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

To: WISDOM MILES who wrote (39347)	3/19/1999 5:08:00 PM
From: DiViT	Respond to of 50808

Full Moody's report. Part 1. (Courtesy of Tony Schwartz on the Yahoo thread) (REUTERS) Moody's raises C-Cube convertible note rating (Press release provided by Moody's) NEW YORK, March 19 - Moody's Investors Service raised the rating to B2 from B3 on C-Cube Microsystems's <CUBE.O> outstanding $23 million 5-7/8% convertible subordinated notes, due 2005, originally issued in the amount of $86 million. The senior implied rating on the company was raised to Ba3 from B2. The convertibles, which are currently subject to redemption at a price of 104.1125, may be converted at any time into shares of common stock at $30.70 per share. The stock has been trading recently at $21-22 per share. The rating outlook is stable. The upgrade reflects C-Cube's leadership in video compression technology; the extreme complexity of this technology, currently posing a barrier to software solutions that efficiently utilize microprocessor capacity as well as the incorporation of similar functionality into the microprocessor itself; the emerging video transmission market; and the company's substantial debt reduction through open market purchases of its convertibles in FY1998Q2 and FY1998Q3. The company currently has a debt-to-EBITDA ratio of less than 1, and recorded a FY1998 free cash flow with rents (EBITDAR-capex) coverage of over 10 times pro forma fixed charges. The rating additionally takes into account the company's ability to sustain gross margins at about 54% in FY1998, while much of the semiconductor industry struggled with overcapacity and weak demand last year. Nevertheless, with FY1998 revenues of $352 million, the rating is tempered by C-Cube's modest scale of operations; its low 5.4% and 4.4% respective annual rates of revenue growth over the past two years; and its position as a relatively small component supplier in a consumer electronics space dominated by large, vertically integrated OEMs such as Sony, Matsushita, and Toshiba, among others, as well as larger, more diversified semiconductor manufacturers such as LSI Logic and STMicroelectronics. The rating additionally recognizes C-Cube's significant exposure, although less than in previous years, to the troubled Asian consumer markets, particularly China, where the company has benefited from the mass market adoption of video compact disc (VideoCD) players. Although Moody's believes that decelerating growth in China is a more likely economic scenario in the near term than currency devaluation, C-Cube could be vulnerable to strains in the fragile United States/China political equilibrium if trade relations between the two countries harden over perennial human rights concerns and the recent revelation of alleged espionage of sensitive nuclear weapons technology. Finally, a substantial portion of C-Cube's products, especially its lower-end components, are subject to declining average selling prices and rapid rates of technological obsolescence.