Joe,
As a long time lurker of SI and long termer in TDFX, I'd have to say
the following four factors you give correctly explain the low valuation of this company. Similarly I fell into this same "bear" trap as
TDFX has declined...and have fallen for all four of these factors.
Everyone is beating themselves up over "why" and you got it.
Except for one factor that has really been bugging me, which I
will add, and would like to get input back from this forum on.
Then, I am back to lurking.
If people here think this final factor is stupid, then maybe it is
time for me to move out of this stock.
> 1. I expected TDFX to stand out from the chip sector crowd given
> its' dominant position and branding strength.
Branding can be a good thing, as W. Buffet would tell you. But
the problem with branding and TDFX is that the float is too small.
This ties in with factor 4. below. It seems that branding does
have some value, even here. Because without it, we may likely
be priced the same as SIII, TDDDF, or NINE right now. It's the
only thing keeping us from single digits besides the profit growth.
> 2. I did not anticipate a major shift in sentiment (IMO unjustified) on > the 3D industry.
This one baffles me, but is mostly explained by the fact that there
are just too many companies in this field. The CEO of TDDDF
is saying today that graphics chips are going to contain more
'components' than a CPU. But Intel sells high end CPUs for
$500s of dollars where graphics chips are in the $50 dollar
range with low margin. This industry needs consolidation. But
unfortunately there don't appear to be companies around that
would want any of them. Yeah, besides Intel but they made
their purchase. If I had to guess, it might make sense for ATI
to buy SIII, and maybe TI to buy TDDDF, who knows? Does
anyone think some of these companies might merge?
>3. I overestimated the strength of the pc gaming movement in that I thought graphic capabilities would have received wider attention in the general media than it has to date.
You and I didn't overestimate this, we just came to the conclusion
too early. Being smart in this market can kill you...you got to wait
until the average Joe figures this out and starts picking up
TDFX for his retirement fund. Just like the average Joe thinks
"internet" and picks up ridiculous values like Yahoo. This stock
has no momentum buyers and none in sight.
Long term, though, you are right on again with
> PC gaming will continue to grow helped by the explosive gowth of
> the internet. PC multiplayer is a powerful advantage of the pc
> gaming platform and faster internet access (i.e. cable), and
> continued growth will only make it more popular. Standalone
> consoles may be unable to compete against lower cost pc's of the
> future.
But we are losing money here waiting for this. The growth first
is in cable access. That growth will happen before this,
so I'm moving money there; for example BRCM. But eventually
TV will need 3D acceleration. How else are you going to get
the talking head interaction with your set? Images on the TV
are now essentially analog, but digital will blur real life from
digitally created images (games) more.
> 4. I ignored my initial reservations about smallcap stocks in general > using the excuse that the secondary offering and expected growth > would establish a sufficient market cap that would resist excessive > volatility and wide price swings. I like to trade small caps - not own > them outright.
Yeah, I misjudged the small cap market too. But in the past have
done well holding them, and in this market they are the better
value play. And, small caps aren't going down much from here,
especially in a bear market. All the young investors now-a-
days don't seem to worry about a bear market. But M. Lynch
always said "never lose money". In the long term, those stocks
are small caps now since the large caps are too high a P/E.
But the average retirement fund just views small caps as too
risky. So about all I'll get from them is downside protection!
Again, this market is not a thinking man's market but pure
momentum.
Okay, give me input on this factor which I misjudged TDFX on:
5. I counted on the company realizing that they had to produce
the best 2D and 3D board when they released Banshee. This
means I expected Banshee to blow away a *single* Voodoo2. How
can they not produce a board with better performance than a
Voodoo2? Let's go through the obvious reasons,
a.) They didn't have the capability.
This is nonsense of course, as Voodoo2 is not made by
one of their competitors; they make it.
b.) With Voodoo2 performance in Banshee, then Banshee would
cost too much and miss the OEM market.
This of course is BS. Most of the cost of Voodoo2 performance
is in the NRE for the Voodoo2. The technology is already developed
and in house. A little more Silicon would raise a negligible amount
to the cost of Banshee. If I am wrong on this, than what is the
cost of the extra TMU they left off of Banshee that would have
made it beat a Voodoo2?
c.) With better than Voodoo2 performance in Banshee, the
company would cannibalize Voodoo2 sales before Banshee
could ramp up.
Why has no one stated the obvious that this is exactly what
TDFX did! Sure I think that management gets average grades
for realizing this,and leaving off the TMU. But they totally left
themselves open to being beat by competitors when they
refused to be there own competitor. You simply cannot
do this in today's world. You have to look for another answer
to the problem of cannibalizing Voodoo2 sales. I think there
is at least one:
Why the heck didn't they build off there "add-on" 3D
acceleration niche with Banshee?
i.e. why the heck didn't they make Banshee SLI compatible with
a Voodoo2 card????????
That's why I bought the stock before Banshee was released,
figured they would realize that technical solution based on
the fact that the add-on card business was their niche to
getting in this field to begin with. So then anyone that bought
a Voodoo 2 card while waiting for Banshee would just throw
away their old Matrox Millenium when Banshee came out,
and shazam, instant SLI top of the line with no competition.
I figured Banshee would essentially be a Voodoo2 with
the fantastic 2D in Banshee. Wrong.
Eventually, as people seem to be talking here, it is a given
that Banshee followed by Rampage etc. will eventually
lead to TDFX producing only combo 2D/3D cards? Why
give up the 3D add-on niche this company created? 3D add
on cards can be replaced more often as the market is more
inelastic. People always want the fasted thing, given an
easy upgrade path. 3D add-ons also provide flexibility to allow
TDFX to more quickly stay on top of the competition.
Now I realize that it may have been technically infeasible to
make Banshee SLI compatible with a Voodoo2 since they are
not identical. But moving forward here, TDFX should now at
least be able to quickly release a Voodoo2 follow
on that is SLI compatible with Banshee (stripped down
Banshee). Are they going to do this? If not, why not?
Why can't TDFX define an interface between
2D/3D cards and 3D only add on cards now, and patent it.
Purpose: all TDFX 3D add in cards should in the future always
work better, and be more compatible with a TDFX 2D/3D
card such as Banshee. They should still work with competitors
cards, but why can't TDFX build off their proprietary GLIDE API
to make 3D add-ons work better with a custom interface to Banshee?
Let call this Slot 3 on a Banshee, for plugging in your latest
3D graphic accelerator from TDFX. Sure would save money over
having to need an entirely new board, right?
Am I nuts? Or is this company managed by technical weanies
who can't figure this out?
W. |
