SCKT will do well IF Windows CE does well... MSFT dominance here is
questionable, IMO.
I'm surprised there has been no discussion of the SIII buyout of
Diamond(RIO)...
Perhaps noone knows what to make of it. I sure don't!
Q. Why wouldn't someone else challenge this... SONY?SAMSUNG? 3COM?
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S3 to buy Diamond Multimedia in stock swap
By Therese Poletti
SAN FRANCISCO (Reuters) - S3 Inc. (Nasdaq:SIII - news), a developer of PC graphics chips, said on Tuesday it would enter a new market with the purchase of Diamond Multimedia Systems Inc. (Nasdaq:DIMD - news), maker of the popular Rio MP3 music player, for $180 million in stock.
S3, based in Santa Clara, Calif., said the move represents a major strategic shift to enter the Internet appliance and home networking markets. But the move is also further consolidation between graphics chip firms and board makers.
Diamond, most recently known for its Rio Internet music player, also develops home networking products and is the biggest maker of graphics accelerator boards, which are used for two- and three-dimensional graphics in personal computers.
S3's graphics chips, the Savage family, are bundled onto these graphics boards and others, and sold either at retail as an add-in card or to PC makers directly.
''S3 has two clear objectives,'' Ken Potashner, president and chief executive told analysts on a conference call. ''First is an aggressive return to profitability and second is a diversification of our technology base.''
San Jose, Calif.-based Diamond is almost three times bigger than S3. It reported $608.6 million in revenues in 1998, with about 70 percent of its revenues typically coming from graphics boards, its chief executive William Schroeder said.
S3 had $224.6 million in fiscal 1998 revenues, with a net loss for the year of $113.2 million, including restructuring charges. S3, which had been struggling since it missed a major product cycle, has been rebounding with its new Savage line.
''They are probably both in a recovery mode,'' said Dan Scovel, an analyst with Fahnestock & Co. ''It could be an interesting deal here.'' Scovel continues to rate S3 a buy.
Under an agreement between the companies, Diamond shareholders will receive 0.52 of a share of S3 for each share of Diamond Multimedia.
The companies said they plan to integrate their chip and board business, a move analysts said is likely to alienate other board companies who may not wish to continue buying S3 graphics chips. But in some cases, PC makers who are adding the boards themselves will determine which graphics chips to use.
Diamond's Rio Player business, however, will remain a separate business, with the potential for an eventual spin-off. ''The Rioport strategy, as it evolves, we will position that as a spin out, as a primary intent,'' Schroeder told analysts, referring to the company's music portal called Rioport.com
Diamond executives also said they plan to introduce a new version of the Rio player at a press conference in Los Angeles on Wednesday night, along with some strategic announcements.
The Rio is a pager-sized device that can store CD-quality songs encoded in the MP3 downloading format. Just last week, Diamond won a major legal battle, when a U.S. Circuit Court of Appeals ruled that the Rio MP300 device did not qualify as a digital recording device and did not violate anti-piracy laws.
S3 will have cash to invest in future growth of these businesses, plus Diamond's foray into home networking. S3 said that it is scheduled to receive 252 million shares of United Microelectronics Corp. stock, which is valued at approximately $600 million, through a joint venture. S3's current cash position is about $130 million.
The deal is expected to close in October. Potashner will remain chairman and chief executive of the combined companies, while Schroeder, president and chief executive of Diamond, will become president and chief operating officer.
Shares of S3 closed down 69 cents at $8.75 and Diamond finished 94 cents lower at $4.75 in active trading, both on the Nasdaq stock market.
Reuters/Variety
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