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October 27, 1999

S3 Posts Loss Due to Acquisition, Spins Off

By CBR Staff Writer

Graphics chip maker S3 Inc has posted a third quarter 1999 net loss of $11.1m, due to its acquisition of Diamond Multimedia Inc, and announced the spin-off of Diamond’s Inc MP3 software and content division into an independent company.

Revenue for the third quarter rose to $70.5m, up 49% from $47.3m in the third quarter of last year, growth associated with strong sales of its Savage family of graphics chips. The net loss included a $7.6m charge for in-process R&D and amortization associated with the Diamond acquisition. Results included seven days of results from Diamond, and expenses associated with the spin-off. S3 also decided to hold back shipments of its chip inventory in favor of its own Diamond-branded products, in anticipation of shortages due to the Taiwan earthquake. S3 has $147.4m in cash, and an equity stake in Taiwanese chip maker United Microelectronics Corp currently valued at $600m.

S3 said that it had still met its financial objectives, and said continued strong sales of the Savage4 graphics accelerator would give it a strong revenue base for next quarter’s roll-out of the mobile Savage and Savage 2000 accelerators. CEO Ken Potashner said that the Diamond acquisition had added vertical strength to its graphics products, along with established technology, distribution and branding in new markets. S3 now claims to be number one in home networking and digital music players, and number two in PC graphics and branded modem sales – all growth markets with good potential. is immediately starting operations as a separate company. S3 has created an equity partnership with Paul Allen’s Vulcan Ventures Inc, Oak Investment Partners and MTV Networks Online. Vulcan and Oak contributed $30m in first round venture funding, and MTVN Online will provide content and promotion. S3 remains the majority shareholder. Rioport provides software, such as the RioPort Audio Manager software acquired from OneStep LLC, and content for MP3 compatible hardware, such as Diamond’s Rio 500 player. á

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