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

To: Simon Cardinale who wrote (8299)	10/15/1998 10:07:00 PM
From: Michael G. Potter	Read Replies (3) \| Respond to of 16960

I'm an accountant, so I guess I can answer your question <grin>. GAAP requires you to record inventory at lower of cost or market. 3dfx made a decision that the Voodoo 1.5 dies (which could be turned into Voodoo2 chipsets with an order of an extra texelFX chip) were very unlikely to be sold. Therefore, they had market value of zero and had to be written down to zero (a reserve was established). If they're scrapped (thrown out), the reserve will be removed and the asset also taken off the book. You're right, if they do sell them later they'll be at a much higher profit because they've been written down to zero now (and the expense already taken to Cost of Goods Sold). I doubt that they think it is sellable, otherwise, they would not have established the reserve. If I were cynical, I might speculate that there is more to it than just adding one more chip. 3dfx might be writting off the inventory value of a failed product launch. However, this was the second quarter in a row where they discussed the dies directly in their conference call so I believe them. Michael ps - I'm actually like answering accounting questions and have access to an online resource with the latest accounting prenouncements so I'll be glad to answer any questions. A word of warning - I'm a Canadian-trained Chartered Accountant. I've been working in the US for about 7 years now and my American GAAP knowledge is pretty good but I'd recommend that you visit a CPA if you're going to make an investment decision based on an accounting interpretation.