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

To: Sun Tzu who wrote (9688)	12/15/1998 2:11:00 PM
From: Obewon	Respond to of 16960

<< To begin with there are law and law suits to prevent nVidia from such actions>> You appear to have a better view of the U.S. legal system than I do (Witness the farce being played out between Congress and Bill "I lied under oath but it was about sex so it was OK" Clinton). I'm cetainly not a lawyer but Nvidia will only abide by what is specifcally required by the contract. Since no contract covers all contingencies, Nvidia probably has plenty of wiggle room that would result in slower deliveries or other inefficiencies for STB (not returning calls, losing orders, etc.) STB would be hard pressed to prove in a court of law that (1 it was intentional 2) any one action was damaging <<In addition, given that 3Dfx via STB has a good chunk of equity in nVidia, I think Creative would rather want to be nice to 3Dfx for now, if they want to gain a controlling interest in nVidia.>> I don't see this an issue yet since: 1) the company is still private and 3Dfx has no equity stake until January 15th THUS IT HAS NO VOTE until then. 2) the company can do an IPO doubling the offering shares and halving the share price. This would have the effect of diluting the coversion effect of the debt. (Of course, the debt agreement many negate a move such as this.) 3) 3Dfx's stake may not be significant when compared to others as well as insiders.

To: Sun Tzu who wrote (9688)	12/15/1998 2:22:00 PM
From: Michael G. Potter	Read Replies (3) \| Respond to of 16960

3Dfx called me and gave a CC replay number to call into for their explanation yesterday of the STBI merger. Here are my notes on the call: Most of the explanations were from Greg Ballard. He thinks that they are buying the class of the board companies with the best management team. 3Dfx feels that much of the brand recognition at the retail level comes from their name, not from their customers. Voodoo2 sales have been approximately $800 million to $1 billions and the combined company will be in a much better position to capture this. He gave the following reasons for the merger: 1) Control over branding - the 3Dfx logo is very small on the boxes of current customers, this will change. 2) Pricing stability - Now board makers compete almost only on price. The leads to a vicious cycle and 3Dfx gets squeezed as well. Intensive competition will be eliminated (my opinion - it's a little dangerous to talk about eliminating competition as a reason for a merger, the FTC may get involved - probably not a concern as there are enough other graphics companies) 3) As graphics chips get more complex, R&D expenses grow. The merger will give them a greater scale to support higher R&D. 4) Most importantly, customer responsiveness will be greatly improved. STB has shown that they're better at understanding what OEM's want for feature sets than 3Dfx and they'll leverage this. 3Dfx is good in retail marketing. Some questions and answers followed: How quickly will STB be able to expand retail (to replace current customers)? - 3Dfx already has the experience and STB already has the infrastructure in place, it just wasn't emphasized. 3Dfx will be able to increase service by reducing 30 customers to one. Any short-term pain from existing customers? - 3Dfx expects (hopes) to keep selling existing product. Current customers make a profit on these sales and 3Dfx is committed to fully supporting them into the future. Actually, most of them owe their success to 3Dfx brand - example, Creative Labs used 3Dfx chips to launch the Blaster line. What about the nVidia shares you would own and how will buying competition's chips be handled? - The nVidia shares are an asset that will decrease in value. STB is severely focussed on customers - will continue to use others chips where 3Dfx does not have a design and to satisfy existing contracts. Will shift more and more to 3Dfx only. Will this be dilutive or accretive? - Will be purchase accounting, goodwill and in-process R&D still being determined (my opinion - SEC is really cracking down on the big bath write-off method using in process R&D, may end up with more goodwill, check the timeline used to amortize this, shorter is better). Dave Zacarias answered will be neutral at worst - Ballard piped in - hope it will be additive, but to be conservative, neutral is ok to look at it. Any large increase in overhead expected (to service retail)? No reduction in headcount is expected, some additional salespeople may be needed, marketing expenses will jump for launch of Voodoo3 - will get more bang for the marketing buck as will not be split (i.e. Monster and 3Dfx) - increase in marketing leverage. More capacity needed? - Plant in Juarez, Mexico (my note - just across the border from El Paso) is modern, gorgeous facility - lots of technology in making the boards - room for more lines if needed + room to expand - could build elsewhere if they need to. What will happen to STB management team? - We're buying expertise and expect to retain the team - we work great together and the companies should get together well. Growth business. How about this quarter? 1.3 million Banshee and 500K Voodoo2? DZ - we're comfortable with those numbers. Ending comment - musical chairs and we picked the best seat before the music stopped. Michael