Graphics chipmaker S3
today reported a substantial slide in earnings during
the third quarter, the fallout from a year of turmoil in the graphics
S3 reported a net loss of $35.4 million for the quarter, or $0.69 a share,
compared to net income for the same period quarter last year of $4.4
million, or $0.08 per share.
S3's revenues for the third quarter
were $47.3 million compared to $119.6 million for the third quarter of
"All I can assume is that their customers have stopped buying them because
there's so much better products out there," said Peter Glaskowsky, senior analyst
at MicroDesign Resources. Glaskowsky called S3's performance a
"failure of execution."
S3's problems began last year when its then new line of chips, the Virge
series of graphics microprocessors, "aimed to low" in graphics
performance. Other chipmakers such as "="http://www.atitech.com/"">ATI passed S3 in performance. ATI
subsequently passed S3 for leadership in the market.
The company's latest chip, the Savage 3D, is indeed a better offering, Glaskowsky
said, but they did not ship enough of the chip to make a difference on the
"S3 missed all of 1997," Glaskowsky said. "They had stuff they could sell,
but the margins were relatively poor."
After the main microprocessor, graphics chips are
the most critical piece of silicon in personal
computers today. These chips handle the
manipulation of images users see on their computer
screens and are increasingly important as computer
interfaces and 3D games become more
sophisticated and demanding.
Included in the net loss are charges for
restructuring, write-offs of older 2D and 3D inventory and write-offs of
certain excess and obsolete capital equipment. These charges amounted to
approximately $18.0 million or $0.35 per share.
"During the third quarter, we continued to be severely impacted by
softening of the Asia market. While we commenced shipments of our Savage 3D
product, its ramp was offset by the lower than expected demand of our older
2D and 3D products," said Terry Hold, president and chief executive
officer of S3, in a statement. "Moving forward, we maintain a strong
balance sheet that will enable us to continue investing in new desktop and