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

To: Dave O. who wrote (11148)	6/9/1998 5:41:00 PM
From: Bill Lin	Read Replies (1) \| Respond to of 14577

They just eat it, and balance out last qtr gain against this qtr loss to get cash flow neutral. Next qtr is the "turning point" with revenue from MX and S3D starting to hit the books. Right now, with i740 flooding the market, it looks pretty crappy. Maybe there is something to this Intel antitrust suit, afterall. Did you read Ron Yara's comments against Intel regarding the Plato? interactive.wsj.com@2.cgi?billlin/text/wsjie/data/SB897256375633435500.djm/&NVP=&template=news-search.tmpl&form=news-search.html&dbname=wsjie%2Findex&dbname=autowire%2Findex&words=Ron+Yara&any-all=AND&maxitems=30&HI=1 Without Intel's microchips -- and specifications as to how they work -- makers of personal computers and other chips are all but out of business. Customers such as Intergraph Corp., a maker of graphical workstations based in Huntsville, Ala., and Digital Equipment Corp., Maynard, Mass., have alleged in lawsuits that Intel demanded that they return vital technical information after the companies sued Intel for patent infringement. Some Silicon Valley competitors such as S3 Inc. have complained to FTC investigators that Intel denied them access to specifications they needed to make accessory chips. "They just control too much of the platform," says Ron Yara, a 10-year Intel veteran who went on to found S3. "It's dictated by one company." Michael Hackworth, the chief executive officer of Cirrus Logic Inc., says his company sold off its chip-set unit to National Semiconductor Corp. in August 1994 because Intel shut off the flow of information about coming microprocessors. He has declined to provide further details. Jerry Chang, chief executive of chip-set maker Opti Inc., says his company also lost access to advance information about microprocessors. "As a result we were left far behind them in product development," he says. "It's an impossible battle that we cannot fight." Some three dozen chip-set makers have left the business since Intel's entry. The price of the chip sets has also risen over the past year. Intel denies that it used its position in microprocessors to take over the motherboard and chip-set businesses. In making those products, Intel says, its goal wasn't to build market share for motherboards and chip sets. Rather, it says, it wanted to hasten acceptance of its new Pentium microprocessors by making sure that Pentium-based machines could get on the market quickly. Mr. Dunlap argues that the company is under no obligation to share details about proprietary developments in those products, though it has been willing to license that information to companies with equivalent technology to exchange. Intel this year also began making its own graphics chips, and announced plans to do more graphics processing on its microprocessors. Here again competitors say they are being frozen out. S3, based in Santa Clara, Calif., says it asked Intel in late 1996 to support an inexpensive two-chip combination that combined graphics and chip-set functions. Specifically, it says it asked Intel for a letter telling potential customers it was all right to use the chip combination. S3 also sought to license technology from Intel that would enable it to design future chip sets. At $20 each, the set, code-named Plato, seemed well-suited for PCs that cost less than $1,000. S3 spent millions to develop it and says it had five ready customers. But Intel declined to endorse Plato, saying it slowed down computer performance, and S3's customers began getting cold feet, Mr. Yara says. Intel later stopped sharing information that S3 needed to develop successor products, including data about a new socket that connects graphics chips to Intel's Pentium II microprocessor. Mr. Dunlap and other Intel executives insist the company treated S3 fairly, expressing legitimate technical objections to Plato and insisting on getting compensation for sharing proprietary data. Mr. Yara and other S3 executives concede that their company and Plato had plenty of unrelated problems. But Mr. Yara says Intel later actually asked S3 to revive Plato when Intel needed cheaper graphics functions because of demand for sub-$1,000 computers. Intel declined comment on that issue. In any case, by that time, S3 had disbanded its Plato development team. Intel later announced a similar product for shipment next year. That Intel product, Mr. Yara argues, shows that S3 was on the right track with Plato and that Intel has too much power. "It comes down to whether a monopoly can squelch competition," says Neal Margulis, S3's former vice president of research and development.

To: Dave O. who wrote (11148)	6/9/1998 10:26:00 PM
From: Don Earl	Read Replies (2) \| Respond to of 14577

Hi Dave, Last Qs operational losses included $11 million in one time charges. With cash at $87 million and short term investments at $59 million, one bad quarter is NOT the end of the world. I'm not too crazy about recent price movement. The only thing good about it is that it is going down on extremely low volume. It's interesting to note the bulk of open interest in October calls is at $10. Someone thinks the stock will be worth more than single digits within 4 months. Windows 98 will be hitting the streets within a week or so with Microsoft endorsing S3s compression technology. Quarters are back end loaded, which makes the end of June design win announcement time. More recent support levels have broken down, so unless it establishes support at current levels, we could see $4.75 tested again. With book at $5.48 I don't see it, but I suppose it could happen. I'll make another buy in that area if it does get that low again. If USC goes public, S3 picks up an extra $46 million from the stock they sold in January ( about .60 per share after taxes). Depending on what kind of price per share USC trades at when they go public, you can probably ad an extra $2-$3 to current book value. Not to mention that the USC stock is probably considered a long term investment that is worth about $140 million if they needed to raise cash. From the conference call, they have new chips on the drawing board for release toward the end of the year (x-mas?). I'm not preaching sweetness and light. A person would have to be brain dead not to recognize a few bumps in the road ahead. At the same time a person would have to be equally brain dead to ignore the basic fundamentals of the company. Since I'm primarily a value investor, I tend to look at anything within 50% over book as a bargain. At or below book is a steal. With $2.50 in cash and short term investments, the bottom would have to completely fall out of the computer industry before S3 would have to worry about operating capitol. IMO the biggest danger to S3 right now is that they may not have a single chip solution to put in the sub $500 PCs when they hit the market. Hopefully that's part of what all the patent purchases are all about. Nobody seems to like my theory that they might be looking to slap together a processor with their new patents, but I still have an equally hard time with the idea that they spent $10 million to out bid INTC, NSM, AMD, et al just to mount the patents on the wall to admire them. We'll see. Regards, Don