Why does 3dfx (TDFX) stock price suck right now?

[jeremy806]

And here is a question for those with a business mind. Why does the nVidia stock (NVDA) go through the roof while 3dfx (TDFX) sits under $10.

Again, not looking for a video card fight, but looking fo some financial analysis.

For what it's worth, I use a GTS and own a very very very small amount of TDFX stock that I've been sitting on forever.

Jeremy

 

[Ethernet]

nVidia stock went up from 80 to 120 when co-development with MS was announced. I dunno why though, prolly cus MS always makes a ton of cash, and so do theor development parteners.

3dfx stock is down becuase they haven't made a truely good gaming card since the Voodoo3 3000.

 

[jeremy806]

jeremy: What do you think. I think that 3dfx is always right (AGP sucks, 32bit v. 16 bit, and even the uselessness of TL). But, NVDA executes (drivers) and markets while TDFX doesn;t release sht and doesnt market sht

yosh: It does not matter if they are right or wrong, the stock's price is purely based on earnings which is not a funciton of their philosophy. The public distorts it so much it does not matter. If 3Dfx stops deworsifying by buying companies and is able to sell their product while keeping the development costs at a reasonable level the stock will start to rise

Keep the comments coming,
Jeremy

 

[Pocatello]

The voodoo 5 5000 (what a long name!) is one hell of a videocard, but it's facing the same problem as all the other voodoo series, the lack of serious OEM buyers.

 

[Ethernet]

That and the fact thatit performs like my Viper II hehe

 

[Pocatello]

No, 3dfx is wrong about the 32bit and the TL. If the customers want 32bit or TL, you give it to them, since the customers are always right. Do you want to know if they need it or not? No! It's like the speed limit is 75MHP, but people don't want cars that only go 75MPH.

 

[jeremy806]

I disagree.

It's in the marketing. People want 32 and TL because nVidia has it. People want a PIII because Intel has it (anyone really think that the Internet has gotten faster, I don't).

When it comes to stock price, we are talking financials. Perhaps the real problem here was the purchase of STB. Now we are getting some where.

Keep it coming, I am rambling, and all comments are appreciated,

jeremy

 

[pm]

The true answer is that 3Dfx blew it with the V4/V5. They slipped schedule badly (the V5 was due last October) while nVidia executed well. If the V4/V5 had shown up on schedule they would have competed against the TNT2 and the GeForce and it would have been a very attractive card. Instead, they slipped and nVidia ruled the market with the GeForce and readied the GeForce2 to compete with 3Dfx's V5 5500 leaving 3Dfx's Voodoo3 (which was also late) to compete with the TNT2 and TNT2 Ultra on the low-end of the market (where there's not a lot of profit by definition).

But the real issue is financials... look at revenue growth (both current and future) and profits. First off, nVidia is profitable and is firing on all cylinders while 3Dfx had a truly disasterous quarter. Not only did 3Dfx miss earnings and revenue, but they missed shipments. They blamed packaging problems for the shortfall, but that doesn't change the fact that they basically blew it. Meanwhile, nVidia clinched a deal with MS for the X-box, tied up a bunch more OEM deals, and had a great quarter for revenue and profits. 3Dfx have been sinking like a torpedoed ship since the V5 slipped in Q3 of 1999.

The real problem is that what has happened - a single schedule slip - has had a dramatic ripple in both the market and within the company. Living in SiliValley is insane nowadays - housing is appalling... no one who hasn't seen what's going on there wouldn't believe it. Houses that would sell for $60k in North Carolina are going for $700k in Cupertino and Palo Alto. You maybe think that I'm joking or exaggerating, but I'm not. Go to www.sjmercury.com and run a search for housing. But I digress, the fact is that living in Silicon Valley is extremely expensive and in order to pay for anything people are living on stock options. And 3Dfx's stock has been going nowhere but down for well over a year. So talent is draining away quickly - as I know personally since a fair number of them joined Intel.

3Dfx literally has one chance left with their next chip. They aren't saying much since they don't want to kill V5 sales, but it should be out by Q3/Q4 and it should be very competitive. If it slips past Christmas then that'll be all she wrote. Seriously.

As far as an investor, this is a tough call. You could lose serious money on these guys since it's a risky gamble whether or not there'll be issues with the next chip (do they even have 1st silicon yet? Have they taped out? are they sampling? I think the answer to all three is "no" which is very scary). If they nail it, then there's good upside potential.. but they still need to resolve their packaging and supply chain issues... and their execution on issues like drivers and quality control needs improvement as well.

If you are a risky guy, throw some money at Dec. 10 calls - or 7.5's. They are cheap at $2 and you could make serious money on the upside while the downside is a mere $2. Otherwise steer clear. One thing that is clear about 3Dfx is that technology is not the only thing to consider. You can have the best (or be a close second) technology out there, but if your execution on the business side is poor your company will still sink.

Meanwhile, nVidia continues to hit 6 month product cycles like it's easy (it's not) and are signing contracts and deals at an enviable pace. If I were to place money on either company over the long-term, I'd take NVDA over TDFX.

That's my take. I've made money on both, but I'm steering clear of both lately. nVidia is overvalued in my opinion since we've seen what schedule slipping can do to a company and there's no guarantee that nVidia can continue to execute perfectly. 3Dfx is probably going down and the only thing that can save them (IMO) is their next chip, but with the talent drain that's been happening there, it's not looking good for the future after that.

* NOTE: I'm not a financial adviser - I'm simply a chip designer who has friends who are working (or have worked) at both companies and an occassional investor in both companies. Investing requires research and you should never trust anything that is written on an internet BBS to use in making investment decisions. *

Patrick Mahoney
IA64 Microprocessor Design
Intel Corp.
* Not speaking for Intel *

Edit: updated the option's prices... I originally wrote $3, but looking now I see they are only $2.

 

[Francodman]

pm,
hook me up w/ intel stuff!!!!!!

 

[pm]

First I need to hook myself up with some Intel stuff, Franco. They don't give us loaner processors in the IA64 group like they did when I worked in the IA32 group, and the excellent discounts that we got on Intel products when I first joined aren't quite so excellent any more. Most of the time a quick search on pricewatch turns up better prices than the "employee discount". But I whine when in fact I love my job - freebie processors or no.

< insert same sig as above >
* Still definitely not speaking for Intel Corp. *

 

[Auric]

Yeah, 3dfx blew it but long before their current stuff. They blew it a few years ago right after the V2. The V3 just did not measure up compared to the competition. They thought they had bought enough of a market for their proprietary driver by paying for game development that they could follow their own schedule. They were wrong. The V3 was not faster enough than a couple V2's and did not have full color. Most of their existing retail customers found no reason to replace what they had with a V3 and most potential customers rejected the substandard visual quality. Box makers likewise wouldn't touch them. The whole product line was quickly relegated to the low end retail market and they have not recovered since because they were still committed to their previous schedule. Some people quit or were fired but that obviously was not going to fix things in a hurry. So the V4/5/6 stuff is again too little too late. I agree their next gen really is their last chance to save the company. Bottom line is they ain't making any money and their prospects for doing so are slim. Probably the only thing supporting the stock is people who know nothing about the company beyond their belief that &quot;Voodoo rules&quot;. The only thing 3dfx has done right is branding but for my money Voodoo has been synonymous with &quot;suck&quot; for a long long time.

P.S. Also do not discount the role the improving standards of directx and opengl had in defeating 3dfx's glide promotion, which helped make their cards less attractive for developers and gamers alike. Another interesting thing to consider is that if they had not bought STB they prolly would have been out of business by now because: a)time to market would have been even slower for the V3 and b)noone would have bought their chips for long

 

[Pocatello]

Yep, this Rampage thing is better be on schedule and cost-effective for 3dfx to survive.

 

[pm]

I disagree, Auric. You are looking at things from a technology perspective, but not a business perspective. You are talking about 32-bits versus 16-bits, and Glide acceptance. But the real problem is not technology, but ship dates.

Things began to fall apart for 3Dfx's stock value not due to the Voodoo3, which was initially positioned very well in terms of value and performance, but due to the V4/V5 which was more than 8 months late from early predictions. The Voodoo3 initially did very well against the TNT2. It started to lose retail market share to some extent, but much more importantly OEM contracts, when the TNT2 Ultra and the GeForce256 chipsets arrived and 3Dfx had no next-gen product to compete with them.

The retail market is good for a little pocket change, but the real money lies with OEM contracts. OEM's are interested in benchmark performance and prices - not in color depths or Glide acceptance. They want magazines and reviewers to score their systems to well against the competitions' - and this means high 3DMark and WinBench3D scores. The performance of the TNT2 Ultra and the GeForce cards exceeded the Voodoo3, while the prices for the chipsets and memory were lower so OEM's chose these chipsets over 3Dfx's. This led to 3Dfx needed to drop prices to compete which led to low profits. Their inability to keep up with demand during Christmas also led to problems keeping profits up.

But the stock price began to fall last summer more due to the fact that the future line-up was in doubt than anything as esoteric as 32-bit color depths. 3Dfx clearly began briefing analysts and large holders about their problems delivering V4/V5 silicon in late July/August and the news broke to the general public in the form of rumors in mid to late August. The stock dove and has never really recovered - due to doubt in the future and the fact that 3Dfx's earnings have been on a downward slope.

 

[Hardware]

3dfx blew it at that time they decided the user dont need agp + 32bit gfx!
3dfx get now the response the user dont need 3dfx!

 

[Rudee]

Having Bubba Wolford as a PR spokesman certainly isn't helping any.

 

[OS]

PM, I know many people who know the housing crunch in the bay area all too well People who make 6 digits a year and can't buy a house. So is the average house price in Saratoga like a million dollars now? I remember having this conversation with a good friend who was laughing about how his crappy three bedroom house is worth like half a million dollars. Sometimes I wonder why the home owners don't sell now and keep the change and maybe buy another house the next time the economy crashes

heh, technology used says nothing about profitability. The win 9x kernel is no work of elegance, and yet it's probably made more money than any other piece of software out there.

 

[Pocatello]

Off topic. With all the hightech communication devices available, why don't people buy a house where it is cheap, and use these devices to connect them to their workplaces.

 

[Jhhnn]

Nvidia is clobbering 3dfx in the development and release cycle. It is just that simple. Add the strategic mistake of not open sourcing Glide software soon enough and not licensing out the hardware to the woes of integrating STB into their operation, the picture is not pretty. the 3dfx business model has been dim and arrogant for some time, cutting out their manufacturing partners may prove to be a fatal power freak error. They may yet get it together, but it is not like AMD at the end of Q3'99. 3dfx doesn't have any athlons up their sleeve, and Nvidia shows no signs of stepping on their d!ck with their golf shoes like Intel. Buy now? Risky. Keep what you've got? Might as well, selling low is seldom a good idea.

 

[Sunner]

PM I hafta disagree when it comes to technology' and its importance.
Alot of OEM's wants the chips they use to have lots of features, since that will look good on the box.
Of course having both a highend chip with gobs of features and performance(ie GTS) and a lowend part(ie m64) is the best way since the OEM's will be able to use the low end part in their cheapo systems, and the high end parts in their high end systems, and have a long impressive featurelist to boot.

 

[BenSkywalker]

While I agree with much of what PM says, I think that a few technological areas have left 3dfx in their current position. Lacking 32bit color support was ignorant of 3dfx for the V3, you don't ship high end parts missing features present on significantly lesser products(RagePro). The lack of large texture support etc, etc, left the window open for the to lose their core market, gamers, which they have. Failing to nail down OEM deals would have no doubt limited their effectiveness in expanding, but they could have seen continuous growth rather linearly with PC gaming if they would have simply kept ahead of nVidia. This market problem started with the V3, not the more serious problems of the past 12 months.

Another technical shortfall of 3dfx, and a major one at that, is lacking AGP texturing. Say what you will about its' usefulness, you can't offer a realistic integrated(on board) solution without support. nVidia, and all the other companies for that matter, have parts that are several years old still making them money, they are maximizing their R&amp;D dollars. Consider that you can still buy brand new PCs with Riva128 chips as the built in graphics, a chip that launched in '97 and probably saw most of its' R&amp;D costs occured in '96. nV is still profiting from that four year old investment while 3dfx has nothing close to comparable. This shouldn't be compared to the Voodoo2 as that was always a dedicated part, but it should be thought of along the lines of the Banshee. The Banshee, and Rush before it, were the real shots for 3dfx to make a mark in the OEM market, and they blew it on both.

The V3 was their third substantial OEM failure, particularly looking at the long term, the V4/5 are the fourth. Still no AGP texturing support which means for investors(by way of the bottom line) they have nothing to count on without relying on the next generation to ship. nV, Matrox and ATi could take a year maybe two off without shipping any new products and still be making money, 3dfx has nothing to fall back on in terms of revenue. They need to hit their ship dates, everyone else has a much larger margin of error though nVidia is working on changing that with their six month product cycle.

I wouldn't touch 3dfx stock, they are in a very weak position and their future lies with the Rampage succeeding, something that is very questionable considering that they will not be facing one competitor(the GF2) but three(the Radeon, G800 and NV20), two of which remain large question marks and could be significantly faster then 3dfx's Rampage.

Even if the Rampage does succeed, and they gain the common sense to produce a product that can extend its' useful life(read- full AGP support), it will be much like starting out fresh for 3dfx in the broader PC market, they need to gain the faith of PC OEMs and sign deals. Can they do it? I hope so, competition.

 

[Midnight Rambler]

The 32bit argument was a total joke. How many games (_at the time_) really supported or ran in 32bit well? Not too many ... it was hilarious to hear all these 32bit supporters having to bump down to 16bit to get decent frame rates.

3dfx's real problems were/are:

1.) As noted, serious time lag between V3 and V4/V5

2.) Most recently, just when they get back on their feet and are ready to pump out V4's &amp; 5's, TSMC shorted them big time on wafers. For once, it was truly not 3dfx' fault. Look for other TSMC-supplied companies to get hit as well ...


The one reason 3dfx might be worth something is their acquisition of Gigapixel. Despite what some people may claim, Giga is not totally out of the picture with Micro$oft and X-Box. MicroBill has already paid 3dfx/Gigapixel $16M for work done so far ...

But I agree, if their next chip fails, they could be toast.

On the other hand, if it is successful and the big OEMs buy in to it, nVidia could be the one that will be toasted. STB was a mighty OEM supplier in its heyday, and they have a major logistics advantage, esp. with Dell. In this age of the PC industry (finally) utilizing JIT effectively, a logistics advantage is a major trump card for a supplier.