Here's a post I got from the other S3 thread, courtesy of Jay Miri.
J Hartzok
Headline: S3 Inc.: Impressive New Video Demonstration; More Wins In 3-D
Author: Carlos Valeiras 1(212)526-3763
Company: SIII
Industry: SEMICO
Ticker : SIII Rank(Prev): 2-Outperform Rank(Curr): 2-Outperform
Price : $12 7/16 52wk Range: $24-8.88 Price Target: $17
Today's Date : 06/05/97
Fiscal Year : DEC
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EPS 1996 1997 1998 1999
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: 0.25A 0.30A 0.30A 0.30E 0.30E - -E - -E
2nd: 0.18A 0.11E 0.11E 0.27E 0.27E - -E - -E
3rd: 0.23A 0.21E 0.21E 0.30E 0.30E - -E - -E
4th: 0.29A 0.29E 0.29E 0.31E 0.31E - -E - -E
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Year:$ 0.94A $ 0.90E $ 0.90E $ 1.18E $ 1.18E $ - -E $ - -E
Street Est.: $ 0.84E $ 0.83E $ 1.18E $ 1.17E $ - -E $ - -E
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Price (As of 6/3) : $12 7/16 Revenue (1997) : 541.1 Mil.
Return On Equity (97): 23.9 % Proj. 5yr EPS Grth : 20.0 %
Shares Outstanding : 57.5 Mil. Dividend Yield : N/A
Mkt Capitalization : 830.2 Mil. P/E 1997; 1998 : 13.8 X; 10.5 X
Current Book Value : $4.96 /sh Convertible : Yes
Debt-to-Capital : 33.1 % Disclosure(s) : C, A
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* Yesterday, we saw S3's next generation video technology demonstration. The technology improves the quality of video on a PC monitor. The video quality enhancement was very impressive.
* S3 will use the Faroudja Picture Plus technology which uses filters, motion compensation, and line doubling techniques to improve the overall quality of video on a PC.
* The first products incorporating this technology will not be commercially available from S3 until late 1998. We believe that there is potential for this technology to set S3 apart in the 98-'99 product cycle.
* S3 has an exclusive agreement with Faroudja for the use of this technology. Although financial details were not disclosed, we believe that any licensing fees can be offset by ASP increases due to the value added potential of the technology.
* S3's near-term outlook has not changed. The company still faces a difficult June and September quarter. At current levels, we do not see significant downside; upside to the mid- to high teens appears very possible over the next three quarters.
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Benefits of S3/Faroudja Product. There was a remarkable difference in video quality between current video on a PC and the S3/Faroudja processed video.
The demonstration used a standard DVD video output to a $25,000 Faroudja Line Quadrupler. It was compared against the same DVD video processed through a Brooktree digitizer. Although it may not seem like an equitable comparison, S3 plans to integrate the technology in the $25,000 box into a single chip that will duplicate the results we witnessed yesterday.
The visible difference in the video quality was extraordinary. The Faroudja processed video had much richer colors and depth. In addition, the artifacts were completely removed. If you have ever watched video on a PC, artifacts are the jagged, stair-step like effects on straight lines or blurry details in complex scenes. In effect, the Faroudja video looked better than a TV.
New Design Wins. Over the past several days, S3 has announced several new design wins for its 2-D and 3-D families of graphic accelerators. The most recent announcements included design wins at Acer, Digital, Gateway and NEC.
Although there is more competition in the 3-D graphics accelerator market thisyear we believe that S3 will maintain its market leadership position. Other competitors such as Cirrus Logic, ATI Technologies, and Trident Microsystems will most likely make announcements over the next several months; however, S3's market share change should be relatively unaffected.
State of the graphics market. Pricing remains soft for 2-D and older-generation 3-D products. We believe that the pricing will remain relatively soft as a result of the increased number of competitors. We believe that the best performing companies will be the ones that have the highest volumes, mainly S3. However, the performance for the sector over the next two quarters should remain relatively weak.
Stock Recommendation. We believe S3 can have solid growth and financial performance in the fourth quarter. As visibility into the fourth quarter improves, the share price should react positively. We view S3 shares as an attractive value with minimal downside risk and potential to increase into the mid-teens in the fourth quarter.
Our short-term outlook is for the shares to trade in a range throughout the summer with upside potential towards the end of the third quarter and into the fourth.
BUSINESS DESCRIPTION: A leading supplier of high performance graphics, video, and 3-D accelerator solutions for personal computers.
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Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities. |
