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

To: JAG who wrote (9106)	1/29/1998 3:33:00 PM
From: Bill Lin	Read Replies (3) \| Respond to of 14577

To all, some trends in graphics market in '98 1. S3 said that eventually, Intel will include graphics circuitry into microprocessor like Cyrix GX chip to reduce costs for the $500-$1000 segment 0 market. I find this probability high for late 1998 and almost 100% for late 1999. projection, Trio 3D will lose its market by q1 '99. 2. S3 will buy nVidia. reason's to merge for both companies are too compelling. 1. nVidia needs an established distribution and manufacturing system. 2. They can go ipo, but will go through the problems of cash flow management of growing companies (i.e. building infrastructure, hiring people, getting systems up and running), which a merger with S3 will provide. 3. $15 million in cash and $15 million in stock will provide a quick cashout for investors at a high return rate, provides quick liquidity, provides solid long term future for both companies. 3. ATI might bid for nVidia, but the match does not make much sense, because their product lineup is already strong. The bid might be just to drive up the cost for S3. 4. 3DFX has been reducing production costs of its chips/designs to create a high end/mid range product lineup. Their designs represent the target for late 1998/early 1999 products for mid range. However, unless they get higher volume (possible with the Dell deal with DIMD for Fire GL1000 product), they will get eaten up by the market leader (now ATI) 5. DIMD has the fullest lineup of graphics cards from Fire GL1000 to Viper 330 to Stealth S220 to Monster 3D (and upcoming voodoo 2 card). Their modem business is draggin down ROA, but their graphics business should be fine. Maybe they will try to add sonic business, but unlikely in '98. 6. STBI has been outselling DIMD's nVidia board with their OEM deal with GTW and Dell, but this may change later this year, as DIMD pushes to get into OEM market. margins for STBI may not stay secure going into Q3 '98. Have to watch DIMD's actions. 7. Matrox is losing its initial edge, although the Millenium 2 board is new 2D/Autocad standard offering. Sales are ok through christmas, but ATI is eating up OEM market. 8. ATI has the best product lineup now. However they need a high, high end, unless they can design a 3x improvement in their ATI rage pro + by this late spring for production by q4 '98/q1 99 9. i 740 from intel will be a high mid range product. It will not compete against 3DFX chips. version 2 will. it remains to be seen if intel can come out with improved versions of this chip as quickly as they come out with new microprocessors. If not sufficient investment, then intel will fall behind. if Intel uses $1 billion to setup 3 development teams to "leap frog" design, then they will dominate this market. However, their investment into network interface cards has not shown this aggressiveness. They have only become the low cost producer, not the product innovator. 10. Cyrix and AMd will integrate graphics circuitry into their processors to dominate segment 0 market. Intel will lower mmx prices a lot. However, transition to Pentium II and 100mhz bus system is biggest news (so far) this year. 11. Software, Software, Software. Win 98 and NT 5.0 (there IS a reason why MSFT trades at 16 times REVENUE). Adobe, autodesk, and microsoft will drive need for 3D. Games are obvious need drivers, but its cheaper to buy an N64. Internet games will drive network upgrades, but bandwidth limitations will not make 3D network games feasible (for next 5 years). Limitations from need of local RBOCs to maintain their monopoly will keep access costs high. xDSL may alleviate the graphics bottleneck, but not this year. 12. LCD monitors will begin moving into mainstream. The market for 17" LCD is huge, if price can be $1000. Maybe in late 1999 or mid 2000. Mitsubishi already said that they will stop production/design of tube products. S3's use of "duo view" will play into this trend nicely in 1999/2000 (assuming its still around). 13. DVD will not take off until DVD ram comes into play. The S3 Scenic Highway, bus is dying on the vine. some people are using it, but if S3 really wants it to be a standard, it needs to give up the rights to it, and get ATI/CREAF to adopt it. 14. So, by 2000, you can create Toy Story on your home computer. The problem is people are not THAT creative. Representation of data, and automatic data analysis are business software that will drive need for speed. software will be worth more than hardware. The premiums for hardware companies may not be very high. Intellectual property will rule (in the information age. sorry about triteness). 15. The complexity of systems and 3D and Microsoft "Talisman" D3D will create confusion in the market for a while. This may lull sales of computers (causing everything to fall). S3 right now is overvalued in terms of forward cash flow/earnings. By book value, its a bit higher than the book value will be at end of '98. GX3 and Vortex will not be great winners. If you are hoping for this, you are not analyzing industry trends. Terry Holt is not looking to stay long term as CEO, which is great point for nVidia purchase. The ceo of nVidia can easily take over S3, and with n4 product coming out (probably equivalent or better capability than GX3), makes a natural fit for S3. Purchase of nVidia will raise S3 price to $12. BL