A second Forbes article on their site today:
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S3: Slip sliding away
By Om Malik
<Picture: W>hat a difference a year makes. A year ago graphics chips maker, Santa Clara, Calif.-based S3 controlled 43% of the graphics chip market share and could do no wrong.
S3's strong focus on technology helped the company boost its sales from nothing in 1990 to $140 million in 1994. And then came Trio and Virage, the company's bestselling graphics chips which made high-quality PC graphics possible. No surprise, sales jumped to $465.4 million in 1996. The company's net income was a healthy $48.4 million.
The company's growth was based on a sharp focus on the high end of the PC market. Premium chips at premium prices. (A single chip sold for more than $25.) But late last year S3 began to focus on the high-volume, low-price PC market, the kind which sold for around $1,000 apiece.
"S3 made a mistake, which is going to haunt the company for a long time," says Jon Joseph, semiconductor analyst at NationsBanc Montgomery Securities. "The multimedia chip market does not forgive mistakes easily." At the low end, there is severe pricing pressure, as reflected by stalled sales.
S3 saw its sales fall from $138 million in the first quarter of 1997, to $108.9 million in the second quarter, and $120 million in the third quarter. BancAmerica Robertson Stephens analyst Elias Moosa thinks S3 would be lucky to post sales of $480 million for 1997, a minuscule uptick from 1996 sales.
The chip industry is swirling with rumors that some of the key design staff have quit S3 to go work for other graphics chip companies. Rats leaving a sinking ship? S3 denies any staff's leaving, and says that company will introduce new cutting-edge chips next year.
But it will take a while before S3 makes up the ground, that is, if they can do it at all.
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