SEARCH
ATI Technologies heads for dominance
Surging first-quarter results help tighten grip
on market for computer graphics chips
Friday, January 15, 1999
MARK EVANS
Technology Reporter
Surging sales and leading-edge technology are giving ATI Technologies Inc. the same kind of stranglehold on the computer graphics chip market that Intel Corp. has on microprocessors and Microsoft Corp. has on software.
ATI offered the latest proof of its competitive savvy yesterday when it posted better-than-expected first-quarter results. Earnings more than doubled to $52-million (U.S.) or 24 cents a share in the period ended Nov. 30 from $24.5-million or 12 cents a year earlier. Sales soared 95 per cent to $327.4-million from $167.8-million.
Analysts said ATI had 37 per cent of the $1.6-billion graphics chip market in the fourth quarter as the company, based in Markham, Ont., extended its lead over S3 Inc, which now holds 17 per cent. A year ago, their positions were reversed; S3, based in Santa Clara, Calif., had 37 per cent of the market while ATI had 18 per cent.
In a conference call yesterday, ATI said it could garner 60 to 65 per cent of the desktop chip market within the next couple of years.
That would put ATI in a position comparable to companies such as Microsoft and Intel, which have more than 90 per cent of their respective markets. It would also let ATI join an elite group of high-tech companies whose size, buying power and research create a near-insurmountable competitive edge.
ATI's first-quarter profit surpassed analysts' forecasts of 19 cents a share. But the company sparked even more enthusiasm after saying it expects sales to increase 50 per cent in fiscal 1999, compared with a 40-per-cent target issued just three months ago.
K.Y. Ho, ATI's president and chief executive officer, said the company is optimistic about sales and market share because ATI is taking business away from rivals and capitalizing on personal computer sales.
"Market demand is stronger than a few months ago," Mr. Ho said in an interview before ATI's annual shareholders' meeting yesterday. "We feel comfortable that year-over-year revenue growth will be 50 per cent and we feel very comfortable that gross margins will be maintained in the mid-30s [per cent.]"
ATI makes graphic chips and boards that help produce two- and three-dimensional images, a market that is expanding as more people play video games on their computers and World Wide Web sites use more graphic images.
ATI's ability to capture business has also been helped by the poor performance of S3, whose troubles were highlighed in October when it reported a third-quarter loss of $35.4-million on revenue of $47.3-million. A year earlier, S3 had earnings of $4.4-million on $119.6-million.
Dean McCarrron, a principal with Mercury Research in Scottsdale, Ariz., said S3 was slow to develop technology the market wanted.
While he expects ATI to maintain its market domination in the short term, Mr. McCarron said the company must keep developing attractive technology or risk falling into the same trap as S3.
Although ATI shares have climbed 40 per cent in the past two months, closing yesterday at $19.40 (Canadian) on the Toronto Stock Exchange, analyst Brian Antonen of Research Capital Corp. said the stock is still inexpensive. Its record high is $20.20.
"The stock gets no respect. In my opinion, ATI is a bargain-basement price."
AN EMERGING POWER
Market share graphic chips
1998
ATI 37%
S3 Inc 17%
Other 46%
1997
ATI 18%
S3 Inc 37%
Other 45%
Global market: $1.6-billion (U.S.)
ATI.TO is the symbol for the Toronto Exchange and ATYTF is the Nasdaq
|
