S3 (A LONGER TERM PERSPECTIVE) Message Board

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Technology Stocks : S3 (A LONGER TERM PERSPECTIVE)

SIII 0.0001000

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May 12 5:00 PM EST

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To: Norrin Radd who wrote (9037)	1/28/1998 8:32:00 AM
From: JAG	Read Replies (4) of 14577

2,954,655 shares short as reported by todays Wall Street Journal. At some point these guys are going to get scared and cover big time. At these levels, I would watch for news of a S3 buyout or merger. With Intel entering the industry, it is ripe for consolidation. S3 could be purchased at current price for $252 million. A strong player could use $117 million of S3's cash to finance the acquistion, leaving $135 million to be financed from other sources. Borrow 75% on receivables and you have another $45 million, borrow 50% on inventory and you have another $35 million. The value of the fab has been established and selling another 1/3 would raise the cash to complete the purchase price. You do not find these situations very often in the marketplace, especially since S3 is still cash flow positive excluding the write-off of intangibles. The operating profit before the write-off for the quarter was $3.1 million (before tax) and depreciation is running at $4-5M per quarter. This comes at a time when sales were off 30% because of Asia. Company is cutting overhead 30%. No real cuts in R&D per the conference call. The cuts were in corporate fat. A takeover candidate if I ever have seen one in all of my years in the finance business.

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