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Technology Stocks : Creative Labs (CREAF) -- Ignore unavailable to you. Want to Upgrade?

To: Jon Tara who wrote (12864)	11/20/1998 11:37:00 AM
From: Brad Patton	Respond to of 13925

Don't know if the article below was posted here or not (I found it on the 3dfx thread). It helps to explain Creative investment in 3dfx. If Diamond had tried to acquire 3dfx or lock them up with a joint venture Creative might be out of luck in getting chips. Notable quotes: "Diamond didn't have enough cash on hand to complete a deal." “worst-kept secret in the industry.” Comdex: Diamond/Creative feud involved failed 3Dfx venture By Mark Hachman Electronic Buyers' News (11/17/98, 04:21:47 PM EDT) Silicon Valley In the past several weeks, the rivalry between PC add-on-card vendors Diamond Multimedia Systems Inc.and Creative Technology Ltd. has involved dueling consumer audio devices and an aborted joint venture with 3Dfx Interactive Inc., according to analysts and industry sources. At Comdex this week, Creative is introducing a consumer audio player similar in function to the Rio player that Diamond sells, according to a spokesman for Creative Labs Inc., the U.S. arm of Creative Technology, which is based in Singapore. Furthermore, an industry analyst and anonymous industry consultants reported that Diamond considered first a joint venture and then an outright acquisition of chip maker 3Dfx Inc., whose Voodoo Graphics and Voodoo II chips are used by both Diamond and Creative in their add-on cards. The acquisition plan was dropped for unknown reasons, although one source speculated that Diamond didn't have enough cash on hand to complete a deal. Ken Wirt, vice president of corporate marketing at Diamond, declined to comment. A Diamond spokeswoman called the 3Dfx deal an industry rumor. Executives at 3Dfx did not return phone calls. Diamond and 3Dfx originally considered a joint venture in which 3Dfx would essentially manufacture both its chips and the add-on boards themselves, which in turn would be distributed by Diamond, said Dean McCarron, principal at Mercury Research in Scottsdale, Ariz. “But Diamond came to its senses and pulled out,” he said. One industry consultant called the potential deal the “worst-kept secret in the industry.” Distributing boards manufactured by third parties would not be a new practice for Diamond, which uses 3Dfx's graphics chips in its “Monster 3D” and "Monster 3D II” graphics add-on cards. Diamond has an exclusive relationship with Aureal Semiconductor Inc., Fremont, Calif., for the chips used in its “Monster Sound” audio add-in-card boards. In July, Aureal contracted with Asian board manufacturer Ocean Automation to begin making boards based on its own chips; those boards are then sold to Diamond for packaging and distribution. Aureal executives and industry analysts have also reported that Diamond had in the past tried to develop a high-performance digital audio controller, then later scrapped the program. Creative, on the other hand, internally develops digital audio controllers though its two subsidiaries, E-mu Systems Inc.and Ensoniq Corp. The reasons that the acquisition or cooperative venture was scrapped remain unclear, sources said, but were probably tied to Diamond's financial condition. Because Diamond records most of its revenue in the last month of the quarter, its cash reserves can fluctuate dramatically, analysts said. In Diamond's June-quarter SEC filing, the company reported $109 million in cash versus $100 million in long-term debt. Diamond has also faced operating difficulties. In its third quarter ended Sept. 30, the company lost $22 million on net revenue of $123 million, as it worked through excess component inventory. During that period, the company invested $33 million in purchasing motherboard maker Micronics Computers Inc. and Internet-appliance design firm Design Cast. It also made a strategic investment in 3Dfx's rival, chipmaker Nvidia Inc. Since April, Diamond's stock has dropped from about $15 to just above $5. Creative Technology has purchased about 6% of 3Dfx's stock, which McCarron called a strategic investment in a key supplier. Likewise, Diamond's Wirt said that maintaining a relationship with both Nvidia and 3Dfx is of strategic importance to Diamond. On Thursday of last week, Diamond announced a corporate restructuring that will involved the loss of up to 120 full-time and 60 part-time jobs as the company moves its manufacturing operations abroad and works to cut costs. The effort will result in fourth-quarter charges of up to $19 million, Diamond said.