Once Premier, Chipmaker S3 Tries Recovery
Date: 6/17/99
Author: James DeTar
Three years ago, S3 Inc. was on top of the world.
The Santa Clara, Calif.-based company was one of the top graphics chipmakers in the world. Its chips added pizazz to games and created dazzling sales pitches on portable PCs. But the company fell on hard times and hasn't made money in more than a year.
New S3 Chief Executive Kenneth Potashner says that will change by the fourth quarter. Since he took charge in November, S3 inked a cross-license deal that gives it access to Intel Corp.'s graphics chip patents. For the quarter ended March 31, S3 posted its first sales gain in six quarters. And the company won a key contract Wednesday to put its Savage4 graphics chip in Compaq Computer Corp. PCs.
S3 faces big challenges. For one thing, Intel makes graphics chips. Intel also has a habit of swallowing smaller fish that swim across its path. In an interview with Investor's Business Daily, Potashner talked about his plans to keep S3 healthy.
IBD:
Are you settled into your position now?
Potashner:
Yes. Very much so. When you come to a turnaround, the key choice that gets you there is you have to have visibility that you think the technology is robust enough to recover. And secondly, (you make sure) the morale is there so that people are behind you. You need an employee base that believes the company can get back on its feet. Probably the third thing is to get a quick key win or two. There's nothing like getting momentum going, and to land a customer.
IBD:
Does S3 have some new key wins?
Potashner:
We have a key (3-D chip) out called Savage4. It's our intention to use it to regain the market share we had previously. We've landed three of the top five PC makers and we've landed all the add-in graphics card guys - Creative Technology, Diamond Multimedia Systems and such.
We negotiated a broad-based technology exchange agreement with Intel. We also have a relationship with Microsoft Corp. where they selected our texture software. And we announced a deal with Via Technologies out of Taiwan to give us integrated products.
IBD:
With sales about half what they were last year, how do you plan to recover?
Potashner:
With the business we've secured from our Savage products, we've announced we've already run in excess of $150 million in new revenues for this fiscal year. Analysts' numbers have us doubling our revenue base over the course of the year. So we're once again in a growth mode.
IBD:
What's your turnaround strategy?
Potashner:
It's to make sure you have a compelling product you can get out there quickly, and in this case it's the Savage4. It's rallied some customers around it to create a pull for it that creates a broader market acceptance.
Then get the employees on board in a big way. One of the things we did was give every one of the employees stock in the company when it was at a low price. So everyone has an ownership. They're mobilized by the design wins.
IBD:
Intel is a competitor in graphics chips. How do you deal with that?
Potashner:
Today we compete with Intel but we also partner with Intel. They've had a graphics chip out for awhile. The last generation was the model 740. They've announced a new product called Whitney. We competed favorably against the 740, and we (will) compete very favorably against their Whitney product. Today we haven't seen the competitive stuff from Intel. But Intel is Intel, and we clearly take them very seriously.
IBD:
Intel is an investor in S3, isn't it?
Potashner:
Yes. Intel, as part of the (licensing) deal, bought some warrants in the company. It's nonmaterial for both companies, more of a demonstration of partnership going forward.
IBD:
Would you be open to more investment in S3 by Intel?
Potashner:
Yes. I see Intel as a potential customer, as a potential technology partner.
IBD:
Are you open to discussions for Intel to buy S3?
Potashner:
Yeah. There are no discussions under way there, but anything is possible. |
