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

To: Andrew Fenic who wrote (7178)	9/15/1998 1:51:00 AM
From: Patrick Grinsell	Read Replies (1) \| Respond to of 16960

I must say that the loss of profitability comes as a complete surprise, but I am trying to understand how this effects 3dfx in the long term. What follows are my long term thoughts on the subject. Now as a retail only supplier it appears my earlier suppositions have proven correct. Even with almost 50% margins and being the top selling retail (3 out of the top 5 cards according to PC Data) chipset, the company cannot retain profitability. I realize that it could be exagerated by board makers just moving out inventory, but there it is and black white. What I want to see are fundamentals that would allow even a serious down quarter to make a profit. The type of consistency can only be had through OEM sales or 3dfx making their own boards. There is no other way around this. Catering to a high-end add-in only niche market is a very unpredictable strategy, as this quarter has shown. If sales can double quarter over quarter, it should be evident that they can also be cut in half. It also would appear that getting 50 cents for 4th quarter will be an extremely tough prospect given current V2 sales. Making Boards: I've been told that 3dfx will start stepping into this territory. This is great and may just limit much of the downside risk. The larger revenue will help to cover operating expenses and bring a higher level of efficiency even if the company takes a hit from not using distributors like Diamond or Creative. I believe this is the best long-term solution for 3dfx. The company's that have been selling the lion's share of the cards have been ones using reference designs. Other than shelf space and marketing, these companies are adding no value but taking a huge hunk of change off the top. I would not mind if 3dfx took a financial hit by moving aggressively into this area and working to quickly build their own marketing strategy. I would consider it an investment in future profitability. OEM's: After a couple weeks of thought I've come to a conclusion. The closed roadmap is a poor idea. Look how much support Nhypia got on their TNT without actually having a real working product. They had several announced OEM's from some of the majors before it was even shipping. Telling the market what your product can do is not the same thing as telling them how it is done. If this were a working strategy, why hasn't Intel started using it? Why has Iomega dropped using the hidden roadmap strategy? Instead Intel publishes the roadmap and generates as much publicity as possible. The best product in the world will do you no good if nobody knows about it. Case in point: If Banshee were announced earlier with AGP 1x and 3dfx got the same reaction as they did on June 22, they could have easily changed the design to suit OEMs at 2x. The same goes for 32 bit color in 3d. Both of these things seem to be relatively easy to implement if you did it early enough in the process. I'm hoping to see some of the above fundamental changes. I will not sell below 7.5, however, unless the company displays further ineptitude on a long-term basis. (I call this inept because management were the only ones thinking this quarter wouldn't be that tough. I prefer to think of it as inept otherwise they would just be deceitful, a term I usually reserve for Nvidia and Diamond management.) Pat