ATI sees red, buys FireGL

Massive loss turned into tiny profit only by share sell-off

Graphics chip maker ATI, which last week agreed to buy SonicBlue's last remaining graphics operation, found itself back in the red after only a single profitable quarter since its last loss-making period.

ATI's revenues for the three months 28 February - the company's second quarter of the current fiscal year - fell 39 per cent from last year's $380.1 million to $232.4 million. That resulted in an operational loss of $26.1 million (11 cents a share), well down on the $51 million (24 cents a share) it made in Q2 2000.

Fortunately, ATI was able to flog off its stake in Broadcom, which made the company $65.1 million before tax. Factor that and other one-off items into the equation, and the chip maker left the quarter with net income of just $607,000 (zero cents a share).

Not surprisingly, the problem appears to have been the downturn in the PC market. ATI's OEM customers, having sold fewer computers, have ordered fewer graphics chips and add-in boards. In an attempt to increase OEM demand, ATI cut its prices which led to an 18 per cent fall in margins.

Today's news follows last week's move to acquire SonicBlue's FireGL graphics division for $10 million, depending on the business' performance over coming quarters.

FGL was Diamond Multimedia's high-end workstation graphics unit, which remained a separate operation when the company merged with 3D chip maker S3, now called SonicBlue. S3's decision to get out of the graphics chip market saw the mainstream business sold off to VIA, but FGL still part of the company.

FireGL's remit was to create pro-oriented OpenGL-based boards, which it sells to workstation vendors. Clearly, ATI doesn't reckon it can make that move itself - it needs the brand and expertise the SonicBlue division can bring. In short, it's a business deal, not a technology one.

FireGL's parts are based on an IBM 256-bit graphics accelerator. It's not known whether ATI will maintain that connection, but since it will want to drive its own Radeon technology - and given that the release describing the acquisition mentions only staff and brand name rights, not technology - such a move has to be odds on. Expect high-end Radeon-based boards to be branded FireGL, bundled with ATI's OpenGL drivers and sold to existing FGL customers.

ATI will pay $2.7 million up front for the division, followed by a further $7.3 million if performance targets are met. ®

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