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

To: Ken Muller who wrote (7699)	11/10/1997 6:20:00 PM
From: Tom Terf	Respond to of 14577

Ken: Your scenario of the accounting scheme is accurate. The distributors were told to take the goods basically on "consignment" and payment terms were stretched out to at least 90 days from the normal 30 - 45day payment terms. That's why A/R shot up from $75M to well over $ 100M.. from Q2 to Q3. It makes logical sense. You are right, as well, they believed they would make it up later, but sufferred serious customer defections. You will see new CEO and a big writeoff announcement in about 3-4 weeks. That will clear the decks. However, the true S3 revenue run rate base will be closer to $ 350 M than $ 480 M after the dusk settles. You have market share decay, coupled with $60M over inventory situation. Stock at 7 at today's close, and will quietly slip with the high tech market malaise out there ..Volume is also drying up to less than 1M shares per day traded, down from 2M average. Shows little support for management's explanation of the situation. This story has more to unfold, no doubt !

To: Ken Muller who wrote (7699)	11/10/1997 9:00:00 PM
From: Jan A. Van Hummel	Read Replies (1) \| Respond to of 14577

Ken, I laud your effort to try and put a clearer perspective on this mess. Since you have been in this industry for some 20 years can you tell how distributors are rewarded/paid? Mind you, the distributors are in a no-lose situation. Whatever they can't sell they can return. It is risk-free. So depending on how they get their margin they may have unilaterally decided to order more since there is no risk. Why would they do so? Could be that sales were falling off or non-current inventory or numerous things. I would argue if it were non-current inventory they could easily and readily return it. Falling sales would point though to a deeper problem. There are many Harvard Business School Case Studies dealing with these type of problems. Invariably problems teden to emerge when sales fall or the growth rate declines and distributors are faxed with reduced income. I am not advocating that the distributors are or were the problem, but the issue at hand may be a little more complex than it may appear on the surface and than many on this thread would like us to believe. There are a great deal of firm statements, accusations, wild assumptions and so on. In my opinion, these are all conjecture and pure speculation. Where I do concur is that, given the nature of distributing product and based on how the various levels derive their income, a more vigilant management would have been able to nip this problem in the bud. That's why I do see a need for change at the top, both at the executive level and on the Board. With the current composition of the Board it is unlikely that the insider directors will make a hard decision that would affect their own job. Should the outside directors turn out to be close personal friends of Banatao, and chances are they are indeed, then you do have your "perfect" rubber stamp Board ready for SNL's "perfect cheer." I noticed on another post that today's low volume today is explained as a confirmation of the market's apprehension of current management. Perhaps, perhaps not. One could equally well argue that the pool of willing sellers at current levels is about to dry up, and if so, what would that suggest? Mind you, we are not having a very strong hi-tech market these days either. Bill Lin remarked $4 may be possible. He may be right, but if that happens and I were in the 3D business I would be very tempted to take a shot at the whole deal. Why? It cost an awful lot more to build a business, the size of S3, with a market share, like S3, with the human resources, like S3, and be off and running instantaneously. Even if money would not be an issue, I would argue it would take considerable time to attain such a position. What is easier than to buy S3 and just replace management? I don't think I would have too much of an argument that, at least our perception and likely that of the market at large, the current problems lie mainly with management and its reponsiveness to the dynamics to the market. They may well be good in most environments, just not good enough in this one. JMHO Jan There may be some typos, so forgive me but they keep bugging me to get get off the net.