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October 8, 1998

DIAMOND MULTIMEDIA EXTENDS LOSSES INTO Q3

By CBR Staff Writer

Diamond Multimedia Systems Inc, the San Jose, California-based maker of PC audio and graphics accelerators and SCSI adapters, saw substantial revenue gains in its third quarter, but falling profit margins pushed the company into deeper losses. Third quarter net losses rose to $22.2m from losses last time of $2.6m on revenues up 34% at $123m. Chief financial officer, Jim Walker, blamed the increasing losses on falling component prices, particularly memory. He said Diamond had been forced by market conditions to ship product at depressed third quarter prices having paid for the components at higher second quarter rates. Prices have now stabilized, Walker said, implying that the current quarter would not be blighted by the same problems. Additionally, Diamond has responded by cutting its internal inventories in half and reducing its channel inventory to around six weeks, bringing total balance sheet inventories down by a third to $52m. Bill Schroeder, chief executive, said his company would also turn increasingly to Far East outsourcing partners to reduce manufacturing costs. Looking ahead, Schroeder, said the fourth quarter was shaping up to be typically strong. Around 80% of Diamond revenues are currently generated from its range of PC multimedia enhancements, but Schroder talked enthusiastically about the imminent launch of products for two new markets. The fourth quarter will see the launch of Diamond’s HomeFree wireless home networking products, designed to allow PC’s to share printers, files and internet access in a home or small office environment. Additionally, Diamond is set for a November launch of its Rio PMP300 handheld, digital music player. Running on a single battery, it stores and plays up to 12 hours of digitally recorded music using MP3 compression techniques. The recording source can be either a conventional CD’s or an MP3 file downloaded from the internet.

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