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2HRS2GO: 3dfx picture brighter than 1Q results show

4 min read

3D graphics specialist 3dfx Interactive Inc. (Nasdaq: TDFX) missed its First Call estimate with today's quarterly report, and investors did the predictable thing in knocking the stock down.

But things aren't necessarily so bad, especially for a company that's essentially remaking itself.

3dfx: Ready to rise or still a mess?
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Although First Call consensus is the Wall Street benchmark for quarterly results, some First Call surveys are a little more worthwhile than others. In 3dfx's case, only two analysts provided earnings estimates, so it's not like First Call had a lot to work with.

And there's a reason for that, because 3dfx -- probably the best known maker of chipsets -- just went through a messy period of transition as it added the graphics boards of STB Systems. 3dfx changed its fiscal year, dumped its entire customer base of card makers like Diamond Multimedia and Creative Labs while STB abandoned its chipset supplier, 3dfx rival nVidia. "There were no real comparable estimates for what 3dfx announced," says Fahnestock & Co. analyst Dan Scovel, who didn't make any formal estimates for the quarter that just ended. "At this point, you could call it a point of argument."

STB stopped In February and March, a Sahara-based tree surgeon probably did more business than STB as the latter's nVidia-related contracts dried up. But the transition is over, and last month's launch of 3dfx's latest product line based on its Voodoo3 chip has been a resounding success, by all accounts. April alone nearly offset the first two months' losses, 3dfx CEO Greg Ballard said, during a conference call this morning with analysts.

Even the company cautions investors not to expect April's showing to be continued, since sales typically drop off after the initial launch of a highly anticipated product like Voodoo3, designed to let PC gamers see their Quake opponents' blood splatter even more vividly and realistically. Considering that Voodoo3 shipments are running ahead of last year's successful Voodoo2 introduction, a dropoff wouldn't be unexpected.

The company still expects sequential improvement, including revenue of roughly $120 million and an actual profit in the current quarter, and fiscal year revenue of $600 million. For something that at least some game magazines have suggested is aging technology, the Voodoo brand continues to have remarkable staying power, to the point where board makers using nVidia's TNT chipset are starting to make their graphics accelerators backwards-compatible with Voodoo2 technology.

For all the STB-3dfx deal's doubters -- I was one of them, and to a small extent, I still am -- you can't deny that 3dfx has nearly established itself and its Glide technology as the de facto PC gaming standard. Companies literally cannot afford to make 3D games that aren't Glide compatible.

And once you're in that position, it's hard to lose; just ask anyone who has tried to dethrone Microsoft over the years. "3dfx has created this thing out of thin air, and that's great, that's wonderful," says Scovel.

He still sees 3dfx as a Show-Me story, since the STB merger is so recent. "I feel good about the top line revenue growth," he says. "But there's a lot of uncertainty. The concerns I have are, how does that all fall through to earnings?"

Legitimate concerns, and probably reason enough to keep the stock down. But judging by things so far, it looks like the new 3dfx has a good start.

Other issues:

  • Qualcomm Inc.
  • (Nasdaq: QCOM) South Korea will stop subsidizing wireless phone sales, and investors tremble. But Qualcomm says it's going to meet or exceed analysts' third quarter estimates, so maybe the CDMA king doesn't get too much Korean business anyway.

  • Books-A-Million Inc.
  • (Nasdaq: BAMM) Whoever puts together the New York Times' best-seller lists can really wreak havoc on the book market's bottom line. In the latest I-can-beat-that-price episode, Books-A-Million will offer Times best-sellers at 55 percent off. At the rate these book wars are going, retailers will soon pay you to read their books.

  • Dell Corp.
  • (Nasdaq: DELL) If you don't know what this company does, you shouldn't be reading this site. Earnings are out today after market close. They'll slightly beat analyst estimates.

  • Applied Materials Inc.
  • (Nasdaq: AMAT) Ditto.

    The rest of the technology market was slightly higher was two hours left in regular trading. The Nasdaq Composite Index gained 12.87 to 2574.71, the S&P 500 had gained 4.99 to 1344.48, and the Dow Jones Industrial Average had risen 60.46 to 10913.93. 22GO>