3dfx, S3 merger talks still on

Register sources reckon 3dfx's subtle plan to take control of the 3D graphics industry and more is still a runner. The plan, which emerged back in June, has 3dfx launching a bid to buy rival 3D graphics specialist S3. Since details of the scheme emerged, of course, S3 announced its decision to buy Diamond Multimedia through a $175 million share trade. The Diamond acquisition, which still needs shareholder approval, would give S3 access to Diamond's home networking, digital music technology and, more importantly, its board manufacturing operation. The S3/Diamond deal is due to go before Diamond shareholders on 20 September. The Diamond board has recommended the deal. That seemed to be that, as far as 3dfx's plan went, but according to our source, talks between the two companies have continued despite -- or, more likely, because of -- S3's Diamond acquisition. According to our source, the two companies have agreed in principle to merge -- the haggling centres on the financial details and the make up of the merged operation's management structure. The financial aspect is probably the most important sticking point. 3dfx's results haven't been too hot of late, whereas S3 is clearly moving on and up. That suggests that if the plan goes ahead, it will have to be a true combination of interests rather than a takeover by any other name. Successful negotiations would lead to a business that combined two key 3D graphics players with Diamond's broader consumer product portfolio generating a powerful force in the PC add-in market. Both S3 and 3dfx are desperate to wrest leadership of the graphics market from ATI -- and together they might well be able to do so. S3 brings some powerful technologies to the table -- it's texture compression facility, for one -- which 3dfx brings the best-known graphics brandname: Voodoo. Of course, all this remains 85 per cent rumour -- even if the two companies are talking (and well they might), that doesn't guarantee the outcome would be a merger -- and some salt may need to be pinched here. However, the prospects for both businesses if a merger did go ahead are such that talks cannot yet be ruled out. ® Related Stories Dead Dell deal costs ATI dearly Nvidia unveils '256-CPU Cray' GeForce 3D chip S3 unveils Savage 2000 3dfx stock drops on ongoing losses