9/17/98

3Dfx CEO Comments
3Dfx CEO Comments on Q3, Q4, and Voodoo Banshee

ALEXANDRIA, VA (Sept. 17, 1998) /FOOLWIRE/ -- 3Dfx Interactive President and CEO Greg Ballard said he expects sales to pick up in the fourth quarter but doesn't anticipate that the company will meet revenue levels originally projected by analysts, although he is "comfortable" with estimates that have come out in the last few days.

On Monday, 3Dfx warned that third quarter sales have been lower than expected due to a seasonal slowdown in its retail distribution channel. The 3D media processor chip developer forecasted it will lose "several million dollars" in pre-tax operating earnings for the quarter, but it expects to be profitable overall thanks to a recent litigation settlement with gamemaker Sega.

In an interview with The Motley Fool today, Ballard said that the slowdown in the third quarter was due to a build-up in inventory from strong sales to distributors in the second quarter. "What happened was we probably ended up selling too much product in the second quarter, and the result of that is that the inventory levels in the channel were simply too great for all of it to have sold through by the end of the third quarter," he said.

The company expects inventory will move more quickly during the upcoming holiday season. Ballard added that the shortfall this quarter will have no negative long-term impact on the company's results.

3Dfx started production shipments of its newest product, Voodoo Banshee, last month, and now anticipates it will win deals with several PC makers to offer or include Banshee in their computers. "We wanted to have two to three OEM design wins in the fourth quarter," Ballard said. "The number of OEM design wins that we have will likely be more than we originally anticipated." Banshee is expected to add to revenues in the third quarter, but not as much as it will add in the fourth quarter.

Ballard said that the company plans to launch a big advertising campaign in October and November that will emphasize its technology and Voodoo2 in particular. He declined to disclose the cost of the campaign.

The company is not planning a share buyback any time soon, Ballard said, adding that repurchases aren't usually effective in boosting a company's stock price. "The board would rather we save our cash right now and use it for other growth opportunities, whether it's acquisitions or investing in the future of this company," he said. "I consider this to be a wonderful opportunity to buy into a company that I believe is going to be the leader in this very exciting area."

- Yi-Hsin Chang (TMF Puck)

A full transcript of the Fool's interview with Greg Ballard will be available Friday.

Related links:
-- 3Dfx website
-- 3Dfx message board
-- StockTalk Interview with Greg Ballard (6/3/98)
-- Dueling Fools on 3Dfx (3/4/98)