Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: BillyG who wrote (32383)	4/18/1998 8:50:00 PM
From: Ian@SI	Read Replies (1) \| Respond to of 50808

LB's notes from the Cube conference call... Headline: C-Cube Microsystems: EPS at $0.27; Op. EPS $0.01 Below Target Author: M. A. Gumport, CFA , T. Berg Rating: 2 Company: CUBE Country: COM CUS Industry: SEMICO Ticker : CUBE Rank(Prev): 2-Outperform Rank(Curr): 2-Outperform Price : $21 52wk Range: $35-16 Price Target: $27 Today's Date : 04/17/98 @ 9:45 AM Fiscal Year : DEC ------------------------------------------------------------------------------ EPS 1997 1998 1999 2000 QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr. 1st: 0.40A 0.24E 0.27A 0.30E 0.30E 0.40E 0.40E 2nd: 0.21A 0.19E 0.21E 0.30E 0.30E 0.40E 0.40E 3rd: 0.25A 0.27E 0.27E 0.39E 0.39E 0.44E 0.44E 4th: 0.30A 0.35E 0.35E 0.46E 0.46E 0.51E 0.51E ------------------------------------------------------------------------------ Year:$ 1.15A $ 1.05E $ 1.10E $ 1.45E $ 1.45E $ 1.75E $ 1.75E Street Est.: $ 1.09E $ 1.09E $ 1.35E $ 1.35E $ -.--E $ -.--E ------------------------------------------------------------------------------ Revenue (1998E): 374.1 Mil. Return On Equity(97): 14.2 % Proj. 3yr EPS Grth: 20.0 % Shares Outstanding: 41.1 Mil. Dividend Yield: N/A Mkt Capitalization: 863.1 Mil. P/E 1998; 1999 : 19.1 X; 14.5 X Current Book Value:$6.71/sh; 3.1X Convertible: YES Debt-to-Capital: 0.3 % Disclosure(s): C, A Includes convertibles in equity ($86.3 mil.) and shares outstanding. ------------------------------------------------------------------------------ POST-CLOSE 4/16, CUBE REPORTED 1Q98 EPS OF $0.27 BEATING OUR TARGET BY $0.03. DIFFERENCE PRIMARILY DUE TO LOWER TAX RATE, OTHER INCOME, SHARE COUNT. EBITD SLIGHTLY BELOW TARGET. STREET PROJECTIONS MAY COME DOWN FOR 2Q. WE VIEW ANY WEAKNESS AS A BUYING OPPORTUNITY. DIVICOM PROSPECTS APPEAR STRONG, CHINA VIDEO CD (VCD) ROBUST, AND GROSS MARGIN SEEMS INCREASINGLY LIKELY TO BE ABLE TO HOLD THE 53% RANGE (A VERY GOOD LEVEL). ** STRONG SALES ACCELERATION LIKELY BEGINNING 3Q98; CUBE IS AT THE HEART OF THE DIGITAL VIDEO REVOLUTION, AND WE WOULD VIEW ANY WEAKNESS TODAY AS A SUBSTANTIAL BUYING OPPORTUNITY. ----------------------------------------------------------------------------- POST-CLOSE 4/16, CUBE REPORTED 1Q98 EPS OF $0.27; REPORTED EPS WAS WELL ABOVE OUR CONSERVATIVE $0.24 AND CONSENSUS $0.26, BUT OPERATING EPS WAS SLIGHTLY SHORT. Vs. our targets, sales 3.1% below 4Q97 were $+5.3 mil. (+6.5%); EBITD $-0.8 mil. (-4.0%); gross margin at 53.0% was 0.3% below target (each margin point impacts EPS by over $0.01). The tax rate at 30% vs. our 34% estimate increased EPS by $0.02; better Other Income and fewer shares each added $0.01 to results. KEY TRENDS: The China video CD (VCD) market remains very robust with unit sales 1Q98 more than 10% above 4Q97 and more than 40% above last year. Divicom (broadcast equipment) also exceeded targets, but that was because they shipped a $5 mil. 3rd party contract (at only 20% gross margin vs. Divicom's normal 50% gross margin). Settop boxes were small but on target; DVD was very small and still below target. OUR PROJECTIONS EDGE UP; STREET MAY EDGE DOWN. VCDs appear robust, and prospects for Divicom remain very good (digital broadcasting, international digital cable and satellite, a potential new major domestic satellite customer). We continue to believe good upside will emerge in STBs (expect Divicom to supply a portion of TCI's needs). Near term sales prospects are iffy (VCDs seasonally decline, so 2Q totals look flat at best), but it seems increasingly likely CUBE will sustain gross margin at about 53% (remember, Divicom shipped low margin product in 1Q98 but CUBE reported 53.0% anyway). So we now project 1998 at $1.10 (old: $1.05) and continue to project 1999 at $1.45, 2000 at $1.75. BUY ON ANY WEAKNESS. If the street is at all disappointed, it is going to be with 2Q (guidance is flat/down). By 3Q98, many of the upsides should be apparent. We continue to feel that high gross margin is one of the key attractions of any chip maker during the current period of poor demand. Given that we also believe CUBE has a high probability of showing sales acceleration by 3Q98 based on the strength of Divicom in digital broadcasting, normal VCD seasonality, and start up of more meaningful DVD and STB volumes, CUBE story becomes more compelling. Finally, we believe long term CUBE is positioned at the heart of the most dynamic portion of the chip market, digital video, and will enjoy strong long term growth and profitability. ------03/31/97--- ----03/31/98----------------------- CUBE 1Q ----------------- --LB EST- --Actual---------- vs. -$Mil.- --Ratio-- ---$Mil.- --$Mil.-- --Ratio- Est. Sales (ratio: % ch.) $ 94.1 38.2 % $ 82.0 $ 87.3 -7.2 % $+5.3 Decoders $ 54.7 $ 47.0 $ 50.7 MPEG 1 $ 48.3 $ 36.9 $ 41.8 MPEG 2 $ 5.7 $ 9.6 $ 8.9 Other $ 0.7 $ 0.5 $ 0.5 Encoders $ 5.8 $ 6.6 $ 6.4 Divicom Other-1 $ 27.1 $ 26.4 $ 28.4 Other $ 6.5 $ 2.0 $ 1.8 CGS (r.: % of sales) $(37.5) ( 39.8)% $( 33.3) $( 36.0) ( 41.2)% R&D (r.: % of sales) $(15.6) ( 16.6)% $( 16.0) $( 17.7) ( 20.2)% SG&A (r.:% of sales) $(13.1) ( 13.9)% $( 12.9) $( 14.6) ( 16.7)% EBITD (r.: margin) $ 28.0 29.7 % $ 19.8 $ 19.0 21.8 % $-0.8 Dep. (r.:% of sales)-e$( 3.5) ( 3.7)% $( 5.0) $( 5.0) ( 5.7)% Other (r.: % of sales)$( 1.1) ( 1.1)% $( 0.1) $ 0.3 0.3 % Pretax (r.: margin) $ 23.4 24.9 % $ 14.7 $ 14.3 16.4 % Tax (r.: tax rate) $( 8.0) ( 34.0)% $( 5.0) $( 4.3) ( 30.0)% Net (r.: margin) $ 15.5 16.4 % $ 9.7 $ 10.0 11.5 % Minority (r.:% sales) $( 0.1) ( 0.1)% $( 0.0) $ 0.1 0.2 % EPS-Diluted(r.:% ch.) $ 0.40 7.9 % $ 0.24 $ 0.27 -32.5 % Sh.-Diluted(r.:% ch.) 41.2 5.9 % 42.3 41.1 0.9 % Note: 1-Divicom Other excludes MPEG 2 encoder chip sales in 1Q97 and 1Q98 of $1.7 mil. and $2.1E mil. respectively. BUSINESS DESCRIPTION: Leader in compression technology, the key enabler for the emerging boom in digital video. ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.