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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 (8017)	11/19/1997 11:17:00 PM
From: stock talk	Respond to of 14577

Page 15 of 24 technologies noncompetitive, or that the Company's products will be selected for design into its customers' products. The Company is continually developing new products to address changing market needs, and its operating results may fluctuate from those in prior quarters or may be adversely affected in quarters in which it is undergoing a product transition or in which existing products are under price pressures due to competitive factors. Market acceptance of the Company's products will also depend upon acceptance of other components, such as memory, that the Company's products are designed to work with. For example, the Company has recently introduced accelerators designed to work with synchronous graphics RAM ("SGRAM") and/or synchronous DRAM ("SDRAM") which the Company believes offer better performance for its price than the more expensive video RAM ("VRAM"). However, there can be no assurance that other memory technologies, such as Rambus DRAM, will not achieve a greater degree of market acceptance than SGRAMs or SDRAMs. If new products are not brought to market in a timely manner or do not address market needs or achieve market acceptance, then the Company's operating results could be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on Foundries and Other Third Parties The Company currently relies on several independent foundries to manufacture its products either in finished form or wafer form. The Company currently has long-term supply arrangements with two of its foundries, a "take or pay" contract with Taiwan Semiconductor Manufacturing Company ("TSMC") and a joint venture foundry, United Semiconductor Corporation ("USC"). In 1995, the Company expanded and formalized its relationship with TSMC to provide additional capacity over the 1996 to 2000 timeframe. The foundry agreement with TSMC requires the Company to make certain annual advance payments to purchase certain committed capacity amounts to be applied against the following year's capacity or forfeit advance payments against such amounts. In addition, the Company entered into an agreement with United Microelectronics Corporation ("UMC") and Alliance Semiconductor Corporation to form a separate Taiwanese company, USC, for the purpose of building and managing a semiconductor manufacturing facility. The Company invested $53.0 million in 1996 and $36.4 million in 1995 for its 23.75% equity interest. The facility commenced production utilizing advanced submicron semiconductor manufacturing processes in late 1996. The Company has the right to purchase up to 31.25% of the output from the foundry. To the extent the Company purchases excess inventories of particular products or chooses to forfeit advance payments, the Company's operating results could be adversely affected. To the extent USC experiences operating losses, the Company will recognize its proportionate share of such losses and may be required to contribute additional capital. The Company believes that a number of manufacturers are expanding or planning to expand their fabrication capacity over the next several years, which could lead to overcapacity in the market and resulting decreases in costs of finished wafers. If the wafers produced by USC cannot be produced at competitive prices, USC could sustain operating losses. There can be no assurance that such operating losses will not have a material adverse effect on the Company's results of operations.