How many Banshee's to breakeven...
Let's take the following points:
1) Jeff said the DZ told him 40% gross margin on Banshee
2) I've heard that last quarter Banshee was priced about $30
3) Going forward (1999), total operating expenses will probably average around 20 million
Given this info (I know it's rough, but it gives us a good idea), 3dfx makes about $12 per chip. In order to cover the 20 million in costs, 3dfx would need to sell about 1.66 million Banshee units (50 million in revenue). Last quarter 3dfx sold about 1.2 million voodoo2 units and I expect 1Q99 to be MUCH less than that. To put it simply, Voodoo2 will be last years technology and Banshee will have to be a real hit. At no point in time has 3dfx sold 1.66 million units during a given quarter.
It all depends on OEM acceptance of Banshee, but at this point I doesn't look likely that 3dfx will achieve profitability at all in 1999 with their current or announced products.
Sun, 30% of the entire OEM market? That would put them on par with ATI. We have absolutely no indication that 3dfx will come even close to this. As a matter of fact, we only have 3dfx's word that they even have an OEM deal. I think 30% is a case of wishful thinking.
Jeff, you could be right. I remember that for over 2 years Iomega said they had the technology to make a 200 MB zip drive. What did they do? They spent millions on a superbowl add campaign. Take a look at their current stock price. The last thing I need is another case of desa vu. They shouldn't get so involved in their branding campaign that they forget to compete in the open market.
So why am I still here? Contrary to the theory of the iron gut brigade I'm only here to make money. I see two main points for remaining in this stock.
1) I suspect 3dfx will have a cash value of around $7 after this quarter, limiting my downside risk.
2) The possibility of 3dfx getting royalties off of a set top device or console is extremely appealing to me and I give it good odds that something is in the works
After all, from a financial standpoint Rampage could be the most revolutionary 3d product in the world but it means nothing to me if they are selling to the same customers they sold Vooodoo2 to. There needs to be a general growth of 3dfx's market. I will be looking for evidence of this market growth in the 3Q conference call. I want to see set tops, pc-on-a-chip, games consoles, PC oems, and hardcore gamers as just some of their target markets. Let me emphasize that the hardcore gamer is the LEAST of my concerns. Of all the previous markets they will be the least fruitful and most inconsistent.
If 3dfx wants to think they are marketing/branding/platform wunderkind then fine, but it won't be on my dime. Until they have the marketing size and power of ATI I will measure them by their technology and nothing else.
Pat |
