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

To: Marc who wrote (9812)	12/20/1998 10:26:00 PM
From: Sun Tzu	Respond to of 16960

You are right, but I only rounded up theirown 19.9% to 20%. I thought I was being generous and lazy ;). Anyway, given that they have grown their revenue by 100%, operating income by 235%, have a dominant market position, and have won contracts in the set-top area...why is it that we are holding on to TDFX instead? And why isn't ATI's stock not doing any better? Yes it has doubled since the beginning of the year, but if the market assigns only a PE of 19 to the dominant company with such a growth, then may be we are hoping too much for the stock gains in TDFX (not to be confused with the company's potentials). Sun "scratching his head" Tzu

To: Marc who wrote (9812)	12/20/1998 11:55:00 PM
From: Patrick Grinsell	Read Replies (2) \| Respond to of 16960

Okay Marc, thanks for the info. Let's see what we can do with it... It seems to me that all of the downsides from the merger appear to be on the revenue side right? Certainly margins should be better going forward. How about we just take half of what the two companies did last year in terms of total board sales and just add them together. For 3dfx that would be at least 400M (STB said 800M-1B) and STB just turned in 266M so theirs would be 133M. That would give a total revenue of 533 for the combined company in 1999. ATI did 37% gross margin in 1998 so I think it fair to use this number, especially when 3dfx will be selling (and always has) much more expensive and higher-end products. The we slap together operating expenses from both companies assuming absolutely no economies of scale and... (numbers in millions) 3dfx Revenue Contribution 400 STB Revenue Contribution 133 Total Revenue for 1999 533 Gross Margin 37% 197 Total SG&A 120 Pre-Tax Income 77 Taxes (35%) 27 After Tax Income 50 Shares Outstanding 24 EPS $2.09 It seems to me that this merger is actaully reducing risk in the long term by making 3dfx more profitable while moving a much lower volume of product. There is also no rule that says 3dfx must be less successful in 1999 than 1998 in retail, but I admit it would be a hard act to follow. In addition, I think the above model way understates the impact of moving into the OEM market, of which we've seen very little in the way of revenue numbers yet. Pat