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: Chip Anderson who wrote (8638)	10/27/1998 11:53:00 AM
From: allen v.w.	Respond to of 16960

Hello all! Did anyone see this from thestreet.com Just thought I would pass it on. Herb on TheStreet: Can 3Dfx Beat the Graphics Chip Odds? By Herb Greenberg Senior Columnist 10/26/98 7:36 AM ET MonDayne: Graphics, schmaphics: Push is about to come to shove for 3Dfx (TDFX:Nasdaq), whose third-quarter earnings recently took an unexpected tumble. The company thinks it will climb back with a series of important design wins from PC makers, but doing so from a profits standpoint would mean beating the odds. The graphics chip industry is littered with former highfliers like Tseng Labs (TSNG:Nasdaq), Cirrus Logic (CRUS:Nasdaq), S3 (SIII:Nasdaq) and 3DLabs (TDDDF:Nasdaq). Just look at the chart of each one, and you can almost tell which was the leader at what point in time. "Every one of these stocks that goes above 15 or 20 is a short," says money manager Gary Gratny of Whelan Gratny in San Jose. "They're an intellectual waste of time for me. You don't know when to buy them and generally don't know when to sell them." The reason, according to one money manager who goes long and short these stocks: "It's this big inevitability: You have it for a while, and then you lose it. And when you lose it, Wall Street trades you to low valuations." The "losing it" of which this money manger speaks occurs when leapfrogging technology makes one company's chip more desirable than the others, which usually results in price wars and thinning profit margins. "The problem with the whole graphics area is that it's very tough to make it beyond one cycle, and so far nobody's done it," says NationsBanc Montgomery Securities analyst John Joseph. Which brings us back to 3Dfx. CEO Greg Ballard insists his company's dismal third quarter "is not a symptom of our industry as much as a horrible miscommunication" between Diamond Multimedia (DIMD:Nasdaq) (his customer) and 3Dfx regarding demand. Ballard says 3Dfx is now doing its own checks of the distribution channel, and says the company isn't just focused on technology, like its competitors, but developing its brand name. Its chips are sold under the Voodoo and Banshee brands. Just one problem: The PC industry is demanding lower prices, and Canada's ATI Technologies (ATY:Toronto) and even Intel (INTC:Nasdaq) have been aggressive on that front. Ballard insists PC makers will turn to his brands to give them something different. He adds that technology leapfrogging occurred during the transition from 2D to 3D chips, and there's nothing new to leapfrog 3D. Maybe not, but in an industry that is a wasteland of a business, even new design wins may not help generate interest on Wall Street. Right now ATI is considered the leader, "but it's like a nice house in a bad neighborhood," one money manager says. "And, oh yes, Neomagic (NMGC:Nasdaq), whose graphics chips are used in laptops, is doing well and the same fate is awaiting them." And as usual, most investors won't know what hit them. ALLEN: