The company's shares fell as low as 6-3/4 in morning trading, down from yesterday's close of 8-3/4.
S3 said it plans to restate its revenues downward by $40 million to $70 million for prior quarters. In addition, its net profits are expected to be revised down by 14 cents to 29 cents a share for those quarters.
The announcement flies in the face of the graphic chip vendor's company policy of recognizing revenues once resellers make their sales to end users. S3 said it now prefers the less conservative accounting practice of booking a sale once the product ships to resellers.
This case of aggressive revenue recognition happened with several of S3's international distributors.
"We are currently implementing measures to ensure that this type of error will not recur," Gary Johnson, S3's president and chief executive, said in a statement. "The inventory at our distributors' locations today consists largely of S3's 2D and 3D mainstream products. Based on the rates at which this existing inventory is expected to move through the channel, we expect the bulk of the revenue from that existing inventory to be recognized during the fourth quarter of 1997."
The company said it also has initiated a tighter monitoring system to ensure compliance with its new policy.