C-Cube Revenue Surpasses $100 Million, Sets Revenue Record in Third Quarter; DVD Chip Top 1 Million Mark for Second Consecutive Quarter - Company Financial Information

Edge: Work-Group Computing Report, Oct 25, 1999

C-Cube Microsystems Inc. (Nasdaq:CUBE) Tuesday announced third quarter revenues of $101.4 million compare with $86.2 million for the same period in 1998 and $94.1 million for the second quarter of 1999.

Net income for the third quarter reached $14.0 million, or $0.32 diluted earnings per share. This compares with net income of $13.0 million, or $0.34 per share ($0.28 excluding extraordinary gain) a year ago; and $11.7 million, or $0.28 per share in the prior quarter.

"We are delighted with both our record revenue and another landmark achievement: For the second consecutive quarter, we shipped more than one million DVD decoder chips, a clear signal of DVD's growing impact in the consumer electronics industry," said Alexandre Balkanski, president and CEO of C-Cube.

"The earthquake in Taiwan had no impact on third quarter earnings. Clearly, there has been some supply effect on fourth quarter deliveries. However, we remain very optimistic regarding fourth quarter growth in our Semiconductor division."(a)

Other third quarter business highlights include:

* DiviCom was among a consortium of cable infrastructure component makers that successfully tested its equipment to prove interoperability with a point of delivery module and OpenCable network interfaces -- a key development in giving consumers the freedom to buy digital set-top boxes and integrated digital televisions at electronics retail stores.

* DiviCom provided transmission equipment for the first direct broadcast satellite service in the People's Republic of China, a 70-channel system run by the government-owned China Central Television (CCTV) network in Beijing.

* DiviCom deployed the head-end equipment for Hong Kong satellite service provider APT Satellite Holdings Limited.

* C-Cube's semiconductor division topped its record setting second quarter DVD chip shipments by 25%, representing the second consecutive quarter of an industry-leading one million-plus units.

* C-Cube Microsystems and Samsung Electronics Co., Ltd. demonstrated the industry's first DVD recorder that records video onto a DVD-RAM disc in the MPEG-2 digital format.

* C-Cube partnered with JVC to create the newest generation D-VHS digital recorder, which is backward compatible with existing VHS tape.

C-Cube Microsystems Inc. is the industry leader in the development and delivery of highly integrated digital video silicon and systems solutions. C-Cube's Semiconductor division delivers highly integrated digital video silicon and systems solutions for the communications and consumer electronics markets, including digital set-top boxes, VCD and DVD. C-Cube's DiviCom division is a leader in the deployment of digital video networks. DiviCom's products include audio/video encoding, data broadcast solutions, network management systems, consulting and integration services.

C-Cube is headquartered in Milpitas with offices in North America, Europe and Asia. The company's stock is traded on the Nasdaq exchange under the symbol CUBE. C-Cube may be reached at 408/490-8000 or on the World Wide Web at http://www.c-cube.com. C-Cube's DiviCom division is based in Milpitas and may be reached at 408/490-6700 or on the World Wide Web at http://www.divi.com.

                   C-CUBE MICROSYSTEMS INC.
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                            (In thousands)
                              (Unaudited)

                                   September 30,  December 31,
                                       1999          1998
    ASSETS
Current assets:
  Cash and equivalents               $ 117,098    $ 108,224
  Short-term investments               160,275       99,603
  Receivables - net                     61,046       36,980
  Inventories                           12,373       16,073
  Deferred taxes and other
   current assets                       26,637       31,147
    Total current assets               377,429      292,027
Property and equipment - net            33,881       29,622
Production capacity rights               5,164       12,600
Distribution rights - net                1,359        1,483
Purchased technology - net               5,139        5,921
Other assets                             1,995        1,518
    Total                            $ 424,967    $ 343,171

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                   $  24,356    $  19,942
  Accrued liabilities                   48,894       51,264
  Current portion of long-term
   obligations                             368          355
    Total current liabilities           73,618       71,561
Long-term obligations                   23,380       28,207
    Total liabilities                   96,998       99,768
Minority interest in subsidiary            409           28
Stockholders' equity:
  Common stock                         270,932      225,265
  Accumulated other comprehensive
   loss                                 (1,992)      (1,852)
  Accumulated earnings                  58,620       19,962
    Total stockholders' equity         327,560      243,375
    Total                            $ 424,967    $ 343,171

                    C-CUBE MICROSYSTEMS INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            (In thousands, except per share amounts)
                           (Unaudited)

                           Quarter Ended        Nine Months Ended
                             Sept. 30,              Sept. 30,
                         1999        1998       1999        1998

Net revenues        $   101,368   $  86,162  $ 291,922   $ 255,997
Costs and expenses:
  Cost of revenues       45,210      38,757     130,947    116,768
  Research and
development              21,094      18,867      61,659     55,134
  Selling, general
and administrative       17,462      15,207      50,677     43,756
  Total                  83,766      72,831     243,283    215,658
Income from operations   17,602      13,331      48,639     40,339
Other income, net         2,657       1,636       7,084      2,547
Income before income
 taxes, minority
 interest and
 extraordinary item      20,259      14,967      55,723     42,886
Income tax expense        6,078       4,490      16,717     12,869
Income before minority
 interest and
 extraordinary item      14,181      10,477     39,006      30,017
Minority interest
 in net income (loss) of
 subsidiary                 148        (185)        381      (354)
Income before
 extraordinary item      14,033      10,662      38,625     30,371
Extraordinary gain on
 buyback of convertible
 notes                       --       2,356          33      3,494
Net income             $ 14,033   $  13,018   $  38,658  $  33,865
Income per diluted
 share before
 extraordinary item      $ 0.32   $    0.28    $   0.91  $    0.79
Extraordinary gain per
 diluted share               --        0.06          --       0.09
Net income per diluted
 share                   $ 0.32   $    0.34    $   0.91  $    0.88
Shares used in
 computation             45,021      39,686      43,224     40,769