Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Joe C. who wrote (5919)	7/31/1998 1:42:00 AM
From: Chip Anderson	Respond to of 16960

Saw this quote in Barron's daily update: ============ Historically, the Russell 2000 trades at a premium to the S&P 500, "yet right now the mean Russell 2000 trailing price-to-earnings (P/E) ratio is the lowest it's been since 1979," says Kenneth Kailin, a small cap portfolio manager at Skyline Asset Management in Chicago. At June 30, it stood at 0.81 of the S&P 500's mean P/E, the bottom of a historical range of 0.81 to 1.3 times the S&P's P/E since 1979, he notes. ============ TDFX is currently out-of-favor in more ways than one (he says stating the obvious). Chip

To: Joe C. who wrote (5919)	7/31/1998 1:52:00 AM
From: Waldeen	Read Replies (3) \| Respond to of 16960

Joe, As a long time lurker of SI and long termer in TDFX, I'd have to say the following four factors you give correctly explain the low valuation of this company. Similarly I fell into this same "bear" trap as TDFX has declined...and have fallen for all four of these factors. Everyone is beating themselves up over "why" and you got it. Except for one factor that has really been bugging me, which I will add, and would like to get input back from this forum on. Then, I am back to lurking. If people here think this final factor is stupid, then maybe it is time for me to move out of this stock. > 1. I expected TDFX to stand out from the chip sector crowd given > its' dominant position and branding strength. Branding can be a good thing, as W. Buffet would tell you. But the problem with branding and TDFX is that the float is too small. This ties in with factor 4. below. It seems that branding does have some value, even here. Because without it, we may likely be priced the same as SIII, TDDDF, or NINE right now. It's the only thing keeping us from single digits besides the profit growth. > 2. I did not anticipate a major shift in sentiment (IMO unjustified) on > the 3D industry. This one baffles me, but is mostly explained by the fact that there are just too many companies in this field. The CEO of TDDDF is saying today that graphics chips are going to contain more 'components' than a CPU. But Intel sells high end CPUs for $500s of dollars where graphics chips are in the $50 dollar range with low margin. This industry needs consolidation. But unfortunately there don't appear to be companies around that would want any of them. Yeah, besides Intel but they made their purchase. If I had to guess, it might make sense for ATI to buy SIII, and maybe TI to buy TDDDF, who knows? Does anyone think some of these companies might merge? >3. I overestimated the strength of the pc gaming movement in that I thought graphic capabilities would have received wider attention in the general media than it has to date. You and I didn't overestimate this, we just came to the conclusion too early. Being smart in this market can kill you...you got to wait until the average Joe figures this out and starts picking up TDFX for his retirement fund. Just like the average Joe thinks "internet" and picks up ridiculous values like Yahoo. This stock has no momentum buyers and none in sight. Long term, though, you are right on again with > PC gaming will continue to grow helped by the explosive gowth of > the internet. PC multiplayer is a powerful advantage of the pc > gaming platform and faster internet access (i.e. cable), and > continued growth will only make it more popular. Standalone > consoles may be unable to compete against lower cost pc's of the > future. But we are losing money here waiting for this. The growth first is in cable access. That growth will happen before this, so I'm moving money there; for example BRCM. But eventually TV will need 3D acceleration. How else are you going to get the talking head interaction with your set? Images on the TV are now essentially analog, but digital will blur real life from digitally created images (games) more. > 4. I ignored my initial reservations about smallcap stocks in general > using the excuse that the secondary offering and expected growth > would establish a sufficient market cap that would resist excessive > volatility and wide price swings. I like to trade small caps - not own > them outright. Yeah, I misjudged the small cap market too. But in the past have done well holding them, and in this market they are the better value play. And, small caps aren't going down much from here, especially in a bear market. All the young investors now-a- days don't seem to worry about a bear market. But M. Lynch always said "never lose money". In the long term, those stocks are small caps now since the large caps are too high a P/E. But the average retirement fund just views small caps as too risky. So about all I'll get from them is downside protection! Again, this market is not a thinking man's market but pure momentum. Okay, give me input on this factor which I misjudged TDFX on: 5. I counted on the company realizing that they had to produce the best 2D and 3D board when they released Banshee. This means I expected Banshee to blow away a single Voodoo2. How can they not produce a board with better performance than a Voodoo2? Let's go through the obvious reasons, a.) They didn't have the capability. This is nonsense of course, as Voodoo2 is not made by one of their competitors; they make it. b.) With Voodoo2 performance in Banshee, then Banshee would cost too much and miss the OEM market. This of course is BS. Most of the cost of Voodoo2 performance is in the NRE for the Voodoo2. The technology is already developed and in house. A little more Silicon would raise a negligible amount to the cost of Banshee. If I am wrong on this, than what is the cost of the extra TMU they left off of Banshee that would have made it beat a Voodoo2? c.) With better than Voodoo2 performance in Banshee, the company would cannibalize Voodoo2 sales before Banshee could ramp up. Why has no one stated the obvious that this is exactly what TDFX did! Sure I think that management gets average grades for realizing this,and leaving off the TMU. But they totally left themselves open to being beat by competitors when they refused to be there own competitor. You simply cannot do this in today's world. You have to look for another answer to the problem of cannibalizing Voodoo2 sales. I think there is at least one: Why the heck didn't they build off there "add-on" 3D acceleration niche with Banshee? i.e. why the heck didn't they make Banshee SLI compatible with a Voodoo2 card???????? That's why I bought the stock before Banshee was released, figured they would realize that technical solution based on the fact that the add-on card business was their niche to getting in this field to begin with. So then anyone that bought a Voodoo 2 card while waiting for Banshee would just throw away their old Matrox Millenium when Banshee came out, and shazam, instant SLI top of the line with no competition. I figured Banshee would essentially be a Voodoo2 with the fantastic 2D in Banshee. Wrong. Eventually, as people seem to be talking here, it is a given that Banshee followed by Rampage etc. will eventually lead to TDFX producing only combo 2D/3D cards? Why give up the 3D add-on niche this company created? 3D add on cards can be replaced more often as the market is more inelastic. People always want the fasted thing, given an easy upgrade path. 3D add-ons also provide flexibility to allow TDFX to more quickly stay on top of the competition. Now I realize that it may have been technically infeasible to make Banshee SLI compatible with a Voodoo2 since they are not identical. But moving forward here, TDFX should now at least be able to quickly release a Voodoo2 follow on that is SLI compatible with Banshee (stripped down Banshee). Are they going to do this? If not, why not? Why can't TDFX define an interface between 2D/3D cards and 3D only add on cards now, and patent it. Purpose: all TDFX 3D add in cards should in the future always work better, and be more compatible with a TDFX 2D/3D card such as Banshee. They should still work with competitors cards, but why can't TDFX build off their proprietary GLIDE API to make 3D add-ons work better with a custom interface to Banshee? Let call this Slot 3 on a Banshee, for plugging in your latest 3D graphic accelerator from TDFX. Sure would save money over having to need an entirely new board, right? Am I nuts? Or is this company managed by technical weanies who can't figure this out? W.