Do people here really thing TDFX can get away with selling a $300-$500 board
Yes. $500 is too high, but 300 is a yes. I'm a very visual person. For as long as I remember, I've bought the best graphics card that I could reasonably afford e.g in my starving school days when many people had a B&W Hercules card, I bought a 64K (Ooooh, Aaaah) EGA card. The graphics component of my systems has always cost more than all the rest of it put together. Now I'm not going to spend $300 on a graphics card if a $80 card does 90% of the $300 card. But if the high end card is 80+% *better* (not necessarily faster) than the average card, then I don't mind paying 3~4 times the average price for it. I am not one of the majority, I know. Nor are OEMs interested in the high end card (then again, I custom build my systems, so who cares). But if I wanted a good "mostly OEM" company, I'd invest in ATI. Having the high end card out (sooner, rather than later) is a must.
The fundamental picture at 3Dfx is changing. I can read the charts as well as the next guy. But the company that I chose as a core holding in my portfolio, was one that had the best technology and was leveraging that into the mass consumer market. It also had amazing revenue growth and was *accelerating* the rate of that growth. I do not see these factors holding into the future.
3Dfx's market is (was?) two fold. A high end segment that is (was?) a devoted follower (kinda like Mac users) and gives a lot of publicity and encouragement for 3Dfx. And the upper spectrum of the general consumer mass market, who buy 3Dfx based on price/performence *and* the 3Dfx reputation (gained from the first segment).
I see 3Dfx losing the first segment at a cruicial time. They do not have the leading product right now, nor are they expected to have one for at least another 7 months. It does not matter that TNT is not much better than Banshee or V3. They have lost the title and with that, some of the mindshare of the techno-buffs (which includes the game developers). Worse, the expected cycle of OEM/retail/OEM/retail... seems to be broken with OEM replacing retail. I would not be very satisfied if 3Dfx had come up with TNT and another company had V3. I want substantial difference. This is the Indy race, not the best family car contest. The fact is that in '98, 3Dfx received 80% of its revenue from the high end market. Where will this revenue come from in '99? Please don't say from Banshee and V3. That is the revenue from the sweet spot of the market. I want to know what will happen with the 5% or so of the population who want the best graphics? So far they bought from 3Dfx. Do you think that's what they'll do in '99?
It is also the high end segment that keeps Glide alive. Why should the developers optimize their games for Glide, if DX6 does the job well enough? Now if 3Dfx did have a card with features that no one else had, and the developers desired, then it would be likely for developers to make their games Glide optimized so that they can show it off best. If I recall correctly, 3Dfx's management defined Glide as one of the 3 pillars of their strategy. Right now I see cracks on this pilar.
So where does all this leave 3Dfx? In my opinion, they are a company with good growth (but not even close to what I'd expected) and solid fundamentals. They are better positioned than most of their competition and are undervalued. They do not however have any strategic advantage over others and command no premium beyond their risk adjusted market multiple. Their revenue growth rate will be a lot slower than my expectation. And in general, the company is yet another graphics card maker that derives most of its revenue from the OEM market and will be highly affected by the OEM cycles.
What can 3Dfx do to remedy this? To begin with they should get in touch with the developers and convince them to continue to support Glide, even at the cost of paying them. Next they should redouble their efforts to create a truely superior chip (set?). Ballard once talked about the idea of developing different algorithms to improve the graphics. They should also make sure that they can sell more than one card per customer. I am more likely to cough up $300+ for a graphics card, if I know I can always improve it by adding another one (at a cheaper price) down the road. And they should stop being so secretive about their directions. They should keep the public (and the developers) tantilized by trickling down bits and pices of info evey 6 weeks or so about how good their next chip will be. I don't want them to lie the way Microsoft and nVidia do, but there is something they can learn from those two. At the very least they should read the press releases from ATI and see how it can be done in a healthy manner.
In summary, I see the nature of this company changing on a fundamental level. And any time that happens, re-assessment is in order. That's all. A lot longer than I wanted, but necessary IMO to explain why I'm critical of the company.
Sun Tzu |
