Diamond Multimedia Reports Results for the Third Quarter Ended September 30, 1998
Business Wire - October 08, 1998 17:21
SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 8, 1998--Diamond Multimedia Systems, Inc. (Nasdaq:DIMD), a leader in the interactive multimedia market, today reported financial results for the third quarter ended September 30, 1998.
For the quarter, net revenues were $123.2 million, up 34% from $92.0 million for the third quarter of 1997. The company incurred a net loss for the third quarter of $22.2 million, or $0.63 per share, compared to a net loss of $2.5 million, or $0.07 per share in the third quarter of last year. For the nine months, net revenues were $481.7 million, up 87% from $257.4 million for the first three quarters of 1997. Net loss year-to-date was $22.6 million, or $0.65 per share, compared to a net loss of $52.6 million, or $1.54 per share for the first three quarters of 1997.
"Given the supply-demand and pricing dislocations evident during the past six months in the PC and PC semiconductor industries, we decided we needed to move toward a faster "short-cycle" inventory model," said William J. Schroeder, president and chief executive officer. "We took the step of virtually stopping all inventory buys and new production during the first half of our third quarter. This had the beneficial effect of allowing us to cut our inventory by almost half, and to bring most of our channel inventory in line with the targets contemplated by our new short-cycle model. We believe the balance of our channel inventory will come into line during our typically strong fourth quarter."
"While we strongly believe that this was the right step to take in light of the increasingly deflationary nature of the PC market, the action we took necessarily resulted in the majority of our third quarter revenue being shipped in September. In the end, our operations staff simply did not have enough time to produce and ship against all the orders that our customers had booked in September, and, as a result, our third quarter revenue did not meet our expectations," said Schroeder.
"Our lower revenue level in the third quarter contributed to our low gross margin," said James M. Walker, senior vice president and chief financial officer, " but the lower margin also reflects three other issues: (i) Inventory consumption in large part consisted of higher-cost components purchased in the first half of the year before the major semiconductor price declines; (ii) substantial pricing pressure on our legacy graphics products, almost all of which have now been sold; and (iii) price protection charges related to our Monster 3D II product, whose supply along with that of other Voodoo 2 based graphics subsystems exceeded demand during the third quarter."
"On the positive side, our outstanding orders at the end of the third quarter were roughly triple our orders at the beginning of the quarter, and our order rate and shipping momentum are strong. Moreover, we believe our current product line up, including products planned for launch during October, is the strongest we have ever had. This includes HomeFree, our wireless home networking product, and Rio, our Internet music player, two new products aimed at exciting new emerging market segments. Several of our new products reflect our strategic objective of shifting our revenue base toward more differentiated, proprietary products targeted at what believe will be hot new growth markets that leverage our brand and channels," Schroeder said.
"Other accomplishments during the third quarter included the successful launch of the Viper 550, based on the Nvidia Riva TNT chip, which the company believes is the highest performance mainstream graphics accelerator currently shipping and which has won early editorial accolades. We completed the acquisition and integration of Micronics and Digital Cast, an internet appliance design firm. And, we made a strategic investment in Nvidia. The three investments totaled approximately $37 million in cash. Finally, we completed the conversion at quarter end of the company's IT systems to an integrated database, enterprise-wide resource planning (ERP) system based on Oracle, which should provide us with increased real time control and visibility over our business.
"Looking forward, we believe we are positioned with current, low-cost inventory, a strong product line populated with higher margin, proprietary products and strong brand and market momentum. Understandably, we are optimistic about our ability to come back strongly in our fourth quarter and to maintain this momentum going forward into 1999," Schroeder said.
About Diamond Multimedia
Diamond Multimedia is driving the interactive multimedia market by providing advanced solutions for home, business and professional desktop computer users, enabling them to create, access and experience compelling new media content from their desktops and through the Internet. Diamond accelerates multimedia from the Internet to the user with products that include the Stealth and Viper(R) series of media accelerators, the Monster series of entertainment 3D and sound accelerators, the Fire series of professional 3D accelerators, the Micronics series of system boards, the Supra(R) series of modems, and the HomeFree line of home networking products. Diamond's common stock is traded on the Nasdaq Stock Market under the symbol DIMD, and its web site address is www.diamondmm.com.
The above statements concerning future results, and in particular the statements regarding order and shipping momentum, revenues from new product launches, low cost of inventory, higher margins and new product segments, constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those projected. Among the factors that could cause actual results to differ materially are the following: business conditions and growth in the graphics and multimedia accelerator market, the modem market and the general economy, the volume and timing of orders received during the period, the timing of new product introductions by the Company and its competitors, product line maturation, competitive factors, such as rival chipset designs and pricing pressures, the availability of third-party components products at reasonable prices, inventory risks due to shifts in market demand and/or price erosion of purchased components, changes in product mix, distribution channels, and costs associated with the development, manufacture and market introduction of new products.
Additional risks are detailed in the Company's filings with the Securities and Exchange Commission, including its reports on Form 10-K filed on March 24,1998 and the most recent 10-Q filed on August 14, 1998. The Company may, from time to time, make additional written and oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and its reports to shareholders. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. Readers should carefully review the risk factors described in the documents the Company files from time to time with the Securities and Exchange Commission. |
