Under the deal, ATI acquired all of Tseng Labs' graphic design assets, including hardware and software licenses, and is leasing the Pennsylvania facilities of the company for at least three years, with renewal options through 2007.
ATI said the acquisition will bolster its presence in the 3D graphics, video acceleration, and multimedia solutions markets. Many top-tier personal computer vendors already use ATI's graphics chips, including Dell Computer, Toshiba, Compaq Computer, Gateway 2000, Hewlett Packard, and IBM. Intel also uses ATI's graphics processors on its motherboards.
The transaction will help line Tseng's coffers at a time when the company has posted falling revenues and its net losses have widened.
Indeed, it was only a few years ago that Tseng was one of the largest graphics chip makers for PCs. But in its most recent quarter, the company's net sales were $1.9 million, compared with net sales of $12.4 million during the same period in 1996. Tseng's net loss for the quarter was $2 million, compared with a net loss of $463,000 for same quarter last year.
Tseng said the decline in revenues and net income was due to fewer unit shipments during the quarter and increasing pricing pressures on the company's graphics accelerator products.
"Tseng has weathered a difficult time, but we believe we have found a positive resolution that benefits our shareholders and meets our goal of positioning the company to utilize our strong, debt-free balance sheet to make acquisitions," Jack Gibbons, president and CEO of Tseng Labs, said in a statement.
The sale of Tseng's graphics assets will result in a pre-tax write-off of approximately $3.5 million, bringing the company's total write-offs for the fourth quarter ending December 31 to $5.5 million.
The move to sell the assets followed Tseng's recent top-level reorganization.
Jack Tseng resigned as president, chief executive, and chairman of the company effective October 31, which resulted in the current quarter's $700,000 one-time charge. John Gibbons, a cofounder of the company and until recently its vice chairman, immediately assumed Tseng's titles.
The company started trimming its staff prior to Tseng's resignation, aiming to lay off up to 30 percent of its workforce. The severance program will result in an additional one-time charge of between $500,000 and $1 million for the current quarter.
The layoffs were part of a broader reorganization and cost-cutting effort intended to improve shareholder value. So far, however, the effort has not proven fruitful. Tseng stock hit its annual high in late August when it reached $6 per share, and ever since has been floundering near its 52-week low of 1-1/2.
The acquisition deal will result in approximately 40 people from Tseng's development team joining ATI's U.S. subsidiary, ATI Research. Both the Tseng team, located in Pennsylvania, and ATI's current team, in Massachusetts, will report in the future to Joe Zeh, ATI Research's vice president and general manager.
Neither company could be immediately reached for comment.