration their one charge of $131 million related to their acquisition of DiviCom. This compares to revenues of $124.6 million and earnings of 83 cents a share for 1995. For fiscal 1997, the company can easily earn $1.20 a share, and this is after the latest short fall announced by the C-Cube, and at current prices trades at only 14 times our fiscal 1997 earnings estimates. C-Cube Microsystems has all the makings of a $50 dollar stock by year end. We expect the market of digital technology will explode over the next 1-3 years and already has in Asia. In 1996 and 1995 respectively, 67% and 70% of the company's revenues were generated outside the United States . During a visit to Japan in 1991, we noticed that our Japanese friends only had digital machines, no VCRs, and that was 6 years ago. If you agreee that C-Cube's recent announcement was a one time event, and you want to buy one of the best positioned digital imaging companies in the world, then purchase C-Cube. C-Cube just might be one of the biggest turn around stories on Wall Street in 1997. Buy at or below $18.