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

To: Jan A. Van Hummel who wrote (7593)	11/8/1997 10:28:00 AM
From: Mark Zavist	Respond to of 14577

S3 finds error in how revenue was recorded -- Incorrect methods were used for several quarters in totaling sales in the int'l distribution channel By Andrew MacLellan Silicon Valley- Graphics-chip maker S3 Inc. has taken an unexpected loss in its third quarter after an error in the manner in which sales were recorded in the international distribution channel forced the company to revise revenue for several prior quarters. The revenue restatement is $40 million to $70 million less than previously reported, and is expected to result in a cumulative decrease of 14 cents to 29 cents per share, the company said. Following an internal audit, S3, which spent much of this year without a chief financial officer, will disclose the full extent of the accounting error as part of its latest quarterly filing with the SEC. Until the audit is completed, the financial community is largely withholding judgment. Hambrecht & Quist Inc., San Francisco, is maintaining a hold recommendation on the company. S3 stocks took a hit on Wall Street, however, closing down on Nov. 4 by more than a point at 7-11/32, as the accounting slip-up compounded investor doubts about future product plans, according to Charles F. Boucher, an analyst at UBS Securities Equity Research, San Francisco. "The stock was down because there may have been a core group of investors for whom this accounting fiasco was the straw that broke the camel's back," Boucher said. "It's an embarrassment to have to restate. I don't think this will affect any earnings or revenue projections going forward, but it tarnishes the company's image." S3 attributes the problem to revenue recorded for products held by its international distributors but which had not yet been resold to the end customer, a deviation from standard accounting policies, said S3 president and chief executive Gary Johnson. S3 expects that those 2-D and 3-D chips incorrectly recognized as generating revenue will clear the distribution channel and reach OEMs during this quarter. "We are currently implementing measures to ensure that this type of error will not recur," Johnson said in a prepared statement. "Any new shipments into the channel during, and subsequent to, the fourth quarter of 1997 will be recognized during the quarter in which those products move off the distributors' shelves in line with company policy," he said. S3 last month reported third-quarter revenue of $120.4 million, up 0.76% from the year-ago quarter, while net income fell 66%, to $3.9 million. Earnings for the nine months ended Sept. 30 were $22.1 million, down from $32.9 million for the same period in 1996. The company's leadership position in the graphics-accelerator market is under siege by dozens of competitors that have reduced the healthy margins S3 realized in 1996. The revenue oversight is under review by independent auditors, S3 management, and the company's own audit committee, which consists entirely of outside directors, according to Walt Amaral, S3's chief financial officer and senior vice president of finance, who was named to the post in August. "We have initiated tighter monitoring and control procedures to ensure strict compliance with our revenue recognition policy moving forward," Amaral said. Copyright (c) 1997 CMP Media Inc. [New Search] [Search the Web] You can reach this article directly: techweb.com

To: Jan A. Van Hummel who wrote (7593)	11/8/1997 10:48:00 AM
From: David K.	Read Replies (1) \| Respond to of 14577

Jan, We will certainly never know who really knew what and when. I hope some good does come out of this by changes being made at the top. I think I over simplified by saying "added to 4th quarter". The net result is what I'm wondering about. I hope there isn't a big invetory write down sitting out there. I'm not certain about alot of things but one thing I'm certain about is that these lawsuits will do me no good at all. One of the reason I would like the auditors named as defendants is they carry professional liability insurance. I've worked in public accounting but very little of it was in audit. It would be fun to get into the audit workpapers. My feeling is that this should have turned up during year end audit. Heads can roll at the top, some of them can face criminal charges for all i care. But the company having millions of dollars drained off by these lawsuits is just as harmfull as the accounting "errors". I would prefer to look forward and hope that the positives with this company stay in place. I'd be alot more excited by design wins and new products being announced. Will this effect the fab plant going public?

To: Jan A. Van Hummel who wrote (7593)	11/8/1997 10:49:00 AM
From: Mark Zavist	Read Replies (1) \| Respond to of 14577

S3 lowers financial results By Craig Matsumoto Santa Clara, Calif. - S3 Inc. will have to lower its financial results from recent quarters, cutting revenue by between $40 million and $70 million and net income by 14 cents per share, to 29 cents. Officials believe the discrepancy arose because some parts were counted toward revenue after being shipped to distributors but before being sold to end customers. S3's policy is not to count revenue until the part has been sold to an end customer. S3 expects to reclaim the revenue during this quarter, as the improperly tallied parts find their way off distributors' shelves. Meanwhile, chief executive Gary Johnson said, "We are currently implementing measures to ensure that this type of error will not recur." S3's stock fell $1-13/32, to $7-11/32, after the announcement. The news continues a bad streak for the company. On Oct. 21, S3 had anticipated a weak fourth quarter, saying its products would continue to be hurt by falling prices until next year, when S3's next generation of graphics controllers is due to ship. For the first nine months of the year, S3 reported net income of $22.1 million, or 43 cents a share, on revenue of $367 million. Copyright (c) 1997 CMP Media Inc. [New Search] [Search the Web] You can reach this article directly: techweb.com