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

To: Parker Benchley who wrote (8019)	11/19/1997 10:46:00 PM
From: cuemaster	Read Replies (2) \| Respond to of 14577

sorry,just bitter i guess.dirty pool brings out the worst in me and these dudes are crumbs.the facts are clear and maddining.

To: Parker Benchley who wrote (8019)	11/19/1997 11:10:00 PM
From: stock talk	Respond to of 14577

The Company's operating results may fluctuate from those in prior quarters or may be adversely affected in quarters in which it is undergoing a product line transition in which production and sales of new products are ramping up and in which existing products are under extreme price pressures due to competitive factors. If new products are not brought to market in a timely manner or do not address market needs or performance requirements, then the Company's operating results will be adversely affected. As a result of the foregoing, the Company's operating results and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in net sales or net income from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock. Page 10 of 24 NET SALES The Company's net sales to date have been generated from the sale of its graphics and multimedia accelerators. The Company's products are used in, and its business is dependent on, the personal computer industry with sales primarily in Asia, the U.S., and Europe. Net sales were $119.6 million for the three months ended September 30, 1997, a 9% increase above the $110.1 million of net sales for the three months ended September 30, 1996. Net sales were $334.4 million for the nine months ended September 30, 1997 or 7% above the $311.3 million of net sales for the nine months ended September 30, 1996. Year to date net sales increased primarily as a result of demand for the Company's ViRGE and Trio families of integrated accelerators that resulted in increased unit shipments. The increase in unit shipments was partially offset by lower overall average selling prices. Due to competitive price pressures, the Company's products experience declining unit average selling prices over time, which at times can be substantial. The pricing environment for 2D graphics accelerators, which accounted for a majority of the Company's net sales in 1996, has recently experienced and is expected to continue to experience increasing pricing pressures due to aggressive pricing from certain of the Company's competitors. In particular, the Company's Trio family of integrated 2D accelerators experienced significant decreases in average selling prices in 1996 which has continued during the first nine months of 1997. The graphics accelerator market is transitioning from 2D acceleration to 3D acceleration, and the Company introduced its ViRGE family of 2D/3D accelerators in response to this transition. As a result of the entry of competitors into the 3D acceleration market, the Company has experienced and anticipates that it may continue to experience increased pricing pressures on average selling prices for the ViRGE family of 2D/3D accelerators. The Company experienced significant price competition for its products in the three and nine months ended September 30, 1997. The Company currently anticipates sequential price declines in the fourth quarter of 1997 and the first half of 1998. The Company expects that the percentage of its net sales represented by any one product or type of product may change significantly from period to period as new products are introduced and existing products reach the end of their product life cycles. If the transition occurs slower than expected, if the Company's graphic products do not achieve market acceptance, or if the pricing pressures increase or continue in the manner experienced in the first nine months of 1997, then the Company's operating results could be adversely affected. Export sales accounted for 76% and 57% of net sales for the three months ended September 30, 1997 and 1996, respectively. Export sales accounted for 68% and 76% of net sales for the nine months ended September 30, 1997 and 1996 respectively. Approximately 20% and 19% of export sales for the three and nine months ended September 30, 1997 were to affiliates of United States customers. The Company expects that export sales will continue to represent a significant portion of net sales, although there can be no assurance that export sales as a percentage of net sales will remain at current levels. All sales transactions were denominated in U.S. dollars. Four customers accounted for 24%, 17%, 15% and 11% of net sales for the three months ended September 30, 1997, and three customer accounted for 24%, 15%, and 11% of net sales for the nine months ended September 30, 1997. Comparatively, three customers accounted for 22%, 14% and 10% of net sales for the three months ended September 30, 1996, and two customer accounted for 16% and 14% of net sales for the nine months ended September 30, 1996. The Company expects a significant portion of its future sales to remain concentrated within a limited number of strategic customers. There can be no assurance that the Company will be able to retain its strategic customers or that such customers will not cancel or reschedule orders or, in the event orders are canceled, that such orders will be replaced by other sales. In addition, sales to any particular customer may fluctuate significantly from quarter to quarter. The occurrence of any such events or the loss of a strategic customer could have a material adverse effect on the Company's operating results.

To: Parker Benchley who wrote (8019)	11/19/1997 11:13:00 PM
From: stock talk	Respond to of 14577

Page 12 of 24 SELLING, MARKETING AND ADMINISTRATIVE EXPENSES Selling, marketing and administrative expenses were $13.8 million for the three months ended September 30, 1997, an increase of $0.9 million from $12.9 million for the three months ended September 30, 1996. Selling, marketing and administrative expenses were $39.9 million for the nine months ended September 30, 1997 an increase of $4.5 million from $35.4 million in the nine months ended September 30, 1996. Selling and marketing costs increased as a result of additional personnel, increased commissions and increased marketing costs associated with the expected introduction of new products. Administrative costs have increased due to the hiring of additional personnel necessary to support the increased level of operations. The Company anticipates that selling, marketing and administrative expenses will increase in absolute dollars for the three months ended December 31, 1997. OTHER INCOME (EXPENSE), NET Other expense, decreased to $(0.7) million for the three months ended September 30, 1997, from $0.3 million of interest income for the three months ended September 30, 1996. Other expense decreased to $(1.0) million for the nine months ended September 30, 1997, from $2.0 million of interest income for the nine months ended September 30, 1996. The decrease is attributable to the interest expense incurred on $103.5 million aggregate principal amount of convertible subordinated notes, which were issued by the Company in September 1996. The interest expense is partially offset by the interest income due to the higher average amounts of cash and short-term investments as a result of the net proceeds from the sale of the convertible subordinated notes in September of 1996. INCOME TAXES The Company's effective tax rate for the three months and nine months ended September 30, 1997 is 30% and 36% respectively, compared to an effective tax rate for the three months and nine months ended September 30, 1996 of 34%. The change in tax rate is primarily attributable to the Company's expansion into higher national and subnational tax rate jurisdictions. LIQUIDITY AND CAPITAL RESOURCES Cash used for operating activities for the nine months ended September 30, 1997 was $0.3 million, as compared to $21.5 million for the nine months ended September 30, 1996. The Company experienced an increase from December 31, 1996 in accounts receivable, other assets, accrued liabilities, deferred revenue and other liabilities. These increases were partially offset by decreases in inventories and income taxes payable. The Company experienced an increase in accounts receivable from the level at December 31, 1996 due to the substantial concentration of sales in September 1997 resulting from increased shipments in the third month of the third quarter over either of the first two months of the quarter relative to what the Company experienced in previous quarters as well as an increase in days sales outstanding. Investing activities for the nine months ended September 30, 1997 and 1996 reflected property and equipment purchases, net, of $25.4 million and $12.5 million, respectively and sales of short term investments of $18.2 and $11.4 million respectively. Technology investments of $16.2 million include an equity investment in Faroudja, Inc. and various patent technology acquisitions. Continued expansion of the Company's business may require higher levels of capital equipment purchases, technology investments, foundry investments and other payments to secure manufacturing capacity. Financing activities provided cash of $9.4 and $113.1 million in the nine months ended September 30, 1997 and 1996. Borrowings on the line of credit and proceeds from the issuance of common stock were the principal financing activities that generated cash in the nine months ended September 30, 1997. The Company completed a private placement of $103.5 million aggregate principal amount of convertible subordinated notes which was the principal financing activity that generated cash during the nine month period ended September 30, 1996.