From The Motley Fool:
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Today the maxim "no news is good news" held true.
3Dfx (Nasdaq: TDFX) announced news that was,
indeed, bad. The company stated that third quarter
revenues will be lower than anticipated due to a
stronger-than-expected seasonal slowdown. That's
mumbo jumbo for, "We aren't selling as much as we hoped."
Too great a quantity of Voodoo2 remains on retail shelves around this
mall-covered country of ours, although the holiday season might salvage our
Voodoo-selling entity. Management expects a seasonal increase in retail sales
during the fourth quarter, and it hopes that inventory will clear out and sell
through will improve significantly to end the year.
But that's then, and this is now.
Due to current slow sales, 3Dfx expects to go from black voodoo to red.
The company is banking on a pre-tax operating loss of several million dollars
this quarter, although thanks to the recent settlement of a lawsuit with Sega, it
should still be profitable. However, you can't include one-time gains in a
long-term financial model, or in this year's earnings per share.
The earnings estimate of $0.47 per share for this quarter obviously won't be
met. The $1.88 per share estimate for the year will likely be knocked down
to around $1.30 to $1.55 (that's my guess). With $1.04 in earnings already in
3Dfx's bank for the first half of 1998, that would mean a slightly slower fourth
quarter than the first two quarters of this year (following a loss in the third
quarter).
Why?
It's hard to see the company going from a loss to a blowout fourth quarter
that tops the first two quarters (which were $0.50 and $0.52 in earnings per
share, respectively) -- although, yes, that could happen. However, it's not
likely, in my opinion, that the seasonal slowdown is only "seasonal." Intel
(Nasdaq: INTC) just announced that its third quarter will be stronger than
anticipated due to higher demand in the U.S. and Europe. Intel hinted that
PC inventories might be clearing. If that's true and sales are healthy, you
might expect more sales of 3D gaming chips rather than a slowdown.
So are there larger problems at 3Dfx? The company still sells the best 3D
product and its technology is branded with hundreds of games and hundreds
more to come, so perhaps the only problem is market demand. Which would
be a problem indeed. In a world of declining PC prices, perhaps a high-end
3D chip seems more and more of a luxury by comparison, while other
(cheaper) 3Dfx offerings are lower-margin products.
Either way, perhaps this news was already built into the stock at the current
$10 price. 3Dfx is trading at less than 9 times trailing earnings and at 7 times
a new lower guesstimate of $1.40 per share in earnings this year. However,
the prospect of losses won't calm any nerves. The company's book value of
$7.52 per share might help the stock sustain the news -- at least somewhat.
For more research and information on the company, draw a quote on 3Dfx
at quote.fool.com. From there, not only do you attain reams of data,
earnings estimates, and past financial results, but you're given a convenient
link to the very active 3Dfx message board.
On the message board one Fool named AlphaWolf wrote, "The way this
stock reacts to news, it will probably go up a point or two." Another Fool
asked why everyone was panicking, pointing out that nobody sounded like a
long-term investor. He then Foolishly shared international sales data.
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Chip |
