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3Dlabs sues TI, gets a new partner

The announcements underscore a flurry of activity at the company and in the graphics industry as a whole.

3Dlabs today announced it is suing longtime manufacturing partner Texas Instruments for trade secret violations, and revealed a new manufacturing alliance with SGS Thomson Microelectronics.

The vendor of 3D graphics chips also reported a surge in revenues and earnings for the fourth quarter. For the quarter just ended, 3Dlabs reported revenues of $22.3 million, a 159 percent increase of $8.6 million for the same quarter in 1996, and earnings of $3 million, an 84 percent surge over the $1.6 million in earnings reported in 4Q 1996.

The trio of announcements underscores a flurry of activity at the company and in the graphics industry as a whole. Intense price competition, shorter product cycles, and Intel's entry into the graphics processor arena next week are expected to lead to an across-the-board industry consolidation in the coming year.

The positive earnings statement and new manufacturing alliance will, if anything, help the company bolster its own position in the market. Earlier in the week, it was also reported that the company is collaborating on a server/workstation graphics chip that will complement Intel's forthcoming "Merced" chip. (Intel is an investor of CNET: The Computer Network and 3Dlabs.)

In the lawsuit, 3Dlabs alleges that TI posted intellectual property belonging to 3Dlabs on the Web in violation of written nondisclosure agreements as well as sent the information to third parties. TI has been a licensee of 3Dlabs technology and has manufactured the company's Permedia graphics processors on behalf of 3Dlabs. The suit, which was filed in the Superior Court of Santa Clara County, California, seeks damages and declaratory relief. The company did not elaborate on the nature of the patents.

"While TI is a valued business partner of 3Dlabs, we reluctantly had to take this step to protect our rights," said Osman Kent, chief executive officer of the company, in a prepared statement.

Not surprisingly, 3Dlabs' deal with SGS-Thomson will cover the manufacture of Permedia 2 processors, which are 3Dlabs' high-volume, lower-cost chips. SGS-Thomson-manufactured chips will begin to emerge in March and be sold under the 3Dlabs name. TI will also continue to manufacture this chip.

3Dlabs did not specify when it first contemplated a suit against TI. However, the company said that it kicked off a relationship with SGS in 1997 and that SGS began to sample the Permedia 2 chip this past December.

The financial results for the fourth quarter and 1997 highlighted substantial growth for the company. As with the quarterly results, the yearly financial figures reveal triple-digit growth over 1996.

Revenues for the year came to $69.1 million, up 251 percent over $19.7 million in 1996. Net income for the year came to $16.1 million, a 511 percent jump over the $2.6 million in earnings reported in 1996.

Financial results from the first half of the year, however, illustrate the roller-coaster nature of the graphics market. Although earnings and revenue in the fourth quarter were up over results in the third quarter, earnings were far below what the company reported in the first two quarters of the year.

Net earnings for the first quarter came to $5.38 million on revenues of $15.76 million. For the second quarter, the company reported earnings of $6.04 million, double the net earnings of the fourth quarter, on revenues of $17.34 million. In the third quarter, earnings descended to $1.64 million.

The company's performance in the past year has prompted some analysts to state that the company will likely be one of the six or so independent graphics makers to survive the predicted, upcoming shakeout.

"Consolidation? There will be lots," said Arun Veerappan, semiconductor analyst for BancAmerica Robertson Stephens, who picked 3Dlabs as a survivor. "The Permedia for them is doing reasonably well and they signed a collaboration deal with Intel."