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

To: Sun Tzu who wrote (10282)	1/26/1999 5:26:00 PM
From: Gopher Broke	Respond to of 16960

Could it be that TDFX is carrying foward some slack to back-fill next quarter which is probably going to be a difficult one given the merger and the ageing product line? Perhaps pulling in some periodic sales/admin charges into this Q when they have good numbers, so that they can carry some higher costs next Q without it being too disastrous?

To: Sun Tzu who wrote (10282)	1/26/1999 10:25:00 PM
From: Michael G. Potter	Read Replies (3) \| Respond to of 16960

When I called and talked to 3dfx a while ago, they told me that selling expenses would be very high in Q4. That was mainly from COMDEX and the TV ads they were running. That was the main reason why they said that earnings wouldn't be too high. I'm sure that the Banshee OEM launch added some costs as well. I did some accounting research into Pat's idea of shipping to STBI. First, I'm not sure that STB is a related party right now (can't find a reference to an announced but not consumated purchase). Anything that STB turned around around and sold to outside parties is income for both of them with no weird accounting at all. If STB still has inventory when the deal is consumated, you could make an arguement under purchase accounting that the inventory should be written up to market value. That means that it will give you zero margin when it is sold. Maybe help Q1 (when 3Dfx reports the sale)but will hurt Q2's results (when they then sell at zero margin). I would guess that 3Dfx would want good Q2 results as that would be the first one after the merger. I read cactusman's discussion on Yahoo, his points are true if you're talking about sales between related parties (consolidation accounting would eliminate the sales). It may be good for 3Dfx to do a little of that anyways. They'll have goodwill from the purchase because there are not many assets that they're purchased. By burning up as much of the premium by marking the inventory up to fair market value, they can get a one time charge when they sell it. Since the SEC is taking a very hard look at "in process R&D" write-offs, it may be a way for 3Dfx to avoid goodwill and the amortization in the future. As for STB purchase related expenses, typically they would be capitalized into the purchase price, but there is some flexibility to expense some now. COGS is high (in my opinion, I'm going to call them next week and ask) because Voodoo2 ASP is very low (high 20's compared to mid-to-high 40's when it came out). Dropping from $45 to $30 a chipset will hurt margins and the Banshee chips are at much lower margins as well. Hence the need for more volume (OEM sales and the STB purchase). Note that 3Dfx said that they would've made about $150 million in board sales this quarter. At $30 a chip, that means $75 a board @ 2 million boards. That will help me to build my earnings model. Michael