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

To: Joe C. who wrote (8308)	10/15/1998 11:30:00 PM
From: Sun Tzu	Respond to of 16960

I agree. My question is, why should those chips be written down? They have ~$25 mil. in inventory assuming ASP of 39 and gross margins of 38% we get average cost of $28.25 so the inventory represents ~880,000 units. They should be able to sell most if not all of this in Q4 (given the Christmas season and the two headed monkey). Let's say they sell 730,000 of it in Q4. That leaves them with 150,000 units. The inventory write down was for "not quite as high as 500,000 units". So let's say it's 450,000 units. Without the inventory write down, 3Dfx will have (based on my assumptions) 600,000 units at the start of Q1 '99, which seems like a reasonable number to ship (at much reduced prices) for Q1 and Q2 of '99. If this is the case, then 3Dfx should not have taken the charge, unless they intend to record inflated profits in the future (I have a minor problem with this, but not much). On the other hand, if they indeed are not going to use this inventory (hence the write off), that implies that there will be no V2 shipments in FY99 at all. Given that the follow up to V2 will not be ready till Q3, and that Banshee (and its follow ups) have lower margins than V2, I am concerned. Accounting is not my forte. So could Michael and Pat (or anyone) go over my logic here and tell me if I'm right. Thanks, Sun Tzu