3Dlabs Reports Second Quarter 1998 Results
PR Newswire - July 21, 1998 17:40
HAMILTON, Bermuda, July 21 /PRNewswire/ -- 3Dlabs(R) Inc. Ltd. (Nasdaq: TDDDF) today announced financial results for the second quarter ended June 30, 1998.
Total revenues for the quarter were $8.9 million and, as previously forecast, the Company incurred operational losses of $1.7 million or ($0.11) per share, excluding the special charges identified below. Without these charges, gross-profit for the quarter was $3.8 million and product gross-margins were 42%, up sequentially from 33% in the first quarter.
Also, to decrease expenses and overhead, the Company announced that it has reduced its worldwide headcount by approximately 15%. These reductions were primarily in those areas of overlap between 3Dlabs and Dynamic Pictures (DPI,) which the Company recently acquired. The combined research and development staff was unaffected.
"As we indicated during our May announcement, this was a difficult quarter for 3Dlabs and its customers. The general slowdown in the PC industry and the adverse business climate for our PERMEDIA 2 products in the Asia-Pacific region continued unabated, which has resulted in intense price-competition and excess products from competitors in the channel," said Osman Kent, president and CEO of 3Dlabs.
As a result of the DPI acquisition and these continuing negative trends, in the June quarter the Company is recording a write-down of inventory and recognizing losses on firm purchase commitments of approximately $13.4 million and is recording additional reserves relating to its provisions for doubtful accounts of $2.5 million. In this light, the Company reduced the value of its PERMEDIA(R) 2 inventories and its firm inventory purchase commitments as of June 30, 1998, in line with falling prices. Additionally, as a result of entering into the board business in the PC workstation segment, the Company has written off certain of its chip inventories to reflect its new business model. Moreover, the anticipated delays in collectibility from certain customers following the DPI acquisition led to the increase in the AR reserves. When these charges are reflected, the Company's net losses for the quarter were $18.1 million or ($1.18) per share.
The Company expects to take an in-process research and development write-off and remaining acquisition-related charges, including the charges relating to the above mentioned staff reductions, in the third quarter as previously announced.
Continuing, Kent said, "Our recent announcement regarding the acquisition of DPI marks our entry into the vertically-integrated board business with our GLINT and Oxygen family of products for the PC Workstation segment. We are very encouraged by the positive response we have received from the industry since the announcement. This is one of a series of strategic steps which we intend to take as we re-architect our business model in response to changing market conditions. As we have already demonstrated in the second quarter, 3Dlabs has the resolve to take difficult decisions and execute them for the long-term benefit of our business, however painful they may be in the short term."
Related to its change of business model, the Company recently announced the formation of two strategic business units (SBUs) focused on PC workstation and PC desktop markets, respectively. Neil Trevett, formerly vice president of marketing at 3Dlabs, has become vice president of workstation products, responsible for managing the Workstation SBU operations. This business unit will develop and market both board-level and chip-level solutions for the Windows NT(R) and OpenGL(R)-based PC workstation market. The Workstation SBU will combine 3Dlabs' existing GLINT(R) business with the additional personnel, technology and distribution strengths of the newly-acquired Dynamic Pictures.
James Carrington, formerly director of marketing at 3Dlabs, has become vice president of desktop products. The Desktop SBU will develop and market chip-level PERMEDIA products for the mainstream Windows(R) 95/98 and Direct3D(R)-based PC graphics markets, including the high-performance and consumer segments. In these PERMEDIA-related markets, 3Dlabs does not intend to enter the board business and will remain a merchant chip supplier. The Company recently announced the details of its forthcoming PERMEDIA 3 processor which is expected to be an important contributor to its merchant chip business in the PC desktop markets during 1999.
Commenting on the recent events, Kent said, "Despite the pressures of a difficult quarter, I am pleased at the speed with which the Company has responded to making substantial changes in its fabric and direction. Looking forward, we expect our new business model, new products, enhanced focus and expanded product development resources to restore our profitability in 1999. For the remainder of 1998, we intend to focus our resources on rebuilding our business and completing the development of our new product lines."
Recent Highlights
3Dlabs Acquires Dynamic Pictures Inc.
On July 14, 1998, 3Dlabs announced that it has acquired DPI in a stock for stock transaction. DPI, a privately held company based in Santa Clara, CA, is a leading supplier of professional 2D/3D graphics boards for the Windows NT-based PC workstation market. It is best known for its Oxygen(TM) brand of products that it supplies through its 300-strong VAR network. The acquisition marks 3Dlabs' entry into vertically-integrated board-level products for the fast-growing PC workstation market, augmenting its GLINT chip business in this segment.
3Dlabs acquired DPI for a consideration of 1,800,000 newly-issued common shares of 3Dlabs and assumed outstanding DPI's debts and long-term liabilities of approximately $2.9 million. The acquisition will be accounted for using the purchase method. The Company expects the acquisition to be accretive to earnings-per-share in 1999. DPI has been incurring losses and the acquisition is expected to be dilutive for the remainder of 1998.
3Dlabs Announces New Oxygen RPM 3D Graphics Accelerator
On July 20, 1998, 3Dlabs announced the new Oxygen RPM 3D graphics accelerator card for AGP -- its first board level product following the acquisition of Dynamic Pictures. Oxygen RPM 2/64 uses two parallel graphics processors with 64Mbytes of SDRAM memory to provide true-color, high-resolution 3D graphics performance for professionals at an estimated list price of $1,499.
The unique modular architecture is designed to allow end-users to upgrade to four graphics processors and 128MB of SDRAM with a snap-on Oxygen RPM x2 expansion card at a list price of $1,199. The upgraded four-processor version is expected to deliver a peak fill-rate of 120 million bi-linear filtered pixels-per-second and a Viewperf CDRS-03 score of over 120. Both cards are expected to be available in the third quarter of 1998. Oxygen RPM is designed to use 3Dlabs' PowerThreads(TM) technology leveraging multiple Intel CPUs for increased OpenGL performance.
3Dlabs Announces Details of its Forthcoming PERMEDIA 3 Graphics Processor
On July 13, 1998, 3Dlabs announced the details of its forthcoming PERMEDIA(R) 3 graphics processor, its next-generation device in the award-winning PERMEDIA family, which integrates 2D, 3D, digital video and VGA processing in a high-performance, single-chip design. Processing up to 250 million texels-per-second while rendering dual-textured polygons in a single pass, the PERMEDIA 3 design is expected to deliver comprehensive acceleration for Microsoft(R) DirectX(R) 6 multimedia API; providing fast gameplay while boosting 2D, video and 3D Windows application performance.
The PERMEDIA 3 will be manufactured in a 456-pin BGA package using a state-of-the-art 0.25 micron silicon process. The device is expected to be priced at approximately $45 for quantities of 100,000 units per month once it enters into production and will be available solely from 3Dlabs. The Company does not expect to derive revenues from PERMEDIA 3 until 4Q 98.
3Dlabs Announces Continuing Design Wins for GLINT and PERMEDIA Products
The PERMEDIA 2-based Jeronimo Pro multi-monitor graphics accelerator from Appian Graphics (Redmond, WA) and the GLyder(TM) MAX-2 from STB Systems, Inc. have been selected by IBM for two new Windows NT workstations; the IntelliStation? E and M Pro.
Compaq Computer Corporation has chosen the PERMEDIA 2-based ELSA (Santa Clara, CA) GLoria(TM) Synergy+ for selected configurations in the latest Compaq Professional Workstation AP400.
Tri-Star Computer (Phoenix, AZ) and UMAX(R) Data Systems, Inc. (Taipei, Taiwan) have chosen to incorporate the GLINT GMX 1000 chipset in their latest workstation offerings. Both will include the GLINT GMX-based GLoria(TM)-XXL from ELSA, Inc. (Santa Clara, CA) as one of the graphics accelerator options for their Windows NT workstations.
About 3Dlabs
Founded in 1994, 3Dlabs is a leading innovator and a fabless supplier of high-performance graphics chips, software and related technologies designed to bring cost-effective 2D and 3D graphics to the personal computer. The Company has introduced nine 3D graphics processors over the last four years with price, performance and functionality designed to meet the demand for 3D on the PC, ranging from low-cost consumer to high-end workstation market segments. The Company recently announced its plans to provide board-level solutions in the PC workstation markets, augmenting its merchant chip business in this segment.
The Company markets and sells its award-winning merchant 3D graphics processors to PC and graphics board OEM customers and selectively licenses its embeddable graphics processor cores on a royalty-bearing basis to strategic technology partners. Companies using 3Dlabs' graphics processors in their systems include Compaq, Dell, Digital Equipment Corporation, Gateway, Hewlett-Packard, Hitachi, IBM, MaxVision, Micron, NEC, NeTpower, Siemens Nixdorf and TriStar. Leading board vendors using 3Dlabs' graphics processors include AccelGraphics, Creative Labs, Diamond Multimedia, ELSA, Leadtek and STB.
For more information on 3Dlabs and its products, please visit 3Dlab's web site at (www.3dlabs.com).
Forward Looking Statements
Various matters set forth in this press release, such as statements relating to Company's ability to successfully exploit technological and market position of Dynamic Pictures and 3Dlabs; the Company's expansion into high-end board business; the Company's ability to integrate Dynamic Pictures into 3Dlabs' operations; the Company's ability to deploy Dynamic Pictures' personnel and technologies on 3Dlabs' products; the Company's ability to achieve cost reductions; the expectation that the acquisition will be accretive to earnings in 1999; the future competitiveness and OEM or end-user acceptance of Company's products; the expected financial performance of the Company including changes in product volumes and pricing, revenue and gross profit or margin levels and the cost of purchasing products; the expected timing and availability of PERMEDIA 3 and Oxygen RPM based products; the development of, functionality, performance, availability, timing and announcement of any new products are forward-looking statements. These statements are subject to risks and uncertainties, including without limitation, the Company's ability to complete development of new products and technologies in a timely and commercially viable manner; the ability and willingness of the Company's manufacturing partners to produce products in a timely and cost effective manner and in sufficient quantities; the ability of the Company to obtain and keep design wins for its products; the willingness of Company's current customers to pay outstanding accounts receivables and to continue to do business with the Company; the ability of the Company to reduce its existing cost structure and eliminate current and anticipated losses at Dynamic Pictures and at 3Dlabs; the ability of the Company's products to adequately meet the price/performance requirements of its customers; the success of the Company's customers in achieving sustained demand for systems incorporating the Company's current and future products; the impact and pricing of competitive products; the introduction of alternative technological advances and other risks detailed from time-to-time in 3Dlabs' SEC reports.
NOTE: 3Dlabs, GLINT, Oyxgen, PowerThreads and PERMEDIA are registered trademarks and GLINT Gamma, GLINT GMX and GLINT DMX are trademarks of 3Dlabs Inc. Ltd. Microsoft, Windows and Windows NT are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries. Pentium is a registered trademark of Intel Corporation. OpenGL is a registered trademark of Silicon Graphics, Inc. All other trademarks are acknowledged.
3Dlabs Inc. Ltd.
Condensed Consolidated Statements of Operations
(in $000s, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues
Products $8,819 $15,882 $33,233 $30,964
License, royalty and other 55 1,462 155 2,144
Total revenues 8,874 17,344 33,388 33,108
Cost of revenues
Products 5,094 6,587 21,467 12,449
License, royalty and other 4 -- 25 --
Sub-total 5,098 6,587 21,482 12,449
Additional Inventory charges 13,365 -- 13,365 --
Total cost of revenues 18,463 6,587 34,857 12,449
Gross profit/(Loss) (9,589) 10,757 (1,469) 20,659
Operating expenses
Research and development 2,019 1,581 3,688 2,936
Sales and marketing 2,658 2,411 5,969 4,672
General and administrative 811 572 1,648 1,141
Sub-total 5,488 4,564 11,305 8,749
Additional accounts
receivable reserves 2,500 -- 2,500 --
Total operating expenses 7,988 4,564 13,805 8,749
Income (loss) from operations (17,577) 6,193 (15,274) 11,910
Other income (expense) (27) 523 327 798
Income (loss) before taxes (17,604) 6,716 (14,947) 12,708
Provision for income taxes 539 672 858 1,280
Net income (loss) ($18,143) $6,044 ($15,805) $11,428
Net income (loss) per share $ (1.18) $ 0.38 $ (1.03) $0.72
Shares used in computing
income (loss) per share (000s) 15,303 16,001 15,283 15,927
3Dlabs Inc. Ltd.
Condensed Consolidated Balance Sheets
(in $000s)
June 30, December 31,
1998 1997
(unaudited) (audited)
ASSETS
Current Assets:
Cash and short term investments $22,626 $26,732
Accounts receivable 9,195 16,073
Inventories 4,174 3,796
Prepaid expenses and other current assets 1,824 1,854
Total Current Assets 37,819 48,455
Property and equipment, net 4,336 3,713
Other Long-Term Assets 127 --
Deferred tax assets 139 766
Acquired patents, net 600 784
Total Assets $43,021 $53,718
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $3,288 $3,773
Accrued liabilities 7,157 2,074
Income taxes payable 1,817 1,926
Current portion of long term debt 447 273
Total Current Liabilities 12,709 8,046
Long term debt -- 34
Total Liabilities 12,709 8,080
Shareholders' Equity
Common stock 151 151
Additional paid-in capital 31,995 31,528
Retained earnings (deficit) (1,632) 14,174
Deferred compensation (105) (143)
Cumulative translation adjustment (97) (72)
Total Shareholders' Equity 30,312 45,638
Total Liabilities and Shareholders' Equity $43,021 $53,718
SOURCE 3Dlabs Inc. Ltd.
/NOTE TO EDITORS: Please note that 3Dlabs is written as one word, without
a space and with a capital D./
/CONTACT: Osman Kent, President and CEO, 408-436-3455, or
osman.kent@3dlabs.com, or Tom Donohue, Vice President and CFO, 408-436-3455,
or tom.donohue@3dlabs.com, both of 3Dlabs/
/Web site: 3dlabs.com
(TDDDF)
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