C-Cube's Risks...........................
Factors that May Affect Future Results
The Company's quarterly and annual operating results have been, and
will continue to be, affected by a wide variety of factors that could have
a material adverse effect on revenues and profitability during any
particular period, including the timing of revenue recognized under its
systems contracts and the level of orders which are received and can be
shipped in a quarter, the rescheduling or cancellation of orders by its
customers, competitive pressures on selling prices, changes in product or
customer mix, availability and cost of foundry capacity and raw materials,
fluctuations in yield, loss of any strategic relationships, C-Cube's
ability to introduce new products and technologies on a timely basis,
unanticipated problems in the performance of the Company's next generation
or cost-reduced products, the ability to successfully introduce products in
accordance with OEM design requirements and design cycles, new product
introductions by the Company's competitors, market acceptance of products
of both C-Cube and its customers, compatibility of new products with
emerging digital video standards, purchase commitments for customized
components procured in advance of anticipated systems contracts, supply
constraints for other components incorporated into its customers' products,
credit risk for international customers not using letters of credit,
fluctuations in foreign currency exchange rates to the U.S. dollar, the
level of expenditures in manufacturing, research and development, and
sales, general and administrative functions, and a recent trend of mergers
and acquisitions creating larger competitors which may have established
market share or greater financial or technical resources than the Company.*
In addition, C-Cube's operating results are subject to fluctuations in
the markets for its customers' products, particularly the consumer
electronics and personal computer markets, which have been extremely
volatile in the past, and the digital satellite broadcast, cable and
wireless cable markets, which are in an early stage, creating uncertainty
with respect to product volume and timing. To the extent the Company is
unable to fulfill its customers' purchase orders on a timely basis, these
orders may be canceled due to changes in demand in the markets for its
customers' products. Historically, the Company has shipped a substantial
portion of its product in the last month of a given quarter. A significant
portion of C-Cube's expenses are fixed in the short term, and the timing of
increases in expenses is based in large part on the Company's forecast of
future revenues. As a result, if revenues do not meet the Company's
expectations, it may be unable to quickly adjust expenses to levels
appropriate to actual revenues, which could have a material adverse effect
on the Company's business and results of operations.
Due to the Company's dependence on the consumer electronics market, the
substantial seasonality of sales in that market could impact the Company's
revenues and net income. In particular, C-Cube believes that there may be
seasonality in the Asia-Pacific region related to the Chinese New Year,
which falls within the first calendar quarter, which could result in
relatively lower product demand during the second and third quarters of
each year.* If in the future the geographic mix of the Company's sales
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shifts towards the U.S. and Europe, C-Cube would anticipate higher revenues
and net income in the third and fourth calendar quarters as system
manufacturers in these regions make purchases in preparation for the
holiday season, and comparatively less revenues and net income in the first
and second calendar quarters.*
The economic instability in Asia has been characterized by increases in
idle production capacity, real estate vacancies, unemployment and bank
failures, and has resulted in currency devaluation, falling consumer
spending and domestic price deflation. Any of these factors could
significantly reduce the demand for the end user goods in which the
Company's products are used.
As a result of the foregoing, the Company's operating results and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Any shortfall in net revenues or net income from levels expected by
securities analysts could have an immediate and significant adverse effect
on the trading price of the Company's common stock.
The market price of C-Cube's common stock has fluctuated significantly
since its initial public offering in April 1994. The market price of the
common stock could be subject to significant fluctuations in the future
based on factors such as announcements of new products by C-Cube or its
competitors, quarterly fluctuations in C-Cube's financial results,
quarterly fluctuations in other semiconductor or digital video networking
companies' financial results, changes in analysts' estimates of C-Cube's
financial performance, general conditions in the semiconductor and digital
video networking industries, conditions in the financial markets and
general conditions in the global economy which might adversely affect
consumer purchasing. In addition, the stock market in general has
experienced extreme price and volume fluctuations, which have particularly
affected the market prices for many high technology companies and which
have often been unrelated to the operating performance of the specific
companies. The market price of C-Cube's common stock has declined
substantially from its historic highs, and may continue to experience
significant fluctuations in the future. |
