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Technology Stocks : S3 (A LONGER TERM PERSPECTIVE) -- Ignore unavailable to you. Want to Upgrade?

To: David K. who wrote (13529)	8/24/1999 9:42:00 AM
From: Chris Tomas	Read Replies (2) \| Respond to of 14577

Was Nvidia Stuffing Its Distribution Channel With 'Anything That Wasn't Nailed Down?' By Herb Greenberg Senior Columnist TheStreet.com 8/24/99 6:30 AM ET Too graphic?: The last time this column mentioned graphics chip maker Nvidia (NVDA:Nasdaq), the issue was whether S3's (SIII:Nasdaq) purchase of Nvidia customer, Diamond Multimedia (DIMD:Nasdaq), would put a crimp in Nvidia's sales. The S3/Diamond deal came on the heels of 3Dfx's (TDFX:Nasdaq) acquisition of STB Systems, another Nvidia customer. Nvidia's response: No big deal. And judging by the 46% jump in Nvidia's stock since then, investors apparently agreed. Easy to understand why, based on last week's report of a 543% increase in revs for Nvidia, with an equally impressive spike in earnings. Until you take a little closer look at the numbers. Remember what this column said recently about how quality of earnings is more important than quantity of earnings? Nvidia is a classic. According to a post-earnings report by Hambrecht & Quist analyst David Wehner, at quarter's end Nvidia had 15 days of inventory on hand, "far below the company's target of 30 to 45 days." Days outstanding of receivables, meanwhile, were 59 days, "higher than the company's target of 45 days, indicating a heavily back-end-loaded quarter due to new products shipping in the last several weeks." Hello! Sharply lower inventories and higher receivables? Last time I heard a company explain away high receivables to late shipments of new products was by Cabletron Systems (CS:NYSE) -- just before its earnings, and stock, blew up! Wehner didn't appear alarmed by the numbers. (Can ya' blame him? His firm is one of Nvidia's underwriters.) But short-sellers are having a field day with them, and one went so far as to tell me it smacked of a company stuffing the distribution channel with merchandise. "This is a heads-you-win, tails-you-win situation," the short-seller says. "The head of the coin shows that days receivables were too high, which means they stuffed the channel. The tail is that they shipped everything off the loading dock that wasn't nailed down." This short's own analysis, using Wehner's published figures, is that if Nvidia's inventory and receivables had been in line with the company's own targets, earnings would've been more like 12 cents per share, not 19 cents, as reported, which actually beat Wall Street estimates by a penny. Nvidia officials couldn't be reached.