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Technology Stocks : Diamond Multimedia -- Ignore unavailable to you. Want to Upgrade?

To: Smart_Money who wrote (4484)	6/22/1999 6:27:00 PM
From: Philip W. Dunton, Jr	Read Replies (1) \| Respond to of 4679

From Street.com By Herb Greenberg Senior Columnist 6/22/99 4:48 PM ET Don't forget to check out this morning's regular edition of Herb on TheStreet. -------------------------------------------------------------------------------- S3's (SIII:Nasdaq) agreement Tuesday to purchase Diamond Multimedia (DIMD:Nasdaq) may do a good job putting Diamond out of its misery (talk about stumbling over your own two feet), but at the same time it could create misery for Nvidia (NVDA:Nasdaq). S3 is one of Nvidia's prime competitors in the world of 3D graphics chips, and Diamond has been one of Nvidia's biggest customers, accounting for 27% of sales last quarter. What's more, just last month another competitor, 3Dfx (TDFX:Nasdaq), bought STB Systems (STBI:Nasdaq), which last quarter accounted for 13% of Nvidia's sales. According to Nvidia's latest 10-Q, STB will no longer be a major customer. An Nvidia spokesman told me Tuesday that Diamond is also likely to cease being a big customer. "I don't see how we can move forward and work together," he said. The best evidence of strained relations between the two occurred on June 9, when Diamond, obviously in negotiations for this deal, sold all of its 428,572-share stake in Nvidia to Nvidia. The sale was in exchange for Diamond's hefty receivables, which as of last quarter accounted for 34% of Nvidia's receivables. (Wouldn't you do the same thing if you were Nvidia, for whom cash is currently not an issue? While you don't collect $11 million, you avoid 428,572 shares pouring into the market at some point over the next two months, when the lockup related to those shares expires.) Nvidia, however, isn't worried. The spokesman says the company has been unaffected by its loss of STB, which last year was its largest customer. "What a lot of people don't realize," he added, "is that [personal computer] OEMs pick technology first, board vendors [like Diamond] second." He figures another large customer, such as Creative Technology (CREAF:Nasdaq), will pick up the slack. Perhaps, but in its 10-Q Nvidia warns that "the number of potential customers for our products is limited." And last week Merrill Lynch analyst Bernard Tan cut his rating on Creative, citing competition from the likes of the 3Dfx/STB combination, which Tan said "has proven stronger than expected and is putting pressure on Creative's graphics shipments and pricing." Misery likes company.