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

To: Patrick Grinsell who wrote (6017)	8/5/1998 2:01:00 AM
From: Simon Cardinale	Respond to of 16960

I did ask for it. You made some very good points. Let me respond to the ones we disagreed on: In reference to point 2, that board makers don't slam 3Dfx since they'd cut their own throats you said: I don't believe this has stopped any of the board makers from doing exactly that. Case in point: Diamond actually had the balls to say there was a flaw in the reference design of Voodoo2. Take a look at Diamond's TNT press release. It doesn't appear they are worried about Voodoo2 sales. But Diamond didn't slam the chipset. They were trying to hurt Creative Labs, not 3Dfx. People who believed them (few) went out and bought the Diamond product for the most part. They might have had to wait a couple of weeks, but it was no big deal. To point 3, that 3Dfx has only a few customers to worry about rather than millions you said: STB already has shelf space CompUSA and most of the same places Diamond does. 10 different brands of Voodoo2 on the same shelf calls for margin killing competition. 3dfx doing their own brand would be able to maintain higher margins for longer periods of time. Do you really believe that people are buying "diamond" and not "3dfx"? I don't buy that for a second. I think maybe you misunderstood my point. I meant that 3Dfx can have a small, focused marketing department. They don't have to hassle with box layouts, shelf space deals with vendors, rebates, end-user RMA, etc. Your rebuttal sounds more linked to point 5, that they piggie-back on the success of other companies. I sold computers while I was in college, so let me say that my own experience is that brand does matter. People who had a Diamond card usually got one for their next computer. Matrox buyers were always loyal. In the case of Diamond, people had not the slightest idea who made the chipset, nor did they care. The niche market that 3Dfx has been filling is pretty well informed about such things, but they're branching into new territory with Banshee. I predict that Diamond's Banshee will do better with business users than Creative Labs' because of their past sucess with the Stealth and Viper lines (which I sold to many business users over and over), while CL will focus on "gaming rig" systems from OEMs, because they have been a multimedia/gaming associated company (though more in the audio line, and yes I know Diamond is making headway in that area too). On point 7, that 3Dfx benefits by having mucho shelf space from multiple vendors you said two things: First you made a compelling argument that they could have made tons of money if they had acquired STB because they would have acquired STB's profits. You are assuming that they would be able to run STB at a high level of efficiency right off. I'm not so sure. Mergers and acquisitions are often followed by some tough times when money's tight, management is uncertain, employees are nervous, etc. It throws a wild card into the mix. 3Dfx's management is taking enough required gambles (big move toward OEM, 2D, stiffer competition) that they don't want any optional gambles. Wall street considers the whole thing a gamble already. More gambles would scare them even more. (I prefer horses that I know have 4 legs when I go to the track, too.) Next you said: Oh yeah. In answer to the shelfs. Answer me this: Is there a place you can by a Voodoo2 at retail that you could not get an ATI card? See my point? Initial sales might hurt but the long term potential is there to have just as much market presence. You're thinking of the buyer who knows what chipset they want, comparison shops, and buys from wherever's cheapest that has the product in stock. There's a second kind of buyer. The Browser looks around in the store to judge from the boxes. The Browser hasn't read a single review, and thinks that it would take too much time. He'll ask the salesman's advice if he can find one, but that can be too much trouble too (in a CompUSA it almost qualifies as a quest.) He'll pick something off the shelf. Shelf space helps decide which one he gets. There are whole branches of marketing that deal with this. CompUSA gets a better deal from Diamond if they agree to put the Monster3D II on a center shelf, or better yet at the end of the shelves in the cross cutting aisle. If Creative Labs didn't pony up they'll be on the top or bottom shelf. No one manufacturer will get the who aisle. But one chipset can, as 3Dfx has shown. On point 8, that they have better uses for their cash than buying STB you pointed to the profits they could make from STB. I should have expanded on my statement. They're in a competitive business, moving into new areas. Rhey need cash for R&D and marketing. They had a lawsuit they were pursuing until just recently. Cash reserves may contribute to long term growth in many small ways. Low cash reserves can bite you in the behind if something unexpected comes up (what if someone sues them and they need to settle?) On point 9, that they'd be distracted by buying STB, you made the compelling argument that they'd be making me money. I like that kind of thinking. Still, if pursuing multiple avenyes distracts them from getting their next chip out the door the bottom line will suffer. I'm unconvinced that buying STB now would make them money. maybe a year or two down the line I should rethink this. After they've established themselves in the OEM systems. On point 10, that system OEMs prefer competition, you said: Truly, this doesn't make sense. If this were true the #1, and #2 OEM would not be ATI and Matrox. It would appear that OEMs could care less who the boardmaker is. The OEMs have been buying ATI and Matrox because they have good 2D performance, not because they loved the price. I'm saying if I were a system OEM I'd like to see competition and squeezed margins. Note that the two top 3Dfx manufacturers have competing 3D audio systems they are pushing. They might sell Banshee at cost to get their 3D audio stuff into a wide installed base. Who knows? Simon

To: Patrick Grinsell who wrote (6017)	8/5/1998 9:47:00 AM
From: c-horse	Read Replies (2) \| Respond to of 16960

P.S. I'm truly baffled that I'm the only one that sees an economic benefit here. Don't be. The arguments are solid in both directions on both sides. You could credibly argue that tdfx should grow vertically past the boardmakers and into branding of their own boxes - after all, how many people buy pcs primarily to play games. Think of all the revenue they would have - billions with a B. Or you could argue that going in the other direction makes sense - after all, there's a lot of money to be saved by fabbing your own chips. The opposing arguments about the downside of both directions are equally compelling. My 3 cents - TDFX should continue through this XMas and next building mindshare dominance as THE supplier of chips to graphic boards. After investing that time entrenching as an OEM player with a Banshee successor (that allows for voodooII-esque SLI-ish add-on) while maintaining the high-end dominance already earned and enjoyed, then tdfx should move into the board-market. After it becomes a no-brainer. Until then, let the board makers "fight in the pit for the meat". c-horse