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ATI has strongest sales ever

The PC graphics chip leader appears to be maintaining market position on the back of strong earnings.

Graphics chip leader ATI reported strong earnings and its strongest sales ever as it continues to maintain a commanding position in this important PC chip market.

ATI Technologies reported earnings of $52 million in U.S. dollars, or 24 cents a share, for its first fiscal quarter, more than double earnings of $24.5 million or 12 cents per share for the same period last year. Revenues came to $327.4 million, a jump of 95 percent from $167.8 million for the first fiscal quarter in 1997.

Strong sales are the result of the stampede of PC and computer vendors that have chosen to work with ATI, a company known more for cutting deals than cutting edge technology.

ATI, say analysts, excels at bending over backwards for the customer--namely, large computer and motherboard makers that remain the largest buyers of 3D chips. By contrast, ATI's Rage chips don't provide particularly distinctive performance, most observers say.

"Sales in the first quarter were the strongest recorded by ATI," the company said. ATI saw record demand in North America, Europe and the Far East for the Rage Pro family of graphics processors. In particular, the Rage Pro Turbo and Rage IIC graphics products did well.

Additionally, the company took a charge of U.S. $1.9 million or one cent U.S. per share on an after-tax basis, to cover partial costs for the acquisition of Chromatic Research, a defunct system-on-a-chip vendor ATI acquired for $70.9 million.

Actual net income for the first quarter, including amortization, was $50.1 million, the company said.

Also, in the first quarter, ATI announced new RAGE notebook PC chips which allow notebook PC manufacturers to deliver more integrated graphics chip subsystems. The new chips provide more graphics memory and built-in MPEG video playback functions.

Other new products include the ATI-TV Wonder add-in circuit board and the RAGE Theater chip that combines video playback and vide encode (creation) into a single component, the company said.

"They've solidified the 'good enough' market," said Kathleen Maher, editor of the Peddie Report. "How good do graphics have to be ?" Maher quipped, referring to the fact that the preponderance of PCs do not need cutting edge 3D graphics technology.

ATI is doing so well that the industry is simply waiting to see if they will stumble or not, Maher added. "But I wouldn't slight them on technology either." Maher said it is impressive that Apple Computer is now using ATI in its midrange corporate machines, in addition to the iMac.

"ATI understands the PC graphics market better than any other company in the business today. In 1998, they delivered more of the right products at the right prices than any other graphics chip company," said Peter Glaskowsky, senior analyst at the Microprocessor Report.

"ATI faces no serious challenges for dominance of the overall PC graphics market in 1999. Some of its competitors will continue to prosper in specific market niches: 3Dfx in 3D-game acceleration, NeoMagic in laptops, and Matrox in business PCs, for example, but ATI represents a serious threat even to these companies," he added.

PC makers using new ATI chips include Compaq, Dell Computer, Hewlett-Packard, and NEC-Packard Bell.

ATI chips are also being adopted, for the first time, by Sun Microsystems for a low-cost workstation.

But S3, which did not fare well last year as it went from graphics leader to laggard, may be setting itself up for a comeback. In an agreement announced in December, S3 and Intel entered into a 10-year technology cross license pact, which allows S3 to use certain semiconductor patents and intellectual property rights. S3 has the rights to incorporate into products the "P6" bus, the underpinning technology for Intel's Pentium II and Xeon processors.