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: Michael Linov who wrote (7702)	9/26/1998 7:44:00 AM
From: Michael G. Potter	Read Replies (2) \| Respond to of 16960

I had an interesting discussion with Paul Wilson (Manager of Financial Planning and Analysis) at 3dfx last week (would've posted something sooner but I was on the road). Most of our discussion was on items that already were released in the MF interview and he was very careful to steer away from specific predictions (he actually did a pretty good job of being helpful without revealing more than he should). I asked him if the pre-announced loss was due to a sales shortfall or were there much higher expenses also occurring. He said that it was a sales shortfall and that there was some increase in expenses getting ready for the Banshee launch (making sure they could support OEM deals). However, there were no unexpected expenses and they would be in line with what was discussed in last quarters conference call. He said that, obviously, they've been tighter with discretionary expenses, but they hadn't let the one bad quarter distract them from their long-term goals - no cutting R&D to improve this quarters results. We discussed why their sales estimates were so far off. He said that they had been based on forecasts from their board makers, but the first two quarters of V2 sales were much higher than expected and it created a bubble of inventory at the board level. Sales at retail remained good, but board makers were being very careful with their inventory levels so they were slower in reordering than expected. No orders were cancelled, they just were not placed as expected. There still is a chance that there will be a few coming in right at the wire, but that was not something to count on. 3dfx is trying to increase their visibility to this type of situation so that they could help reduce the chance of it happening again. I asked about their inventory levels, especially the high V2 chips level that came out in last quarters conference call. He said that the lower sales this quarter meant that it'll be sometime in Q1 before 3dfx is where they want to be (a lower level). Receivables should be ok, bad debts were not a worry. The dollar amount would depend on how many last minute sales were shipped. MY SPECULATION - Based on the fact that 3dfx revealed that their quarter was back-end loaded and that they had higher than normal inventories of chips, I think that their customers may have waited very late in the quarter to place orders in the hopes on wrangling lower prices. I know that once you give up price, you never get it back and once you establish that you'll do end-of-quarter fire sales, you are stuck always doing it. I hope that 3dfx resisted any deals that will start this pattern. Plus customers knew that there was plenty of inventory so they could have orders filled with less than normal lead time. That meant they could see how TNT was doing and then place orders (if any). END MY SPECULATION I was curious about the cycle time for 3dfx from when they placed the order for chips to when they were ready. He explained that it takes about six weeks until from order until the chips exit the fab (thereabouts depending on capacity constraints) and then another two weeks for packaging and testing. I'll have to ask what their delivery normally is from customer order to shipment (i.e. what lead time they require) to get an idea of their forecast risk for inventory. We discussed OEM sales. Nothing new here - they're shipping in volume now, but no announcements (maybe sometime in October), Although they've received encouraging feedback from OEM's, they still could cancel so he wouldn't characterize anything as a firm, very high volume order. He wasn't familiar enough with all the details of the lawsuit to discuss it. Overall a good conversation. He mentioned that they are very aware of investor disappointment in the share price and seemed to indicate that they do monitor some of the net traffic. Michael