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ATI profits soar by 86%

The graphics accelerator maker attributes its second-quarter profits surge to sales of new 3D components.

Graphics chip manufacturer ATI Technologies (ATY) today announced an 86.6 percent jump in second-quarter profits, an incerase that it said was driven in part by sales of its newer 3D components and improvements in its product mix.

ATI, which trades on the Toronto exchange, reported net income of $12.5 million, or 26 cents a share, for the quarter ending February 28. That's up from a net income of $6.7 million, or 14 cents per share, for the corresponding quarter a year earlier.

Revenues, meanwhile, jumped 31 percent to $151.5 million for the quarter, up from $115.9 million last year.

The company has increased its gross margins for the past seven consecutive quarters.

This quarter, ATI obtained a gross margin of 30.5 percent for the quarter, up from 25.5 percent in the same quarter last year. The company said the gains in its gross margins reflect the strengths of its newer 3D component and board-level products, and improvements in product mix in the sales channel to original equipment manufacturers.

The company's sales mix is made up of components and boards, and components typically earn a higher margin, said Jo-Anne Chang, director of investor relations. She explained that 30 percent sales during the quarter came from component sales, compared with 21 percent last year, while 68 percent of revenue came from boards sales, a drop from 74 percent from last year.

"It is not a matter of shifting to component company from a board company, but as we expand our product line, the dollar amount is growing, and we now offer both as opposed to just boards," Chang said.

The company also has a new program called customer owned tooling to become a more full-service supplier, which will be implemented in the next quarter.

"It is similar to building a house...Now we are the general contractor instead of paying someone else to do it. It has enabled us to be more flexible, and we have been able to negotiate better prices with suppliers because of the pending program," Chang said.

The company increased its net income and gross margins, despite its nine percent increase in selling and marketing expenses. ATI develops, manufacturers, and markets graphics accelerators--both boards and components--as well as multimedia software and hardware for PCs and Macintosh computers.

The company's second-generation 3D RAGE technology, both chips and boards, are now incorporated in products of several major OEM customers, including Gateway Computer. Earlier this month, ATI's 3D RAGE II accelerator chip was also selected by Apple Computer for its new Power Macintosh 6500 series.

During the quarter, ATI unveiled its line of DVD products, including its third-generation graphics accelerator 3D RAGE II+ DVD. It makes software DVD playback possible on MMX processors.

ATI also recently demonstrated its fourth-generation 3D technology, the 3D RAGE PRO component. It has three times the 3D performance of the previous-generation chip.