Nvidia agrees to buy ailing 3dfx for $112m

The PC sales slowdown today claimed fresh blood: 3dfx has decided to shut its doors and flog most of its assets to Nvidia for $112 million.

Today Nvidia agreed to pay $70 million cash and one million in shares for the rival graphics card chipmaker, whilst loaning 3dfx $15 million that will be credited to the cash part of the price when the deal is completed.

3dfx, which has been locked in a patent infringement battle with Nvidia, today said it would cut "substantially all" of its workforce by early next year, plus reduce office space and other expenses.

Once the assets are sold off the company will dissolve.

In a conference call tonight execs said they had considered "a wide range of other options", including mergers or bankruptcy, before selling out.

But Alex Leupp, 3dfx CEO, commented: "We strongly believe that to reduce expenses, sell our assets and dissolve the company provides the highest return to our creditors, shareholders, and employees."

The deal ends the patent infringement litigation between the two companies.

After markets closed, 3dfx also recorded a net loss of $178.6 million for the third quarter. Sales dropped 63 per cent to $39.2 million in the period ended 31 October. "Our financial results illustrate the dramatic shift we've seen in the retail market over the past quarter," said Leupp, who added that high inventory expenses, falling margins and slowing demand had done "irreparable harm" to the company.

"We have experienced a significant slowdown in demand for our products, especially the Voodoo 3 and Voodoo 5 boards. This slowdown is consistent with the overall softness experienced by the PC market, especially in Western Europe.

"In addition, we've experienced pricing pressures in the channel. Finally, our inability to secure a bank line of credit has impacted our ability to build inventory to meet even the existing demand."

In October the graphics card maker warned that Q3 sales and earnings would be "substantially" lower than expected. At the time it blamed "overall softness in the European retail and system integrator channels." ®

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