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Technology Stocks : 3DFX -- Ignore unavailable to you. Want to Upgrade?

To: Piranha who wrote (1321)	1/22/1998 5:24:00 PM
From: William T. Katz	Respond to of 16960

You are off base :) Your concern was why 3dfx has low net margin rates. Using my limited business knowledge, I'll take a crack at your worries: Start-up companies traditionaly show minimal earnings against revenue because their other costs (R&D, sales/advertising, expenses related to margins) are relatively high. As a company grows and becomes more established, the relative decreasing cost of advertising and the relative maturity of their product line (old chips still giving revenue with no current associated R&D costs) add to the bottom line. If you look at all new companies, it works out that way. An extreme example is Amazon which today reported very good revenue of $66 million but wound up with almost a loss of 40 cents/share. Their ramp-up costs and advertising is far exceeding the revenue at the current time. But everyone assumes that as their customer base grows, the relative cost in acquiring that incremental customer base is small. A more interesting mathematical analysis would be to compare the growth of revenue compared to the growth of expenses. I'm pretty sure in 3dfx's case, you'd see revenue growing much more rapidly than expenses. This is a very good sign. -Bill

To: Piranha who wrote (1321)	1/22/1998 6:38:00 PM
From: Mitchell Ryan	Read Replies (1) \| Respond to of 16960

Piranha, Projected revenue increase over Q3 = 8 (all numbers in millions unless noted). Cost of product revenue remains the same percentage wise. (In actuality, you would expect it to decrease with higher volumes.) R&D multiplier = 30% increase due to Voodoo 2, Banshee costs. SG&A multiplier = 30% increase due to Voodoo 2 rollout, etc. Interest and other income is flat. Outstanding shares remain constatant at 12.454 million. Using this analysis yields the numbers below which are in line with the analysts estimates. 3Q/97(act) 4Q/97(est) Product Revenue $10.02 $18.00 Cost of Product Revenue 5.35 9.63 Gross Profit 4.67 8.37 R & D 3.20 4.16 Selling, General & Admin 2.69 3.50 Total Operating Expenses 5.89 7.66 Interest & other inc 0.35 0.35 Net (loss)/gain (cents) (0.87) 1.06 Net (loss)/gain per shr (cents) (0.07) 0.09 In order to improve the EPS by $0.01, you would need $125K increase in net gain. Since R&D and SG&A can be assumed to not increase substantially with incremental sales, you would need an additional $270K in revenue, and not $1.8M. Ryan