ATI losses shrink as revenues rise

Outlook not great, though

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Graphics hardware market leader ATI yesterday saw its losses narrow despite declining sales over the last three months, but at least had record annual revenues to give it heart.

For the three months to 31 August, ATI's fourth quarter of fiscal 2000, the company's sales hit $290.2 million, down on the $304.7 million is reported for the same period last year but up on last quarter's $288.2 million. The decline resulted in a loss of $11.5 million (five cents a share), a bad showing when compared to the $32.5 million (15 cents a share) profit it made during Q4 1999, but a distinct improvement on last quarter's $23.1 million loss (ten cents a share).

However, factor in one-off charges and ATI's Q4 2000 loss balloons to $45.2 million (20 cents a share). This time last year, it posted net income of $16.8 million (eight cents a share).

For the full year, ATI experienced an 11.4 per cent jump in revenue, taking it to $1.37 billion. Income before adjustments hit $64.6 million (29 cents a share) - with all the one-offs counted, ATI lost $69.3 million (32 cents a share). For 1999, the pre-adjustment and post-adjustment income figures, both in the black, were $159.3 million and $107.2 million, respectively.

Despite the record revenues, there seems little positive news to counter ATI's losses. The company's chairman and CEO, K Y Ho, was could give little hard data on ATI's progress than a bland "we are encouraged by the rapid customer adoption of our new products".

One of those, at least, is Nintendo for whom ATI is manufacturing 3D graphics chips for the upcoming next-generation Game Cube console, better known by its codename, Dolphin. However, revenue from the deal isn't likely to kick in for some time - the platform isn't due to go on sale until mid to late 2001, so it's of little value to ATI's short-term business.

Ho also noted that ATI had "moved past the challenges of the third and fourth quarters", but we're not entirely convinced. There does appear to be a problem getting enough Radeon boards to market, particularly into the European arena. Apple, for one, has been advertising a Radeon-based board as an option on its US build-to-order Mac sales site for some time now, but there's no sign of its availability in the company's European sites.

Interestingly, ATI blamed the fourth quarter's decline in sales on falling market activity in Europe, which dragged down growing sales in other territories. Maybe if you shipped us some product, guys, that would help...

ATI also blamed "to aggressive pricing actions from newly-consolidated competitors" and its own move to push the Rage 128 Pro into the mainstream, which it has to if it's not to harm Radeon sales.

Gross margins for the quarter hit 23 per cent, up from 19.6 per cent last quarter but still lower than those of Q4 1999, the company admitted.

Moving forward, much will depend on the uptake of the Radeon product and sales to OEMs, ATI's mainstay. Radeon appears a good, solid part, but it's hard to see it taking appreciable business away from retail leader 3dfx or from Nvidia-based boards. And Nvidia appears to be making significant inroads into the OEM world, at ATI's expense. ATI will have a tough time slowing Nevada's momentum. ®

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