S3 (A LONGER TERM PERSPECTIVE) Message Board

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Technology Stocks : S3 (A LONGER TERM PERSPECTIVE)

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May 12 5:00 PM EST

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To: David K. who wrote (7767)	11/11/1997 10:24:00 PM
From: Jan A. Van Hummel	Read Replies (1) of 14577

David, I am not familiar with Aureal, but problems related to issues of when and how to recognize sales and costs has been around for a long time. Often companies stretch the GAAP (Generally Accepted Accounting Principles) for reasons of their own. One of the better examples: Blockbuster Video In their early years they enjoyed stellar growth and great profitability. Investors loved them and due their growth they kept delivering these wonderful results. Good part was due to their writing the cost off their rental videos over a much longer time frame than was realistic thereby inflating current profits. In the end they had to make adjustments for it, but by that time they had grown, had high profits thus high stock value, used that market cap to grow faster and raise more capital than might have possible had they been much more conservative. The problem often arises when management is rewarded for accomplishing the wrong goals. People will generally do what they get rewarded for, not what is in the best interest of the company long-term. To many people want to see significant changes on a quarterly basis whereas many decisions take today may have implications down the road only, and that, most unfortunately, is too long a horizon for many investors. As a result management often caters to the needs of the short-termers thereby mortgaging the future of the company. Ongoing growth will often bail management out, stagnating or declining sales will often bring the problems to the fore. By no stretch of any imagination is S3 mortally wounded, they are having a rough time and management made it just a bit rougher on themselves by their failure to recognize the problem earlier. When the details of the audit are known we will know a lot more and then we can all draw our own conclusions. Jan

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