Herb Greenberg today in theStreet.com:
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COMMENTARY >> HERB ON THESTREET
Is S3 About to Give Graphics Chip Kingpin ATI a Run for Its Money?
By Herb Greenberg
Senior Columnist
4/7/99 6:30 AM ET
How many times does this column have to warn that today's chip star is tomorrow's chipped investment?
Obviously not enough. From the looks of ATI Technologies' (ATYT:Nasdaq) stock, investors have no fear. And for good reason: For more than a year, ATI has been the king of graphics chips used in mass-market PCs. Much of its success came at the expense of a then-hobbled S3 (SIII:Nasdaq), which learned about chip cycles the hard way. (Take a look at its earnings and a long-term stock chart if you want a new definition of the term "free fall.")
But S3 is doing what few chip companies ever do; it's looking a lot like the comeback kid, in large part (it claims) by doing to ATI what ATI did to S3. S3 already claims its Savage4 chip has been designed as the chip of choice in the next crop of PCs by three of the top five PC makers. (It wouldn't say which ones.) And it says it's working hard to get the other two. Just this week S3 CEO Ken Potashner told analysts in New York that so far S3 hasn't lost a design win to anybody.
What's more, the very mid- to low-end PC market that ATI once had to itself is getting additional competition from the likes of Nvidia (NVDA:Nasdaq), which specializes in building chips for high-end PCs. Intel (INTC:Nasdaq) is expected at some point to roll out a chipset for super cheap computers, until now a prime market for ATI.
How could ATI lose so much? "They had already won the war," says Fahnestock analyst Dan Scovel. "Now they're trying to expand into other areas, so they neglected their core PC base. We saw Cirrus Logic (CRUS:Nasdaq) do it. We saw S3 do it. Now we're seeing ATI do it."
But ATI denies that it's losing anything significant to S3. While conceding that S3 has some design wins, an ATI spokeswoman adds that ATI's market share continues to grow by expanding to such areas as notebooks and set-top boxes. "They will get one or two big names, but they won't get volume," she says.
To which an S3 spokeswoman says, "We absolutely have won high volume, and we're winning these designs from ATI."
They both can't be right. Don't ya just love it?
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