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ATI says expect Q3 loss

Margins plummet on global component shortage

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ATI yesterday said it expects to make a loss for its third fiscal quarter, due to end next week on 31 May.

The market-leading 3D graphics company blamed the loss - which it anticipates to be in the region of 6-7 cents - on a global shortage of components. It also expects to see a $56 million inventory write-down and as yet unknown one-off charges. That should push the total loss to around 13-14 cents a share.

ATI said it expects the quarter's revenue to be in the region of $300 million.

All of which is surprising, given ATI's massive strength in the OEM graphics market. Previous (profitable) quarters have been led by strong sales of the company's Rage 128 family of graphics chips and cards. The loss warning suggests that demand may have begun to fall as PC vendors have turned to more advanced products like Nvidia's GeForce 256.

With margins falling from 33.2 per cent to 21 per cent, clearly the price war in this highly competitive market is hitting ATI hard too. It's that fight that's largely been responsible for the collapse of graphics vendor Number Nine, NeoMagic's withdrawal from the market, and the acquisition of many smaller graphics companies by the big guns.

And there's probably an effect here of the money ATI is pouring into set-top box system development, and into its next-generation 3D graphics chip, Radeon. Radeon isn't due to ship until the summer, and even then will face strong competition from the already shipping 3dfx's Voodoo 4 and 5, and Nvidia's GeForce 2. Then again, the component shortage is as likely to effect these companies too - 3dfx because it builds its own boards, Nvidia because the shortage will hit the board vendors it sells chips too. Nvidia is likely to have an easier time of it, though. ®

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