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

To: Sun Tzu who wrote (9496)	12/10/1998 6:25:00 PM
From: Sun Tzu	Read Replies (4) \| Respond to of 16960

Well the good news is that the fine folks at 3Dfx do read this thread and are responsive to our concerns, even though they may not be able to articulate those responses. I can now have greater peace of mind, knowing that at least we are being heard. I often talk about the stocks from a technical analysis point of view because (a) it is easier to discuss, and (b) the fundamentals don't seem to change as often as the technicals do. I would like to briefly talk about 3Dfx from a fundamental point of view now. The PC market is expected to ship about 100 million units next year (actually, Dataquest just raised that number) of which about 40% will be sold to households. This means 40 million units. I don't have accurate numbers on this, but my guess is that ~75% of that is sold via OEMs and the rest are no-name clones put together at small shops. So the OEM potential is at most 30 million units (which 3Dfx will sell for ~$30 with OM of ~33%). The high-end retail market is probably saturated at about 4~5 million units (which 3Dfx will sell for ~$42 with OM ~48%). Other markets may develop in the future, but for now that is all we have to work with. My best expectation for '99 is a 10% OEM penetration and 75% for retail. This means revenues of $90 mill (0.1x0.75x40x30) from OEMs and $142 mill (4.5x0.75x42) for the retail (i.e total revenues of $232 mill). Accordingly, operating income will be $128 mill (90x0.33 + 142x0.48). 3Dfx may reach 20% OEM penetration, but I doubt that will happen in '99. To find out what is a reasonable expectation for the stock price, apply these estimates to the current price-to-sales and price-to-operating-income ratios of TDFX and ATYTF. I don't have the numbers I need handy, but perhaps someone can take it from here. BTW, it is very important for 3Dfx to maintain the loyalty of avid gamers so that it can keep its reputation as a quality graphics company among the general public. When average user wants to know what is a good company, he does not read the magazine reviews. He asks his techie friends about it. Maintaining the retail market will be more difficult in '99 than in '98, as the difference between high-end and average graphics card is narrowing. One of the reasons I want 3Dfx to provide a multi-card option, is that as a buyer, I am more likely to spend $300~$400 on a fancy graphics card, if I know that it will be top of the line for at least a year, and after that I can still save my investment by adding another card (then cheaper) to the system. I am less likely to spend that kind of money on a graphics card, if I think that next year it will be out-performed by another card. Cheers, Sun Tzu