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."
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 mostly over, and last month's launch of 3dfx's Voodoo3 product line 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.
Company executives caution investors not to expect April's showing to continue, since sales typically drop off after the initial launch of a highly anticipated product like Voodoo3, which is 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.
Still, the company 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 regarded as aging technology by many game industry observers, 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 some 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, even if your competitors emerge with something technologically superior (which nVidia seems to have done with the new TNT2 chipset); just ask all those who 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 better 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.
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>