C-Cube's
Q2
| (FOOL
CONFERENCE
CALL SYNOPSIS)* By Prem Kumar (MF Prem) C-Cube Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUBE)") else Response.Write("(NASDAQ: CUBE)") end if %> ALEXANDRIA, Va, July 16, 1996/FOOLWIRE/--- C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CUBE)") else Response.Write("(NASDAQ:CUBE)") end if %> today reported record second quarter financial results that were in line with analyst expectations.
Revenues for the second quarter were $73 million, up 238% from the $21.6 million reported in the second quarter of 1995 and up 7% from the $68.1 million reported in the first quarter of 1996. Net income was $13.8 million, up 235% from the $4.1 million reported in the second quarter of the prior year and up 2% from the $13.6 million reported in the first quarter of 1996. Earnings per share were $0.39 on 35.7 million shares outstanding, compared with $0.12 per share on 34.3 million shares in the second quarter a year ago and compared with $0.38 on 36 million shares in the prior quarter. First Call consensus expectations were $0.39 per share.
Second quarter gross margins were 54%, compared to the 53% reported in the prior quarter. Investment in Research & Development (R&D) and Sales, General & Administrative (SGA) continued to increase -- as a percentage of revenue in the quarter, R&D increased to 12.8%, and SGA increased to 11.4%. Cash and investments totaled $142 million, while working capital was $144 million. Accounts Receivable DSO was 44 days, and inventory turns were 7.8.
DEALS AND DEVELOPMENTS
In the second quarter, the company expanded and formalized its relationship with Taiwan Semiconductor Manufacturing Corporation (TSMC) to provide additional wafer production capacity for the 2001 timeframe. The agreement with TSMC requires C-Cube to make two advance payments totaling $49.0 million. The first advance payment of $24.5 million was made in June, and the final payment is due in June 1997 and is secured by a promissory note.
The company said that it had been selected to provide digital video encoding and decoding technology for the majority of the world's digital deployments to date, including the EchoStar and Alpha DBS systems in the United States, and the German, French, Korean, and Japanese deployments.
The company also said that its customers had expressed the need for a complete turnkey solution that could be economically deployed, and as a result, the company decided to acquire DiviCom, a "rapidly growing designer and integrator of digital television components and systems for the wireless cable, digital cable, and direct broadcast satellite markets." The company said that the merger would allow it to provide complete end-to-end solutions for digital television in the same way that it has provided an end-to-end solution for the VideoCD market.
Of particular note in the conference call was the company's announcement of a branding program with its OEM partners in China. As part of this campaign, 12 VideoCD manufacturers have agreed to mark their players with the C-Cube logo and to feature C-Cube in their advertisements. Before being licensed to use the C-Cube brand, the company said that VideoCD's had to undergo rigorous testing to ensure that the player met C-Cube's standard for VideoCD technology. The CEO said that the C-Cube brand had been particularly well received in China, where consumers view it as a mark of American quality and technology. These comments appeared directed at recent concerns about competition eroding C-Cube's market share in the VideoCD market and other related markets, as the CEO made a point of saying that the branding campaign currently ongoing would create consumer loyalty for C-Cube products, which would translate into a barrier to entry for would-be competitors.
The company also announced the CL482 Video Decoder, the newest member of C-Cube's family of single-chip video decoders. The company said that the CL482 sets a new standard for image quality with its FlexView and ClearView technologies, which deliver karoake features at a reduced system cost. This new product will allow consumer electronic OEMs to create multi-tiered VideoCD products, based on the family of different C-Cube products. A total of 16 Chinese VideoCD manufacturers have already embraced the CL482 product, according to the company.
QUESTION AND ANSWER SESSION
The company said that it was still in a capacity-constraint condition for much of the second quarter, although it was able to balance this constraint in the middle of the quarter.
The company also said that it had detected seasonality changes in the VideoCD market, with the periods of greatest demand coming near the Chinese holiday time, which comes around February. The company also said that lead times have basically stabilized over the past six weeks.
CEO Alexandre Balkanski said that the "competitive environment continues to be very favorable to C-Cube. The dominant position that we've built by being first-to-market, by owning the market, by supplying the market, albeit at times in a supply-constraint position... this position is judged by us to continue to be very strong against the breadth of competitors." The company also added that it had not yet seen actual products from many of the companies that announced plans to build competitive products one quarter ago.
The company said that it expects the DVD market to take off in the Christmas 1997 period. The company said that its plan continues to be to develop second-generation DVD chips, not the ones that would "be used in showcase items this Christmas." Lastly, the company said that its development plans for DVD had not changed at all, and that it continues to be very bullish on the technology and C-Cube's position with regard to the technology.
With regard to VideoCD sales expectations, the company said that it expects 1996 sales to triple from 1995 results of 1.7 - 1.8 million units, with 1997 sales doubling from 1996 sales. It also added that 1996 sales are well on their way to meeting expectations. The CEO also mentioned that VideoCDs have broken the $400, $300, and $250 price points, and that he thinks demand for VideoCDs is highly sensitive to price.
About the overall number of outstanding shares, the CFO said that this depends on in-the-money options, and since the share price is lower, there are fewer in-the-money options.
The company broke up its product mix in terms of their intended markets as follows: 60%, 30%, and 10% for the consumer market, communications, and computing respectively. These numbers are rough estimations. The company also said that international revenue probably accounted for more than 50% of overall product revenue. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
Copyright 1996,
The Motley Fool |