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To: David R. Parker who wrote (5170)	7/9/1998 4:56:00 PM
From: Dwight Griffin	Read Replies (3) \| Respond to of 16960

Diamond reports 2nd quarter loss. The information on Monster II is not encouraging. Is this information already reflected in the stock price? (SAN JOSE, Calif.--(BUSINESS WIRE)--July 9, 1998--Diamond Multimedia Systems, Inc. (NASDAQ:DIMD - news), a leader in the Internet multimedia market, today reported financial results for the second quarter and six months ended June 30, 1998. For the quarter, net revenues were $172.3 million, up 225% from $53.0 million for the second quarter of 1997. The net loss for the second quarter, including a one-time charge net of tax effect of $1.0 million associated with the acquisition of Micronics, Inc., was $8.3 million, or $0.24 per share, compared to a net loss of $44.1 million, or $1.29 per share in the second quarter of last year. Net revenues year to date were $358.5 million, up 117% from $165.4 million for the first half of 1997. Net loss for the first half of 1998, including the one-time charge, was $0.4 million, or $0.01 per share, compared to a net loss of $50.0 million, or $1.46 per share for the first half of 1997. Excluding the effect of the one-time charge, the net loss for the quarter was $7.3 million, or $0.21 per share, and for the first half, net income was $0.6 million, or $0.02 per share. ''While we are pleased to have reported second quarter and first half revenues that were the highest in the company's history, we had expected until the end of the quarter to achieve roughly break-even '' said William J. Schroeder, president and chief executive officer. ''However, sales of our Monster 3D II product, while quite strong, fell short of our expectations toward the end of the quarter by approximately $20 million. Since Monster II was one of our best margin products in the quarter, this had a significant impact on our total margins for the quarter. Moreover, driven by response to competitive pressures in graphics late in the quarter, we spent or accrued approximately $3 million in unanticipated incremental channel-related costs, including market development and co-op funds and channel sales incentives. The combination of these two issues, as well as the general pricing pressure in our legacy graphics products, the anticipation of which we announced at the end of last quarter, were the major contributing factors to the loss for the quarter.'' )

To: David R. Parker who wrote (5170)	7/9/1998 11:23:00 PM
From: Mike O'Brien	Read Replies (3) \| Respond to of 16960

-Re: 5 millionth chip: got a little bit of a laugh (lots of phone calls for him on that one). He seems to think that 5MM is a bit high -- Does anyone recall when they announced 4 million? The first time I remember hearing it was at CGDC in the beginning of May, but it may have been old news by then. If they sold fewer than a million chips this quarter, at $45-$50 per chip, then we are in trouble. Last quarter TDFX had profits of $7.5M on sales of $50M. This quarter they will have higher operating expenses (building a new research facility in Austin), higher taxes, and more shares to dilute the earnings. Just to show flat earnings, we need sales to be higher than $50M, which means more than 1M chips. Mike