<PAGE>     
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                          UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C.  20549
                                
                       ___________________
                                
                            FORM 10-Q

    [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934

          For the Quarterly Period Ended March 31, 1998

                               OR

   [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from            to
                                
                   Commission File No. 0-23596
                       ___________________

                    C-CUBE MICROSYSTEMS INC.
     (Exact name of registrant as specified in its charter)

            Delaware                       77-0192108
(State or other jurisdiction of         (I.R.S. Employer
 incorporation or organization)       Identification No.)

                    1778 McCarthy Boulevard
                  Milpitas, California  95035
     (Address and zip code of principal executive offices)

Registrant's telephone number, including area code: (408) 944-6300

Former name, former address and former fiscal year, if changed
since last year:    N/A

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                   [X]  Yes         [   ]  No

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

As of April 30, 1998, 37,229,781 shares of the registrant's
Common Stock were outstanding.

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<PAGE>
                                
                     C-CUBE MICROSYSTEMS INC.   
                            
                        TABLE OF CONTENTS


                                                              Page
Part I.   Financial Information

Item 1.   Financial Statements:
          Condensed Consolidated Balance Sheets
          March 31, 1998 and December 31, 1997.................. 3

          Condensed Consolidated Statements of Operations
          Quarter ended March 31, 1998 and 1997................. 4

          Condensed Consolidated Statements of Cash Flows
          Quarter ended March 31, 1998 and 1997................. 5

          Notes to Condensed Consolidated Financial Statements.. 6

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations................... 8


Part II.  Other Information

Item 1.   Legal Proceedings.................................... 14

Item 2.   Changes in Securities and Use of Proceeds............ 14

Item 3.   Defaults Upon Senior Securities...................... 14

Item 4.   Submission of Matters to a Vote of Security Holders.. 14

Item 5.   Other Information.................................... 14

Item 6.   Exhibits and Reports on Form 8-K..................... 14

Signatures..................................................... 15

                                   -2-
<PAGE>
















                 PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

<TABLE>
<CAPTION>
                    C-CUBE MICROSYSTEMS INC.
              CONDENSED CONSOLIDATED BALANCE SHEETS
            (In thousands, except par value amounts)

                                                 March 31,   December 31,
                                                   1998         1997 (1)
                                                 ----------   ----------
<S>                                             <C>          <C>
                                                (Unaudited)                                                         
                                ASSETS
Current assets:                                               
  Cash and equivalents.......................... $ 188,800    $ 145,034
  Short-term investments........................     9,150       21,316
  Accounts receivable -- net....................    28,806       40,606
  Inventories...................................    23,290       15,270
  Deferred income taxes.........................    12,756       11,496
  Other current assets..........................    14,683       14,666
                                                 ----------   ----------
          Total current assets..................   277,485      248,388
Property and equipment -- net...................    24,632       23,561
Production capacity rights......................    16,800       18,200
Distribution rights -- net......................     1,606        1,648
Purchased technology -- net.....................     8,536        9,408
Other assets....................................     2,801        2,903
                                                 ----------   ----------
          Total................................. $ 331,860    $ 304,108
                                                 ==========   ==========                                   
                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:                                          
  Accounts payable.............................. $  19,663    $   9,221
  Accrued liabilities...........................    31,618       26,273
  Deferred contract revenue.....................     3,766        3,895
  Current portion of long-term obligations......       240          608
                                                 ----------   ----------
          Total current liabilities.............    55,287       39,997
Long-term obligations...........................    86,547       87,462
Deferred income taxes...........................       461          869
                                                 ----------   ----------
          Total liabilities.....................   142,295      128,328
                                                 ----------   ----------
Minority interest in subsidiary.................       224          365
Stockholders' equity:                                         
  Common stock, $0.001 par value, 150,000 shares              
     authorized; shares outstanding: 
     1998 -- 37,133; 1997 -- 36,787.............   207,420      203,728
  Accumulated translation adjustments...........    (1,916)      (1,969)
  Unrealized loss on investments................        --          (17)
  Accumulated deficit...........................   (16,163)     (26,327)
                                                 ----------   ----------
          Total stockholders' equity............   189,341      175,415
                                                 ----------   ----------
          Total................................. $ 331,860    $ 304,108
                                                 ==========   ==========
</TABLE>

(1) Derived from the December 31, 1997 audited balance sheet
    included in the 1997 Annual Report on Form 10-K of C-Cube
    Microsystems Inc.

    See notes to condensed consolidated financial statements.

                                   -3-
<PAGE>

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

                                           Quarter Ended March 31,
                                           -----------------------
                                              1998        1997
                                            ---------   ---------
<S>                                         <C>         <C>                                                               
  Net revenues............................. $ 87,317    $ 94,132
  Costs and expenses:                               
    Cost of revenues.......................   41,014      40,975
    Research and development...............   17,671      15,612
    Selling, general and administrative....   14,586      13,070
                                            ---------   ---------
      Total................................   73,271      69,657
                                            ---------   ---------
  Income from operations...................   14,046      24,475
  Other income (expense), net..............      273      (1,067)
                                            ---------   ---------
  Income before income taxes and                    
     minority interest.....................   14,319      23,408
  Income tax expense.......................    4,296       7,958
                                            ---------   ---------
  Income before minority interest..........   10,023      15,450
  Minority interest in net income                   
    (loss) of subsidiary...................     (141)         55
                                            ---------   ---------
  Net income............................... $ 10,164    $ 15,395
                                            =========   =========
  Earnings per share:                               
     Basic................................. $   0.27    $   0.43
     Diluted............................... $   0.27    $   0.40
  Shares:                                           
     Basic.................................   36,983      36,215
     Diluted...............................   41,137      41,209

</TABLE>

    See notes to condensed consolidated financial statements.

                                   -4-
<PAGE>

<TABLE>
<CAPTION>
                     C-CUBE MICROSYSTEMS INC.
         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (In thousands)
                           (Unaudited)
                                                     Quarter Ended March 31,
                                                     -----------------------
                                                        1998        1997
                                                     ---------    ---------
<S>                                                  <C>         <C>
Cash flows from operating activities:                     
  Net income........................................  $ 10,164     $ 15,395
  Adjustments to reconcile net income to net              
   cash provided by operating activities:                               
     Minority interest in subsidiary................      (141)          55
     Depreciation and amortization..................     3,925        3,489
     Deferred income taxes..........................    (1,668)       2,389
     Changes in assets and liabilities:                   
        Receivables.................................    11,764      (14,503)
        Inventories.................................    (8,035)       8,395
        Other current assets........................     1,451        9,437
        Accounts payable............................    10,467          352
        Accrued liabilities.........................    (1,276)     (10,009)
        Income taxes payable........................     5,599       11,039
                                                     ---------    ---------
  Net cash provided by operating activities.........    32,250       26,039
                                                     ---------    ---------
Cash flows from investing activities:                     
  Sales and maturities of short-term investments....    16,510        2,500
  Purchases of short-term investments...............    (4,128)      (1,524)
  Capital expenditures..............................    (4,367)      (4,027)
  Other assets......................................       100           78
                                                     ---------    ---------
  Net cash provided by (used in) investing
   activities.......................................     8,115       (2,973)
                                                     ---------    ---------
Cash flows from financing activities:                     
  Repayments of capital lease obligations...........      (158)        (170)
  Sale of common stock..............................     3,483        4,010
  Collection of stockholder notes receivable........        --          305
                                                     ---------    ---------
  Net cash provided by financing activities.........     3,325        4,145
                                                     ---------    ---------
Exchange rate impact on cash and equivalents........        76          279
                                                     ---------    ---------
Net increase in cash and equivalents................    43,766       27,490
Cash and equivalents, beginning of period...........   145,034       76,241
                                                     ---------    ---------
Cash and equivalents, end of period ................  $188,800     $103,731
                                                     =========    =========
Supplemental schedule of noncash investing and            
 financing activities:
  Unrealized gain (loss) on investments............. $     17     $    (36)
  Cash paid during the period for:                        
     Interest....................................... $    102     $    106
     Income taxes...................................      571           74

</TABLE>
                                
    See notes to condensed consolidated financial statements.

                                   -5-
<PAGE>

                    C-CUBE MICROSYSTEMS INC.
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited)


1.   Basis of presentation

     The unaudited condensed consolidated financial statements
  contained in this report have been prepared by C-Cube
  Microsystems Inc. ("C-Cube" or the "Company"). In the opinion
  of management, such financial statements include all normal
  recurring adjustments and accruals necessary for a fair
  presentation of the Company's financial position as of March 31,
  1998, and the results of operations for the quarters ended
  March 31, 1998 and 1997 and cash flows for the quarters ended
  March 31, 1998 and 1997. Certain information and footnote
  disclosures normally included in financial statements prepared
  in accordance with generally accepted accounting principles
  have been condensed or omitted in accordance with the rules
  and regulations of the Securities and Exchange Commission.
  This unaudited quarterly information should be read in
  conjunction with the audited consolidated financial statements
  of C-Cube and the notes thereto included in the Company's
  Annual Report on Form 10-K for the year ended December 31,
  1997.

     The fluctuations in revenues and operating income
  experienced by the Company in recent quarters are not
  necessarily indicative of future results. In addition, in view
  of the significant growth in recent years, C-Cube believes
  that period-to-period comparisons of its financial results
  should not be relied upon as an indication of future
  performance.

2.   Inventories

     Inventories are stated at the lower of cost (first-in,
  first-out) or market. Cost is computed on a currently adjusted
  standard basis (which approximates actual cost on a current
  average or first-in, first-out basis). Inventories consist of:

<TABLE>
                              March 31,   December 31,
                                1998         1997
                              ---------   ---------
          <S>                <C>          <C>
                                  (in thousands)

           Finished goods     $ 13,875    $  9,158
           Work-in-process       5,682       3,852
           Raw materials         3,733       2,260
                              ---------   ---------
                     Total    $ 23,290    $ 15,270
                              =========   =========
</TABLE>

                                   -6- 
<PAGE>

3.   Earnings per share

     The following table sets forth the computation of basic
  and diluted earnings per share (in thousands, except per share
  amounts):

<TABLE>
                                          Quarter Ended March 31,
                                          -----------------------
                                            1998          1997
                                          ---------    ---------
<S>                                       <C>          <C>
  Numerator:                                      
   Net income - numerator for basic               
    earnings per share................... $ 10,164      $ 15,395
   Addback interest income after tax              
    related to convertible shares........      937           887
                                          ---------    ---------
   Numerator for diluted earnings
    per share............................ $ 11,101      $ 16,282
                                          =========    =========                                                 
  Denominator:                                    
   Weighted-average shares - denominator
    for basic earnings per share.........   36,983        36,215
   Convertible shares....................    2,809         2,809
   Dilutive common stock equivalents,
    using treasury stock method..........    1,345         2,185
                                          ---------    ---------
   Denominator for diluted earnings  
    per share............................   41,137        41,209
                                          =========    =========
                                                  
  Basic earnings per share............... $   0.27      $   0.43
                                          =========    =========
  Diluted earnings per share............. $   0.27      $   0.40
                                          =========    =========

</TABLE>


4.   Comprehensive income

     In the first quarter of 1998, the Company adopted
  Statement of Financial Accounting Standards No. 130,
  "Reporting Comprehensive Income," which requires an enterprise
  to report, by major components and as a single total, the
  change in net assets during the period from nonowner sources.
  For the three months ended March 31, 1998 and 1997,
  comprehensive income, which was comprised of the Company's net
  income for the periods, changes in accumulated translation
  adjustments and unrealized gains (losses) on investments, was
  $10,234 and $15,216, respectively.

5.   Recently issued accounting standard

     In June 1997, the Financial Accounting Standards Board
  issued Statement of Financial Accounting Standards No. 131,
  "Disclosures about Segments of an Enterprise and Related
  Information," which establishes annual and interim reporting
  standards for an enterprise's business segments and related
  disclosures about its products, services, geographic areas and
  major customers. Adoption of this statement will not impact
  the Company's consolidated financial position, results of
  operations or cash flows. The Company will adopt this
  statement in its financial statements for the year ending
  December 31, 1998.

                                   -7-
<PAGE>

Item 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS
        OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Actual results could
differ materially from those projected in the forward-looking
statements as a result of certain factors, including those set
forth in this Item 2 and elsewhere in, or incorporated by
reference into, this report. The Company has attempted to
identify forward-looking statements in this report by placing an
asterisk (*) following each sentence containing such statements.

Quarter Ended March 31, 1998

   The following table sets forth certain operating data as a
percentage of net revenues for the quarters ended March 31, 1998
and 1997:
   
<TABLE>
                                         Quarter Ended March 31,
                                         -----------------------
                                            1998       1997
                                           -------    -------
<S>                                        <C>        <C>
                                                      
   Net revenues...........................  100.0%     100.0%
   Costs and expenses:                       
     Cost of revenues.....................   47.0       43.5
     Research and development.............   20.2       16.6
     Selling, general and administrative..   16.7       13.9
                                           -------    -------
             Total........................   83.9       74.0
                                           -------    -------
   Income from operations.................   16.1       26.0
   Interest income (expense), net.........    0.3       (1.1)
                                           -------    -------
   Income before income taxes and            
     minority interest....................   16.4       24.9
   Income tax expense.....................    4.9        8.5
                                           -------    -------
   Income before minority interest........   11.5       16.4
   Minority interest in net income 
    (loss) of subsidiary..................   (0.2)       0.1
                                           -------    -------
   Net income.............................   11.6%      16.4%
                                           =======    =======
</TABLE>

   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 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, supply
constraints for other components incorporated into its customers'
products, fluctuations in the Japanese yen to U.S. dollar
exchange rate, and the level of expenditures in manufacturing,
research and development, and sales, general and administrative
functions.
   
   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
satellite broadcast and wireless cable markets, which are in an
early stage, creating uncertainty with respect to product volume
and timing. The Company has devoted a substantial portion of its
research and development efforts in recent quarters to developing
chips used in Digital Video Disk (DVD) systems. The Company's DVD
products are subject to the new product risks described in the
preceding paragraph, including in particular C-Cube's ability to
timely introduce these products and the market's acceptance of
them, which could have a materially adverse affect on its

                                   -8-
<PAGE>

operating results. Furthermore, 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 the future geographic mix of the Company's sales 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 areas make purchases in
preparation for the holiday season, and comparatively less
revenues and net income in the first and second calendar
quarters.*
   
   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 or other
semiconductor 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.
   
   The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium
(year 2000) approaches. The "year 2000" problem is pervasive and
complex, as virtually every computer operation will be affected
in the same way by the rollover of the two digit year value to
00. The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company is
utilizing both internal and external resources to identify,
correct or reprogram, and test its computer systems for year 2000
compliance. It is anticipated that all reprogramming efforts will
be completed by December 31, 1998, allowing adequate time for
testing.* This process includes getting confirmation from the
Company's primary vendors that plans are being developed or are
already in place to address processing of transactions in the
year 2000. However, there can be no assurance that the systems of
other companies on which the Company's systems rely will also be
converted in a timely manner or that any such failure by another
company would not have an adverse effect on the Company's
systems. Management is in the process of completing its
assessment of the year 2000 compliance costs and, based on
information to date (excluding the possible impact of vendor
systems), management believes that total costs of year 2000

                                   -9-
<PAGE>

related issues will not exceed $500,000.* These costs will be
funded through operating cash flows and will be expensed as
incurred.
   
   Net Revenues

   Net revenues in the first quarter of 1998 were $87.3 million,
a decrease of 7% from the $94.1 million reported in the
corresponding quarter a year ago. Revenue from MPEG-1 decoder
chips used in VideoCD players sold primarily in China, decreased
from the first quarter of 1997 due to price reductions made in
response to competitive pricing pressures. A significant increase
in the volume of shipments of such products partially offset the
effect of such price reduction. Revenue from the Company's family
of encoder products also decreased due in part to reduced
shipments of the Company's older encoder systems as the Company
is transitioning to a new program encoder which was announced in
February 1998 but did not begin full production until the second
quarter of 1998. These decreases were partially offset by an
increase in revenues from MPEG-2 decoder chips used primarily in
digital settop boxes and in DVD-ROMs on PCs and from a one-time
sale of third party equipment to a telecommunications customer in
which the Company received revenue of $5.3 million.
   
   International revenues accounted for 61% of net revenues for
the first quarter, compared to 65% for the same period last year.
The decline in international sales as a percentage of total sales
is primarily due to decreased sales in Japan and Korea. The
Company expects that international revenues will continue to
represent a significant portion of net revenues.* The Company's
success will depend in part upon its ability to manage
international marketing and sales operations. In addition, C-Cube
purchases a substantial portion of its manufacturing services
from foreign suppliers. C-Cube's international manufacturing and
sales are subject to changes in foreign political and economic
conditions and to other risks including currency or export/import
controls, changes in tax laws, tariffs and freight rates and
changes in the ownership and/or leadership of international
customers that may result in delayed or canceled orders. For
example, China is the primary market for VideoCD players
utilizing the Company's MPEG-1 decoder products. As a
consequence, any political or economic instability in China could
significantly reduce demand for the Company's products. The
Company has made a significant investment in additional foundry
capacity in Taiwan and is subject to the risk of political
instability in Taiwan, including but not limited to the potential
for conflict between Taiwan and the People's Republic of China.
The Company sells products to customers in Korea and is subject
to the risk of economic and political instability in Korea,
including the potential for conflict between North and South
Korea. In addition, the Company sells certain of its products in
international markets and buys certain products from its
foundries in currencies other than the U.S. dollar and, as a
result, currency fluctuations could have a material adverse
effect on the Company's business and results of operations. With
respect to international sales that are denominated in U.S.
dollars, increases in the value of the U.S. dollar relative to
foreign currencies can increase the effective price of and reduce
demand for the Company's products relative to competitive
products priced in the local currency. The United States has
considered trade sanctions against Japan and has had disputes
with China relating to trade and human rights issues. If trade
sanctions were imposed, Japan or China could enact trade
sanctions in response. Because a number of the Company's current
and prospective customers and suppliers are located in Japan and
China, trade sanctions, if imposed, could have a material adverse
effect on C-Cube's business and results of operations. Similarly,
protectionist trade legislation in either the United States or
foreign countries could have a material adverse effect on the
Company's ability to manufacture or sell its products in foreign
markets.
   
   The Asian consumer electronics markets accounted for
approximately 52% of total Company sales in the first quarter of
1998 and are expected to continue to account for a substantial,
though declining, percentage of sales in the future.* As a
percent of total sales in the first quarter of 1998, China
represented 44%, Japan 3% and Singapore, Korea and Taiwan
represented 4% of sales combined. The economic crisis in Asia has
been characterized by increases in idle production capacity, real

                                   -10-
<PAGE>

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 incorporated. In the first quarter of
1998, most of the Company's sales in Asia were of its MPEG-1
decoder chips, which are used in VideoCD players. VideoCD players
generally sell in Asia for the equivalent of between $90 and 
$300 U.S. dollars. At these prices, the Company believes purchases
of VideoCD players are not as likely to be deferred as are purchases
of higher priced consumer durables and production equipment,
which have dramatically impacted U.S. export sales.* However,
there can be no assurance that the Company will not experience
reduced sales of its products into Asia because of declining
consumer spending or because of its customers' increasing
difficulty in obtaining letters of credit, which the Company
requires prior to shipment.

   Gross Margin

   C-Cube's gross margin for the first quarter of 1998 was
53.0%, compared to the prior year quarter gross margin of 56.5%.
The decline in margin percentage is due in part to a one-time
sale of third party equipment to a telecommunications customer in
which the Company's margin was only 21.6% on revenue of $5.3 million.
Although the average selling prices of the Company's
products have declined, this decline has been mostly offset by
reduced product costs and lower product transition costs. The
Company has been able to reduce product costs through the
negotiation of lower foundry wafer prices, the adoption of finer
geometry fabrication processes, the redesign of products to
reduce die size and the use of lower priced assembly and test
vendors. The negotiation of lower wafer prices was facilitated by
the adequate supply of foundry capacity during the past year.
   
   The markets into which C-Cube sells its products are subject
to extreme price competition. Thus, the Company expects to
continue to experience declines in the selling prices of its
products over the life cycle of each product.* In particular, 
C-Cube expects to continue to experience significant price
competition in the markets for decoder chips.* Due to an
increasing percentage of sales represented by lower margin
decoder chips and lower margin communication systems, the Company
anticipates that its gross margin percentages may decrease in the
future.* In order to offset or partially offset declines in the
selling prices of its products, C-Cube must continue to reduce
the costs of products through product design changes,
manufacturing process changes, volume discounts, yield
improvements and other savings negotiated with its manufacturing
subcontractors. Since the Company does not believe that it can
continually achieve cost reductions which fully offset the price
declines of its products, it expects gross margin percentages to
decline for existing products over their life cycles.*
   
   C-Cube does not operate its own manufacturing facilities and
must make volume commitments to subcontractors at prices that
remain fixed over certain periods of time. Therefore, the Company
may not be able to reduce its costs as rapidly as its competitors
who perform their own manufacturing. Failure of the Company to
design and introduce, in a timely manner, lower cost versions of
existing products or higher gross margin new products, or to
successfully manage its manufacturing subcontractor
relationships, would have a material adverse effect on C-Cube's
gross margins.
   
   Research and Development Expenses

   In the first quarter of 1998, research and development
expenses were $17.7 million, or 20.2% of net revenues, as
compared with $15.6 million, or 16.6% of net revenues in the
first quarter of 1997. The increase in research and development
expenses primarily represents additional employee-related costs
associated with increases in product engineering staff,
reflecting the Company's continuing efforts to provide industry
leading digital video solutions at the chip and systems levels.

                                   -11-
<PAGE>

   Selling, General and Administrative Expenses

   Selling, general and administrative expenses increased to
$14.6 million, or 16.7% of net revenues, in the first quarter of
1998, as compared to $13.1 million, or 13.9% of net revenues, for
the same quarter last year. The increase in spending was
primarily due to increased field sales and applications support
in China and other foreign markets, increased travel costs and
higher advertising and sales promotion costs.
   
   Other Income (Expense)
   
   Other income, net of other expense, was $0.3 million for the
first quarter of 1998, an increase from the net other expense
amount of $1.1 million for the first quarter of 1997. The
improvement over the prior year quarter is primarily due to
higher interest income earned on higher average cash and
investment balances.
   
   Income Tax Expense
   
   The Company's effective tax rate for the first quarter of
1998 was 30%. The Company's effective tax rate is less than the
combined federal and state statutory rate primarily due to tax
credits and lower foreign tax rates.

Liquidity and Capital Resources
   
   Cash, cash equivalents and short-term investments were 
$197.9 million at March 31, 1998 as compared to $166.4 million at the
end of 1997. Working capital increased to $222.2 million at March 31,
1998 from $208.4 million at the end of 1997.
   
   The Company's operating activities generated cash of 
$32.3 million in the first quarter of 1998, mainly from operating
income, reduced accounts receivable and increased accounts
payable, partially offset by an increase in inventory. The
increase in accounts payable was due to receipts of inventory
near the end of the quarter. Inventory was increased to support
future demand. Accounts receivable decreased as a substantial
portion of the Company's shipments were made on letters of credit
in March 1998 and collected before the quarter end. Shipments
made in December 1997 followed a more normal pattern and thus
days outstanding decreased from 41 days at year end 1997 to an
abnormally low 30 days at the end of the first quarter of 1998.
Shipments in the first quarter of 1998 were also more linear
throughout the period where as in the past the Company shipped a
substantial portion of its product in the last month of the
quarter.
   
   C-Cube's investing activities, exclusive of the sales and
maturities of $16.5 million and purchases of $4.1 million of
short-term investments, used cash of $4.3 million primarily, for
capital expenditures.
   
   Cash provided by financing activities was $3.3 million,
consisting of proceeds from sales of stock pursuant to employee
stock plans, partially offset by payments of debt.
   
   At March 31, 1998, the Company had an available bank line of
credit of $30 million which expires May 1, 1999. Borrowings bear
interest at LIBOR plus 1.25% or the bank's prime rate (8.50% at
March 31, 1998). The line of credit agreement requires that the
Company, among other things, maintain a minimum tangible net
worth, a minimum annual net income (no quarterly loss exceeding
$3 million), and certain financial ratios. In addition, this
agreement prohibits the payment of cash dividends. At March 31,
1998, the Company was in compliance with these covenants, and
there were no borrowings under this line.
   
                                   -12-
<PAGE>

   Based on current plans and business conditions, C-Cube
expects that its cash, cash equivalents and short-term
investments together with any amounts generated from operations
and available borrowings, will be sufficient to meet the
Company's cash requirements for at least the next 12 months.*
However, there can be no assurance that the Company will not be
required to seek other financing sooner or that such financing,
if required, will be available on terms satisfactory to the
Company. In addition, the Company has considered and will
continue to consider various possible transactions with foundries
to secure additional foundry capacity, which could include,
without limitation, equity investments, prepayments, non-
refundable deposits or loans in exchange for guaranteed capacity,
"take or pay" contracts that commit the Company to purchase
specified quantities of wafers over extended periods, joint
ventures or other partnership relationships.
   
                                   -13-
<PAGE>

                    C-CUBE MICROSYSTEMS INC.
                   PART II. OTHER INFORMATION


Item 1. Legal Proceedings

        From time to time the Company is party to certain
        litigation or legal claims. Management has reviewed all
        pending legal matters and believes that the resolution of
        such matters will not have a significant adverse effect on
        the Company's financial position or results of operations.

Item 2. Changes in Securities and Use of Proceeds

        None.

Item 3. Defaults Upon Senior Securities

        None.

Item 4. Submission of Matters to a Vote of Security Holders

        None.

Item 5. Other Information

        Not applicable.

Item 6. Exhibits and Reports on Form 8-K

        (a)  Exhibits

             Exhibit
             Number             Description
             -------           -------------
              27.1              Financial Data Schedule

        (b)  Reports on Form 8-K

             None.
          
                                   -14-    
<PAGE>
      
                           SIGNATURES



   Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

                                    C-Cube Microsystems Inc.
                                    (Registrant)


Dated:  May 13, 1998                By:  /s/  John J. Hagedorn
      ---------------                  --------------------------
                                           John J. Hagedorn
                                    Vice President of Finance and
                               Administration, Chief Financial Officer
                                  and Assistant Corporate Secretary

                                   -15-
<PAGE>