3Dfx Pursues Mass Market with STB Buy Chip Maker Risks Retail Presence to
Capture PC Design Wins
-- Tue, 22 Dec 1998 00:06 EST
Dec. 21, 1998 (MULTIMEDIA WEEK, Vol. 7, No. 50 via COMTEX) -- 3Dfx
Interactive Inc. CEO Greg Ballard is willing to jeopardize his
company's retail success to try and carve out design wins at the PC OEM
level and take more control of his company's destiny.
With graphics board sales to PC vendors outpacing those to the retail
aftermarket by roughly nine to one, the company has good reason to
pursue a broader market.
By acquiring add-in card vendor STB Systems Inc. [STBI], the chip
designer hopes to gain design wins with Dell Computer Corp. [DELL] and
Compaq Computer Corp. [CPQ], PC companies sourcing boards from the
Texas-based vendor, and become a leading supplier to Gateway Inc.
[GATE].
The deal is expected to cost 3Dfx about $141 million in stock, with
STB shareholders receiving .65 shares of 3Dfx common stock for each
share of STB stock. Both parties expect the acquisition to close by
March, at which time 3Dfx will cut off most of its current board- level
customers.
"STB has an intense focus in the OEM business, an area where we're
weak," Ballard said. "I think 3Dfx by 2000 will be a more diversified
company away from [just] the consumer market."
In November 3Dfx inked a deal for the Banshee chip with Gateway
through a board from Creative Technology Ltd. [CREAF], but the company
has landed only a few design wins for the part, most with second and
third-tier customers.
STB's relationship with top PC vendors in the second half of 1998 has
come in large part because the company sourced Nvidia Corp.'s Riva TNT.
It's also too soon to tell if STB boards with 3Dfx silicon will carry
as much weight with PC OEMs as the Nvidia offerings.
"The OEMs pick the chip first and the board second," said Dan Vivoli,
Nvidia's vice president of product marketing. "3Dfx needs to build a
part the OEMs want."
Misguided World View?
Through the acquisition Ballard also seeks more control of his
company's destiny by determining the bill of materials at the silicon
and board level.
3Dfx will continue to supply current customers with silicon until the
company ships Voodoo3 early in the second quarter, after which it will
continue to work with "a handful of companies that fill in gaps in Asia
and Europe," Ballard said.
If he follows that plan, Ballard likely will lose the pricing control
he seeks. Those boards are bound to end up back in the U.S.- at a
price lower than STB boards which 3Dfx will then have to match-
throwing any "command" over a pricing strategy out of whack.
Even if 3Dfx successfully moves into PC OEM circles through the
acquisition, its foothold may come at the expense of the retail
business that gave the company its cachet among the PC gaming crowd.
STB has a weak retail presence compared to Diamond Multimedia Systems
Inc. [DIMD] and Creative-3Dfx's top two customers accounting for 60
percent of the chip company's revenue.
Officials from both those companies showed no trepidation about the
impending merger.
In fact, Creative officials are not impressed with 3Dfx's upcoming
Voodoo3 offering (MMW, Nov. 23), due out in the second quarter of
1999.
"We didn't really want to integrate it into our road map," said Steve
Mosher, Creative's director of graphics marketing.
He described the chip as limited in terms of memory with support for
a maximum of 16 MB RAM and said it offers poorer image quality than
some prototypes he's seen from competitors.
Creative officials also are less than enchanted with 3Dfx because of
pricing policies that cut into the board supplier's margins to a
greater extent than those from other silicon providers.
Creative Sells 3Dfx Stock
Creative's Bermuda subsidiary CTI Ltd. purchased a 6.5 percent
stake in 3Dfx for about $10.7 million in stock in the third quarter of
this year. On Dec. 14, the day the STB acquisition was announced,
Creative sold 544,2000 shares at $13.95 each, bringing the company's
ownership to 3 percent.
The STB acquisition will force Diamond to look elsewhere for the
silicon on high-end boards. Since Diamond sources graphics chips from
more companies than any other retail board supplier, however, it's
unlikely 3Dfx will be a significant loss. (STB, 972/234-8570; 3Dfx,
408/935-4400)
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Copyright Phillips Publishing, Inc.
I thought it was interesting.
Marc |
