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Graphics merger joins allies

Diamond Multimedia will acquire troubled Micronics Computers in a move that could create a more competitive force in motherboards and 3D graphics chip market.

Diamond Multimedia will acquire troubled circuit board maker Micronics Computers in a move that could create a more competitive force in the PC circuit board and 3D graphics chip market.

Diamond designs and manufactures graphics cards, while Micronics has made its name as a maker of the PC's main circuit board, the so-called motherboard. Micronics has been struggling over the last few years, however, buffeted by Intel's entry into the motherboard business.

The newly combined company will use Micronics' existing motherboard technology to move into the rapidly expanding sub-$1,000 PC and low-cost Internet appliance markets, the two companies say. The combined company will be able to offer a low-cost, integrated multimedia motherboard featuring a Diamond graphics card for use in a set-top box or low-end PC.

"Diamond intends to leverage Micronics' existing motherboard business through Diamond's worldwide procurement, sales, and customer support infrastructure, including the sale of Micronics' Twister LX, Redstone, and Helios motherboards which support the Pentium II," Diamond said in a prepared statement.

Diamond will also combine "Micronics' motherboard expertise and highly qualified engineering team with Diamond's multimedia and communications expertise to develop integrated multimedia systems boards for the sub-$1,000 PC market and the emerging set-top, media center, and Internet appliance market," the company added.

"With the ongoing interest in low-cost PCs, the attraction for putting graphics chips right onto motherboards is growing," said Peter Glaskowsky, an analyst at MicroDesign Resources.

Additionally, as both companies now manufacture Voodoo Graphics chipsets, the merged outfit will consolidate those efforts.

But leveraging the strengths of both companies is unlikely to make much of a dent in Intel's motherboard dominance, analysts say. "They'll be able to offer a broader range of products than Intel is able to offer, but they will have trouble competing on price," Glaskowsky said.

Pending regulatory approval, Diamond will acquire Micronics for $2.45 per share, or $31.6 million. The deal is expected to be completed in June.