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

To: Allen Furlan who wrote (7679)	11/10/1997 8:35:00 PM
From: Adrian Wu	Read Replies (1) \| Respond to of 14577

Dear Allen You are correct aboout the inventory ploblem. By recognising the revenues before the inventory is sold, they essentially reduced the inventory level and inflated the revenue stream. This also has the effect of inflating the cashflow for those quaters, making it absolutely undectable even if you scrutinize the cashflow statement. This is not aggressive accounting, but outright cheating. We all learned about the case of Helig-Myers in business school. In that scenario, the company recognised the revenues of furniture sold on credit to customers. The problem we have here is that we have high tech goods that are sitting in the warehouse for six months, while competitors come out with better and cheaper products. I expect the next announce we see will be an inventory writedown, when the value of those goods drop below the cost of production. I do own a fair amount of S3 stock, being completely taken in by the lies disseminated by the current management. This company has good ideas, and has (or at least had) a strong engineering team. The Faroudja deal points to a boldness in developing new directions, at a time when everybody is piling into 3D chips. In this business, the only way to make money is by being first, abd then move on to something else when everybody follows your lead. Look how successful 3Dfx is by making a standalone 3D chip, now everybody is designing chips that will run GL Quake! However, if you think this company can survive at the low end/high volume sector, then you are wrong. It may be true that the consumer and business computing sectors are moving towards sub-$1000 PCs, but the margin for these components (except the CPU) will be razor thin. Cyrix is designing graphics circuitry into their 6X86 series and Intel and later AMD will follow. The market for the Trio will dry up. S3's only bright spot is the PC/TV convergence, and through the Faroudja deal, consumer electronics. Now, if you can play GL Quake on a 52 inch projection TV at 800x600 resolution, that would be something :) However, I am becoming increasing pessimistic that the current management has the will or the skill to lead the company through this important transition. Adrian