ATI Technologies Sees Revenue Growth Of 25% For 2000
Dow Jones Newswires
TORONTO -- Last week, the market tried to push graphics computer chip
company ATI Technologies Inc. (ATYT) off the top of the hill. Its stock fell about
15% on news that ATI had lost a high-profile contract for Dell Computer Corp.'s
(DELL) OptiPlex corporate computer line to Nvidia Corp. (NVDA). But ATI
president and chief executive K.Y. Ho isn't about to be pushed off so easily,
and remains confident and bullish about the company's prospects.
In an interview with Dow Jones, Ho said he is "comfortable" with fiscal 2000
revenue growth of 25% from expected fiscal 1999 revenues of about $1.2 billion.
The company hasn't reported its fourth-quarter results. It had $927 million of
revenues in the nine months ended May 31.
Ho also expects the company to hold about 40% to 45% of the graphics chip
market by the end of the calendar year, up from about 35% reported earlier this
year.
Ho said confusion reigned in the market last week when the Dell news came
out. At that time, ATI guided analysts to expect gross margins of about 30%
for fiscal 2000, which is lower than the mid-30% range that they had built into
their models and, as a result, analysts cut their earnings estimates.
But Ho said ATI has always been guiding analysts to expect gross margins in
the low 30% range and that the guidance last week had nothing to do with the
Dell contract. Analysts just hadn't been listening to ATI because the company
has made it a habit of beating expectations, he said.
The reduced gross margins next fiscal year will be caused by higher memory
chip costs, Ho said. ATI has been able to maintain higher gross margins
because it stockpiled an inventory of cheap memory chips for fiscal 1999, but
this advantage is about to end, Ho said.
Ho remains confident about the company's efforts to diversify beyond making
graphics chips for computers only. ATI has one big contract with General
Instrument Corp. (GIC) to make graphics chips for television set-top boxes and
Ho has previously said ATI has two more set-top box design wins, though he
has declined to identify the companies the deals are with.
In the interview with Dow Jones, Ho still declined to elaborate on the design
wins, but he said ATI has more than two set-top box design wins and that at
least one of them is for set-top boxes to be sold outside North America.
ATI also has a design win with Amiga Inc., a subsidiary of Gateway Inc.
(GTW), to provide graphics chips for a future line of consumer Internet
appliances. But Ho declined to discuss other design wins in this emerging
market, other than to say the company is working on some deals.
Ho doesn't believe that ATI is falling behind in terms of technology. He likens
the race for faster graphics chips to two swimmers competing neck-and-neck -
one swimmer appears ahead in the race because his arm is fully extended in
the stroke, then the other swimmer appears ahead because his arm is fully
extended. The difference between the swimmers and the graphics industry is
that the graphics industry race never ends, Ho said.
Nvidia released the latest generation of its chips, called GeForce 256, last
week. ATI will come out with its next-generation chip beyond the Rage 128 Pro
near the end of the calendar year, Ho said. It may, however, not be fair to
compare the two because Nvidia has traditionally aimed its chips towards the
high-end computer market, while ATI has aimed its chips towards the mid- and
low-end markets.
Though ATI appears to be behind by a few months, Ho said this isn't a
significant amount of time in the long run, adding that ATI has a pricing
advantage because it moves larger volumes of chips than its competitors. Also,
in the graphics industry, meeting a computer maker's just-in-time delivery
demands can be more important that having the fastest chip, he noted.
"In this industry you can never stop," Ho said. "We are not sleeping," he
added, pointing to ATI's research and development budget, which was $27.7
million in the last reported quarter. That compares to Nvidia's research budget
of $10.8 million in its last reported quarter.
Meantime, the future of the graphics chip market is moving to integrating other
functions of the computer into the graphics chip. Next year, Ho said, ATI will
deliver an integrated chip. It is expected to compete with chips along the lines
of Intel Corp.'s (INTC) already released integrated 810 chip for low-end
computers. ATI is already strong in the low-end computer market with its
stand-alone graphics chips, so for now, there appears to be a place in the
low-end market for both integrated and stand-alone chips. Of note, Intel
recently said it is retreating from the stand-alone graphics chip market and will
focus only on integrated chips.
ATI's overall graphics market share in the past few quarters also hasn't
increased, as computer makers generally haven't switched graphics chip
suppliers because they have been waiting for Intel to release the next
generation of chipset that works with the graphics chips. The chipset has been
delayed from spring until the fall.
But Canadian fund managers said another factor affecting the stock price
involves ATI founders selling shares. These founders aren't insiders, as they
aren't in close contact with the company and don't hold more than 10% of its
nearly 200 million shares outstanding. That means it isn't possible to know how
many shares they hold or are selling because they aren't required to file insider
trading reports. But each quarter, for the last couple of years, it appears as if
brokerages have had 1 million or perhaps 2 million shares belonging to the
founders for sale, observers said. It is difficult, if not impossible, for market
players to assess how many shares are sold each quarter because of the lack
of insider trading reports and because several brokerages could be offering the
same block for sale. But the situation has diluted demand for ATI's stock in the
market, observers said.
Fund managers and analysts have suggested to ATI that it do a secondary
offering in the U.S. That would address another problem, which is a lack of
U.S.-based shareholders. Ho acknowledged that the founder selling and the
weakness in ATI's U.S. shareholder base are issues that need to be
addressed, though he wouldn't say if there will be a secondary offering. But he
also emphasized that these founders aren't company insiders and that they
can sell when they see fit. He said the founders have been selling an
"insignificant" amount of shares and still are long-time investors in the
company.
ATI listed on Nasdaq last year without doing a U.S. share offering, which likely
would have garnered a U.S. analyst following and more U.S. shareholders. |
