STB Purchase Threatens Graphics-Card Makers
(01/04/99, 12:22 p.m. ET)
By Mark Hachman, Electronic Buyers' News
Some second-tier PC add-on card vendors are
predicting last month's sale of STB Systems will lead to
a shakeout among smaller card suppliers, if not to the
demise of the independent graphics-card market itself.
In buying Richardson, Texas-based STB for an
estimated $141 million stock swap, chip maker 3Dfx
Interactive is gaining the two most popular means of
distributing individual graphics ICss: add-on cards
and motherboards.
The move puts increasing pressure on card companies,
whose days as distributors of PC components seem
numbered, according to observers. On the same day
the acquisition was disclosed, STB reported a fourth
quarter loss of $5.9 million on sales of $54.9 million.
At the time, one analyst said privately: "I'm not going to
name names, but some of the smaller companies -- you
know who they are -- are toast."
Executives at 3Dfx, in Santa Clara, Calif., said they will
continue to support existing customers -- and will even
expand a relationship with Santa Clara, Calif.-based
workstation-card maker Quantum3D -- but likely will
halt sales to STB competitors once the 3Dfx Voodoo3
chip is launched in early 1999.
The upshot? "There is definitely going to be a
consolidation," said Jim Anderson, vice president of
marketing and sales at Canopus, a card maker located
in San Jose, Calif. "A lot of the smaller guys are going
to be hurt. We've gone from a couple hundred [card
companies] down to about a dozen, and a reduction to
three or five is coming up."
Speaking on condition of anonymity, a senior executive
for a company that makes add-on cards for the Apple
Macintosh said his company tried to expand into the
PC space, but abandoned its efforts this fall. "It
ultimately just wasn't profitable," he said. "[There are]
just too many players."
Add-on card vendors are being squeezed by a
combination of industry economics and a trend toward
integration, which is pulling a growing number of
peripheral components and interfaces on-chip. And
because graphics ICs now represent a greater portion
of the value of an add-on card, graphics-IC vendors
are gaining clout at the expense of card suppliers.
"All the technology is now in the chip," Anderson said.
Apples And Apples
Besides the fact that their products are continuously
being replaced by newer, upgraded devices, the sheer
number of add-on card vendors is making it increasingly
difficult for companies to differentiate themselves. (3Dfx
alone sells chips to nearly 30 customers.) In such a
market, pricing becomes the chief competitive weapon.
For example, add-on cards based on 3Dfx's Voodoo
Banshee 2-D/3-D graphics chip debuted in June at
$150, but a month later, had fallen to just $89 as a raft
of competitors weighed in.
Exacerbating the overcrowded market scenario for
smaller suppliers is the fact that large card companies
often receive higher-volume discounts, and have the
resources to write proprietary driver software and
market the cards widely. But even the card makers with
their own drivers are often bested by chip suppliers with
superior software.
"The role of the chip vendor is to provide a stable
platform ... which we then optimize," said Michael
Viramontes, senior product marketing manager at
ELSA Inc., a Santa Clara, Calif., subsidiary of German
card maker ELSA AG. "That will only stop when
[graphics chips] produce the quality of HDTV or real
life."
Analysts disagreed. "How do you get differentiation?
These days, it's vertical integration and pricing," said
Bob McQuillan of Jon Peddie Associates, in Tiburon,
Calif.
Paths To Choose
While companies such as STB have pursued the
acquisition path, other card companies are evaluating
their options. Some, like Canopus, are reacting by
seeking new markets, such as PC video-editing
products. Others, like ELSA, maintain a worldwide
market presence that helps insulate them from regional
pressures.
"Consolidation is the million-dollar question right now,"
said Joe Lau, marketing coordinator at Fremont,
Calif.-based Hercules Computer Technology, which
called off a merger with ELSA AG in November after
the companies failed to agree on terms. "We're just
keeping all avenues open right now." |
