USRX DJ News 06.21.96
Dow Jones News Service -- June 21, 1996
Diamond Multimedia Shortfall Forces New Look At Modem Market
By Mark Boslet
NEW YORK (Dow Jones)--A second-quarter shortfall at Diamond Multimedia Systems Inc. (DIMD) is leading some market
watchers to take a closer look at the modem market.
The conclusion: for many companies, the market has slowed this quarter from its frenetic growth of the past year or so.
The reasons are numerous and varied. Personal computer sales have slowed this year at the same time that consumers aren't
rushing to upgrade older modems with the same zeal as last year.
Meanwhile, emerging technologies that offer transmission speeds faster than today's analog modems may be attracting the
interest, if not the cash, of buyers.
According to market research firm Dataquest Corp., unit sales of analog modems will increase 30.3% in 1996, well short of
1995's 59.7% growth, said analyst Lisa Pelgrim.
Dataquest issued its market growth estimate at the end of May.
Privately, some companies serving the market acknowledge the quarter has been a bit slow. Nevertheless, publicly, much of
the data is not yet out. That is why Diamond Multimedia's announcement late yesterday caught many investors by surprise.
In contrast to smaller companies in the industry, market leader U.S. Robotics Corp. (USRX) told investors at the Bear
Stearns & Co. Technology Conference on Wednesday that its sales to end users continue to accelerate week by week.
Diamond Multimedia, of San Jose, Calif., said it expected second-quarter revenue to be about $120 million, well below
estimates on Wall Street that reached $150 million and more. Diamond Multimedia also said it expected a loss. Wall Street
had anticipated net income of 30 cents a share.
Laidlaw Equities analyst Youssef Squali said the weakness in the modem market was severe enough that Diamond cut prices
on its modem lines by close to 30% toward the end of the quarter.
In a press release, Diamond Multimedia said as well that its new Stealth 3D graphics accelerator ate into sales of its earlier
line of 3D multimedia accelerators. Analysts said the company's European business also suffered from the slower expansion
of the PC market in Europe.
In the wake of the announcement, Diamond Multimedia shares were off 4 1/8, or 30%, at 9 5/8 on Nasdaq volume of 3.1
million. Average daily volume is 562,300.
For some market observers, Diamond Multimedia's modem market woes reflected broader trends in the industry. Gary
Arlen, president of the market research firm Arlen Communications, said he believes some general slowing has overtaken the
modem business.
The slowing is in part because many computer users have already upgraded to the faster modems they need to travel the
Internet and communicate on-line, he said. More so, most new computers come with high-speed, 28.8-baud modems,
making it unnecessary for buyers to seek replacements.
Analysts say as well that corporations are more frequently installing remote access servers, which enable computers to use
common modems inside the server instead of modems installed at individual machines.
The hype over new, faster technologies, such as cable modems and ISDN connections, also may be stealing some thunder
from the modem market.
But then, the news was not all negative. Maribel Lopez Howard, senior manager of market intelligence at Shiva Corp.
(SHVA), said the market appeared to be between cycles. Many computer owners have not yet upgraded to the 28.8 or 33.6
modems, the fastest analog products on the market today, from their 14.4 or slower modems, she said.
Dataquest analyst Pelgrim agreed. Only 28% of computer owners have moved to 28.8- or 33.6-baud modems, she said,
meaning that a lot of growth is yet to come.
Among the modem makers, U.S. Robotics may be least susceptible to the market's fluctuations. Oppenheimer & Co. analyst
Steven D. Levy, who follows the company closely, said he doesn't believe the company's business is slowing. In fact, said
Levy, U.S. Robotics may be ''flexing its muscles'' and using its size to target smaller modem companies and gather more
market share.
Mark Remissong, U.S. Robotics' chief financial officer, said the company was in its pre-quarter quiet period and declined to
comment on its business. |
