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

To: Patrick Grinsell who wrote (8376)	10/16/1998 2:24:00 PM
From: Jay Fisk	Respond to of 16960

Three mentions in Briefing.com this AM - Isn't it about time for an upgrade ??? Hint, hint ;D 3Dfx INTERACTIVE, INC (TDFX) 10 13/16 +5/16 The market is struggling to digest yesterday's after the close earnings report by the maker of high-performance graphic chips, whose stock is widely held by individual investors. While beating most estimates (-0.06) of a loss with total earnings of $0.20 per share (because of a one-time lawsuit settlement with Sega), the company ran operations at a loss of $8.7 million or $(0.55) per share. To further complicate things, the company took a charge in writing off its current inventory of Voodoo Chip 1.5. Briefing discussed the over-inventory problem in TDFX, when we first wrote about it in our Stock Brief of Sept. 24, 1998. But now, things are getting harder to interpret. First, revenues at $33.2 million were up substantially from the year ago quarter of $10.0 million. But sequentially, they are way down from last quarter's record $58.6 million. On the other hand, the R&D expense skyrocketed from a year ago $3.2 million to this quarter's $10.0 million. Add in operations at a loss, compared to last quarter's record results of $0.54 per share, and the picture gets clearer. TDFX looks like a high-technology cyclical, if such a thing can be imagined. They invest heavily, make a fantastic product, sell them like hotcakes, but when the curve is over, they have too many left on hand. Dump those, invent a faster, better, cheaper new version, and repeat the cycle. This is the picture a straight reading of the financials gives you. The only problem TDFX faces is making sure the down part of this cycle doesn't dominate a quarter, like it did this quarter. This picture helps explain why TDFX has such a low P/E and Price/Sales ratio. It isn't priced like a growth stock. It's priced like a cyclical. As long the business stays in the quarterly feast-or-famine mode, it will never get the multiples of a growth stock. Investors that believe in the company because of the terrific performance of the chip need to remember that today's hot chip is tomorrow's scrap heap, if you don't sell them now. Investors are mulling all this over this morning, but the stock, while up over yesterday's close, is currently only at yesterday's high of 10 13/16. If you want to digest the conference call yourself, you can get the replay at 800-633-8284, #1596411.