ATI takes chip wars to TV, Net devices
news.com
By Brooke Crothers
Staff Writer, CNET News.com
July 8, 1999, 11:25 a.m. PT
Buoyed by another strong quarter in sales, graphics chip leader ATI Technologies
is preparing to expand into the market for low-cost computing devices with
"system-on-a-chip" products for next year.
As with S3, Broadcom, and Intel, ATI is trying to use its core product--in ATI's case,
graphics chips--as a hub for developing entire silicon solutions for low-cost Net devices and
TV set-top boxes, a huge opportunity fraught with equally gigantic risks.
Which company, if any, ultimately succeeds in this market remains to be seen.
Nonetheless, ATI is at least going in with a decent track record and strong sales.
ATI today reported sales of $302 million for the third quarter, up 65 percent from $182.8
million posted in the same quarter last year.
Earnings, excluding acquisition and other costs, rose to $35.9 million, or 17 cents a share,
versus $26.5 million, or 12 cents a share, for the corresponding quarter of 1998, the
company said. Including one-time charges, actual earnings came to $18.6 million, or nine
cents per share.
While nearly all of ATI's revenue comes from graphics, product diversity is starting. ATI is
preparing for dramatic changes in the computer market revolving around low-cost consumer
devices, according to Kwok Yuen Ho, president and chief executive, speaking to CNET
News.com. To meet the demands of this market, next year the company is planning to
bring out, among other products, a single chip which combines the main processor with a
graphics chip, chipset, and memory, he said.
This would position ATI as a supplier of most of the critical electronic components in
consumer appliances, akin to Intel's role in the PC business.
"This market will be a lot bigger than people expect," Ho said. "Computing devices will
become much different. They will become so cheap that people will have several devices,"
he said. ATI has already got its feet wet in this market by supplying chips for General
Instrument's advanced DCT-5000 TV set-top box. That contract is worth close to $190
million.
Ho would not say where it will get the technology for the main processor in the
system-on-a-chip it plans for next year. Currently, the company has an integrated chip
design for the General Instrument box which uses a MIPS processor.
Technology hurdles
But analysts say that forays into this market by others indicate it is no easy task to make
money. The devices themselves will sell for low prices, which means the chips will too.
Integrated chips, moreover, come with their own development and design hassles. As with
a lot of technology, they often look best on paper.
"It would be remarkable if ATI can work around the standard problems with such chips,"
said Peter Glaskowsky, an analyst at Microprocessor Report. He said that a
system-on-a-chip takes "longer to design because of interdependencies among the
elements [and] that they cost more to make...and become obsolete more quickly because
of the difficulty of updating each element as new technology becomes available."
ATI's Ho also said that they are preparing integrated chips for the PC market. Chromatic
Research, which ATI purchased in November of last year, specializes in system-on-a-chip
technologies.
All of this is being driven by the need to adjust to a new computer paradigm which
emphasizes low cost over high performance. "We have to reduce costs," Ho said, adding
that ATI sells a lot of its chips to low-cost PC makers.
Ho also pointed to increased sales in the notebook PC market where it is ranked No. 3
behind NeoMagic and Intel, proclaiming: "We intend to be No.1 next year."
But S3, which fell on hard times last year and lost its No.1 standing in the desktop market
to ATI, is racking up a number of contracts to supply its new Savage4 graphics chip to PC
makers, including Compaq Computer and IBM. S3 is also working on an integrated chip
with Via due later this year.
Strong competition
"There are no guarantees in this business…S3's Savage4 is matching or beating ATI on
value, Nvidia's TNT2 is the fastest chip on the market, and the laptop market is still wide
open. I don't think ATI or any other company can win so many fights at once," said
Glaskowsky.
ATI also cited new customer wins of its own for its new Rage 128 chip for desktops. In
addition to Apple Computer, the chip is used in Gateway business desktops, a
Hewlett-Packard Pavilion consumer PC model, and Acer computers. ATI also has
contracts with Apple, Compaq, Dell, Fujitsu, and Gateway for notebooks.
"ATI has done a great job over the last few years. It has good 3D technology, good
software, and good relationships with [customers.] ATI is the strongest overall company in
the 3D market, and it is likely to maintain this position for the next year," Glaskowsky
said.
In other financial highlights, ATI said gross margins were 37 percent for the third
quarter, compared to 36.9 percent in the same quarter last year.
Operating costs (excluding acquisition amortization costs of $17.3 million) in the
third quarter increased 96 percent year-over-year to $63.5 million up from $32.3
million for the third quarter of fiscal 1998. This was largely due to the expected
increase in R&D expenditures relating to the acquisition of the Chromatic
development team and increased costs related to developing additional product
lines. |
