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S3 loss wider than expected

The ailing graphics pioneer S3 reports big losses but says recent design wins and an Intel licensing deal will return the company to its former glory.

Ailing graphics pioneer S3 today reported wider than expected losses for the fourth quarter and the entire year although the company says that recent design wins, an Intel licensing deal, and recent chip releases will return the company to its former glory.

S3 reported fourth quarter losses of $70.3 million for the fourth quarter, or $1.36 per share, and losses of $113.2 million, or $2.22 per share, for the year, including write-offs for impaired assets and inventory write-offs.

Without these factors, losses came to 56 cents a share, still far worse than the 32 cents a share for the fourth quarter and the $1.18 loss expected by a consensus of three First Call analysts. Last year, the company reported net income of $8.8 million.

Revenue for the year came to $224.6 million for 1998, compared to $436.34 million in 1997. Revenue for the fourth quarter came to $41.6 million, less than half of the $101.9 million in sales reported for the same quarter the year before.

The turn in the company's fortunes began when S3 missed two consecutive design cycles in the graphics chip industry. Once one of the larger suppliers of graphics chips, S3 found itself increasingly displaced by ATI Technologies inside of computers from major PC vendors because the company's chips were not as advanced.

Still, S3 says it is on the rebound. The company recently released a new series of Savage graphics accelerators which more closely match the performance of competitors' chips, the company said. Today, IBM also announced that it will use the S3 Trio 3D accelerator in its new small business computers.

During the past quarter, S3 also signed a licensing deal with Intel that will give it access to Intel's graphics and chipset technologies. Intel and other companies are planning on releasing chipsets with 3D functions.

The licensing agreement will give S3 an opportunity participate in the integrated chipset market in some fashion, analysts have said, or beef up its own graphics without incurring research expenses.

S3 has not commented on specific product plans but has indicated that products that take advantage of this agreement will emerge in the near future and that more design wins are on the way.

"The Intel agreement gives S3 significant opportunities that our competitors don't have, and we intend to leverage this strength to its fullest potential," said Ken Potasher, CEO of S3.