Diamond MP3 plan still to pay off

Diamond Multimedia's latest results, for its first quarter 1999, suggest the company's attempts to improve its performance and successfully shift away from its add-in card vendor heritage aren't quite going to plan. For the quarter, ended 31 March, the company posted a profit of $1.3 million on revenues of $144 million. For the same period last year, the figures were $7.9 million and $186.2 million, representing falls of 83.5 per cent and 23 per cent, respectively. The latest numbers are down on the previous quarter too. Revenue for Q4 1998 totalled $163.7 million, generating profits of $5.1 million (before one-off charges; after dealing with Q3 reorganisations and redundancies the company posted a loss of $17 million). Still, a downturn after the Christmas period was to have been expected. Diamond president and CEO William Schroeder blamed the results on the companies loss-making multimedia products division, which experienced lower gross margins than the company had anticipated. That's not surprising given the cutthroat nature of the graphics card business, particularly at the low end. Schroeder's solution is to pull away from that arena, primarily but supporting fewer acceleration architectures. That strategy was outlined earlier this year when the CEO was reporting on higher than anticipated sales of the company's Rio MP3 player. The RioPort division, plus the company's professional graphics and comms units, were all profitable in the quarter, suggesting Schroeder's plan is correct. The snag is, the loss-making part of Diamond's business accounts for over 60 per cent of its revenues. Reducing that won't be hard, but ensuring what the company loses there is balanced by gains elsewhere will be. ®