ATI Technologies Dazzles Personal Computer Gamers, Investors
Bloomberg News
April 8, 1999, 12:06 p.m. PT
ATI Technologies Dazzles Personal Computer Gamers, Investors
Thornhill, Ontario, April 8 (Bloomberg) -- Todd Kelly
doesn't play games with his money. That's why he took a hard look
before investing in Canada's ATI Technologies Inc., the No. 1
maker of 3D graphics cards for personal computers.
Kelly, 29, has seen his 50 shares bought about 13 months ago
quadruple to 200 after a 4-for-1 stock split last April. Better
still, those shares have doubled in value since purchased.
ATI has captured 30 percent of a rough-and-tumble PC
graphics market, where the number of manufacturers has dwindled
to about nine from almost 30 four years ago. The company is
prospering so far, analysts say, by keeping up with fast-changing
technology and counting big PC makers like Dell Computer Corp.
and Gateway 2000 Inc. among its customers.
''I'm not a high risk taker. But because I'm young, I need
to expose myself to some risk and ATI is just exploding from
growth,'' said Kelly, an assistant brand manager for Unilever NV
in Toronto.
ATI said today that its fiscal second-quarter profit from
operations rose 45 percent to US$39 million, or 18 cents a share,
topping expectations for 16 cents from First Call Corp. A year
earlier, net income was US$27 million, or 13 cents, adjusted for
the stock split.
Sales for the period ended Feb. 28 climbed 63 percent to
US$297.2 million from US$182 million. ATI shares slipped C$0.70
to C$24.30 in midafternoon trading.
Graphic Images
Graphics cards and chips help software programs from
spreadsheets to games to razzle-dazzle Internet sites display
moving images in two and three dimensions.
Kelly said that he was so taken with Thornhill, Ontario-
based ATI after his research that he recommended to his mother
that her investment club buy some shares.
''I don't think she knows what a graphics accelerator is,
and she doesn't play computer games,'' Kelly said. ''She just
looks at what her money is doing.''
If ATI has an Achilles heel, analysts say, it's that the
company is closely tied to the vagaries of the PC market. That
market was hammered earlier this year, after Dell Computer Corp.
reported slowing sales growth and Compaq Computer Corp. warned
about less-than-expected January sales to small businesses.
As a result, ATI fell about 29 percent from a record C$27.90
(US$18.63) on Jan. 29 to C$19.75 on March 4.
Still, the shares have gained about 39 percent for the year,
giving ATI a market value about C$218 million and making it the
fourth-best performer on the Standard & Poor's Toronto Stock
Exchange Index.
During the same period, nearest competitor S3 Inc., which
has about 20 percent of the market, gained 8.7 percent. Intel
Corp., the world's largest chipmaker that has 9 percent of the PC
graphics market, rose 11 percent. 3dfx Interactive Inc., which
commands 5 percent, gained 29 percent.
Nvidia Corp., which went public in January at $12 a share,
has performed better. It rose 1/8 to 21 1/8 in recent trading,
for a gain of 76 percent.
''Soft PC sales will have a heavy impact on everyone, but
because of ATI's size and scale of economies, they are better
protected,'' said Andrew McCreath, portfolio manager for Toronto-
based Synergy Asset Management Inc., which oversees $100 million
in stock.
Biding Time
McCreath said his company sold some of its ATI shares in
early February to take advantage of the soaring price.
''There were some rumblings back then about Dell and
Compaq,'' McCreath said, referring to slower sales growth. ''But
ATI is a good, solid, long-term growth stock, and I'm biding my
time on what we have left.''
Unlike most of its competitors, ATI designs the chips and
the boards that plug into the PC's interior slots, and contracts
with other companies to make the products.
It sells its boards to all of the top 15 PC makers,
including Dell, Apple Computer Inc. and Hewlett-Packard Co. It
also sells its products at PC stores to enthusiasts who want to
update aging machines with the latest technology.
ATI has taken steps to protect itself against a trend in the
industry, the move to put more and more functions on a single
chip. Graphics, ATI's bread and butter, is a logical choice for
that integration, and that could gnaw into ATI profits.
That's why last year ATI bought Chromatic Research Inc. for
US$70.9 million to gain so-called system-on-a-chip technology,
said James Chwartacky, chief financial officer.
''Consumer electronic devices, sub-$500 PCs, all-purpose
devices, system-on-a-chip, that's the future,'' he said. ''We are
going to be there.''
Big Customers
The company also penetrated the set-top box market with an
estimated $190 million supply agreement last year with General
Instrument Corp. to supply graphics chips for 7.5 million devices
during the next three to five years. The boxes are used by cable
companies to expand cable channel offerings, Internet connections
and telephone service.
''ATI is the only chip supplier that can boast of supply
relationships with each of the top 15 PC (makers),'' said Ray
Sharma, a Credit Suisse First Boston Corp. analyst, who rates ATI
a ''buy.'' This ''provides greater financial stability to the
company.''
ATI proves that to be an emerging tech giant, it's not
necessary to be located in California's Silicon Valley, analysts
say. The seven analysts who have issued ratings on the shares
rate them from ''near-term buy'' to ''strong buy.''
Paul Litva at Toronto-based Dominion Securities Inc. just
started covering ATI and rates it a ''buy.'' He said he never
really paid attention to the company before.
''Then you say, 'Wow, this is a big company.' It will
dominate the competition. There is lot of upside here,'' Litva
said.
That's something that small investor Todd Kelly and his
mother's investment club is sure to like, even if they aren't
into playing games on their PCs or in their stock portfolios.
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