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S3 passes water on Wall Street analysts

$1.1m profit beats anticipated loss by 20 cents a share

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Graphics accelerator specialist S3 felivered on its promise to beat analyst expectations when it posted its second quarter results yesterday. The company posted a profit of $1.1 million on revenues of $57.3 million. That compares with a loss of $11.6 million and sales of $53.3 million for the same period last year. Translating the result into Wall Speak, S3 recorded a profit of two cents a share, way up on the 20 cents a share loss Street analysts were predicting. Earlier this month, S3 promised it would beat those predictions. Last quarter, S3 posted a loss of $13.9 million on revenues of $44.3 million. The company attributed the turnaround to the number of OEM deals it struck with major PC vendors to bundle cards or include chip-sets based on S3's Savage 4 graphics processor. However, the company's sale of 29 multimedia and IC patents to Taiwanese chip foundry UMC for $42 million (though this is being spread over five quarters) and $500 million in UMC stock will have come as a particular bonus too. That shows just how prescient S3 has been in acquiring patents. Buying up intellectual property has served it well. It achieved favoured status with Intel simply by gaining chip patents taken out by the now defunct Exponential Technologies that Chipzilla was keen to get its claws on. The connection forged between the two companies has served S3 well. S3 also announced its cash and cash investments made during the quarter rose from $129 million to $131.4 million, excluding a $10 million loan made to Diamond Multimedia, which the company has agreed to buy for a $180 million stock-swap. The Diamond buyout brings a number of major opportunities for S3, allowing it to better compete with arch-rival ATI in the graphics cards, chipsets and new, emerging markets, including Internet access devices and set-top boxes. It will also take S3 into areas ATI has yet to enter, such as Internet audio (via Diamond's RioPort subsidiary, though this is a prime candidate for a sell-off by IPO) and home networking. ®

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