Hi Dave,
Last Qs operational losses included $11 million in one time charges. With cash at $87 million and short term investments at $59 million, one bad quarter is NOT the end of the world. I'm not too crazy about recent price movement. The only thing good about it is that it is going down on extremely low volume. It's interesting to note the bulk of open interest in October calls is at $10. Someone thinks the stock will be worth more than single digits within 4 months. Windows 98 will be hitting the streets within a week or so with Microsoft endorsing S3s compression technology. Quarters are back end loaded, which makes the end of June design win announcement time.
More recent support levels have broken down, so unless it establishes support at current levels, we could see $4.75 tested again. With book at $5.48 I don't see it, but I suppose it could happen. I'll make another buy in that area if it does get that low again. If USC goes public, S3 picks up an extra $46 million from the stock they sold in January ( about .60 per share after taxes). Depending on what kind of price per share USC trades at when they go public, you can probably ad an extra $2-$3 to current book value. Not to mention that the USC stock is probably considered a long term investment that is worth about $140 million if they needed to raise cash. From the conference call, they have new chips on the drawing board for release toward the end of the year (x-mas?).
I'm not preaching sweetness and light. A person would have to be brain dead not to recognize a few bumps in the road ahead. At the same time a person would have to be equally brain dead to ignore the basic fundamentals of the company. Since I'm primarily a value investor, I tend to look at anything within 50% over book as a bargain. At or below book is a steal. With $2.50 in cash and short term investments, the bottom would have to completely fall out of the computer industry before S3 would have to worry about operating capitol. IMO the biggest danger to S3 right now is that they may not have a single chip solution to put in the sub $500 PCs when they hit the market. Hopefully that's part of what all the patent purchases are all about. Nobody seems to like my theory that they might be looking to slap together a processor with their new patents, but I still have an equally hard time with the idea that they spent $10 million to out bid INTC, NSM, AMD, et al just to mount the patents on the wall to admire them. We'll see.
Regards,
Don |
