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

To: John Rieman who wrote (39360)	3/21/1999 10:22:00 PM
From: Gary A. Mullennix	Read Replies (1) \| Respond to of 50808

Hear where a Merrill-Lynch analyst is recommending Best Buy and Circuit City. Blockbuster to take an equity investment in Divix in 3-4 weeks. Learned a Chinese manufacturer is making a $3000 34" HDTV available this X-mas. Any good news for C-Cube?

To: John Rieman who wrote (39360)	3/22/1999 2:20:00 PM
From: Bob Strickland	Read Replies (1) \| Respond to of 50808

More risk that reward according to Fahnestock... Excerpt of report after January conference call... ******************************************************** Source: FAHNESTOCK/CHRISTOPHER INSTITUTIONAL SERVICES Date: Jan 22, 1999 Title: C-Cube Microsystems Author: Scovel, D.K. Companies: c-cube microsystems inc. Location: CALIFORNIA (STATE OF) -------------------------------------------------------------------------------- Full Text: COPYRIGHT © The Investext Group. 1996 RESEARCH BULLETIN RECOMMENDATION DOWNGRADE to Hold from Buy SEMICONDUCTORS January 22, 1999 48-HOUR TRADING RESTRICTION FOR EMPLOYEE, RELATED AND DISCRETIONARY ACCOUNTS C-Cube Microsystems (OTC-CUBE-29 11/16) price as of 1/21/99 close Growth Rate Fails to Excite ... Downgrade to Hold FYE 12/31 [Part 1 of 3] Earnings Per Share 1Q 2Q 3Q 4Q FY 1998 $0.27 $0.28 $0.34 $0.31 $1.19 1999E $0.29 $0.25 $0.30 $0.35 $1.19 2000E $0.33 $0.31 $0.35 $0.39 $1.39 [Part 2 of 3] P/E Revenue Net ROE Multiple $ million Margin Percent 1998 24.9 $352 13.2% - 1999E 24.9 $412 12.7% - 2000E 21.4 $494 13.4% - [Part 3 of 3] Dividend Per Share: Nil Yield: Nil 52-Week Range: 31 - 13 Book Value: $6.49 Price/Book Value: 4.57 Shares Outstdng (mil): 37.5 Market Capital($ mil): 1,113 Institutions Own: 27.9% Daily Volume(000shs): 787 S&P 500: 1,235.16 Capitalization (12/31/98) $ Mil Percent Total Long-term Debt: 28 10.4% Preferred Stock: Nil Nil Common Equity: 243 89.6% Total Capital: 272 100.0% INVESTMENT OPINION: C-Cube reported 4Q98 earnings in-line with consensus of $0.31 per share yesterday during a period of seasonal strength. We expect communications market growth to be offset by maturing consumer digital video markets in China, thereby limiting expected annual growth to 20%. We are lowering our earnings estimate for 1999 to $1.19 from $1.31 and introducing a year 2000 estimate of $1.39. We are downgrading our recommendation to Hold from Buy based on fundamental valuation of this expectation. Key Points: * 4Q/FY Review: Revenue grew 11% sequentially and gross margin fell 100 basis points to 54% during peak season for consumer market sales. Communications, lead by DiviCom broadcast systems, accounted for 55% of sales and consumer accounted for 45%. DiviCom accounted for 40% of the total. By region, the US accounted for 30% of quarter revenues, Europe 12%, China 30% and Asia (including Japan) less than 18%. Cash increased $30 million to $208 million, receivables stand at 35 days, and inventories at 33 days. For the year, revenues increased 4.4% to $352 million with communications growing 20%. The company repurchased $63.5 million (74%) of convertible debt reducing diluted share count by 2.1 million (7%) resulting in an extraordinary gain of $0.09 per share for the year. The Super VCD (SVCD) standard was finalized in China and such chips accounted for over 50% of market sales 4Q. The company also announced a small -- albeit strategic -- acquisition of the communication technologies of TV/COM providing complementary circuits to complete a comprehensive digital settop box solution by mid-2000. * Unexciting Growth: While 4Q financial trends were anticipated, we expected a more beneficial mix for the company: higher sales growth and less margin erosion. We expect a flat 1Q99 and a seasonally weak 2Q99. In general, we expect communication business growth by DiviCom to be limited by a maturing digital video chip market in China. Our earnings model assumes top-line growth of 17% to 20% over the next two years: respectable numbers that, we believe, fail to capture the excitement of a world converting its video to digital. * Upside Potential: Communications remains a strength, and management expects it to grow to 70% of sales by 2001. We also believe the company is extremely well positioned with its single-chip MPEG-2 codec for exciting potential growth with re-writeable DVDs. However, we do not expect this market to develop before mid-2000. * Fair Valuation: We continue to like this company and its digital video markets. Nevertheless, we do not consider upside potential significantly more likely than downside risk at current share prices over the next few months given our current expectations for financial performance. We are downgrading our recommendation to Hold from Buy.