Will Graphics Chip Maker S3 Buy - Or Will It Get Bought?

Computergram International, March 16, 1998

Graphics chip-maker S3 Inc has been the subject of speculation this week that it might be acquired. Both Intel Corp and Advanced Micro Devices Inc have been named as the possible buyers. The company denied any knowledge of such talks. But separate rumors had it that S3 itself was looking to acquire its rival Number Nine Visual Technology Inc.

Shares in both S3 and Number Nine rose last week on the strength of the rumors. Speculation over why Intel might be interested centered around S3's ownership of Exponential Technology Inc's RISC chip patents, which the company acquired last month in competition with both Intel and AMD (CI No 3,341). The patents reportedly contain information that could help developers match forthcoming Intel products, namely Merced, with a greatly reduced risk of a patent infringement suit. Presumably, however, Intel and AMD would have bid harder for the patents, which cost S3 between $5m and $10m, if they'd really wanted them. Lexington, Massachusetts-based Number Nine reported a net loss of $20.8m for its fiscal year 1997 with revenues down a steep 60%, despite its highest level of volume shipments ever. S3 has been fighting against similar margin erosion, and reported a net loss of $8.1m for its fourth quarter. Both Number Nine and S3 are preparing to bring a new generation of graphics acceleration products to market over the next few months. Number Nine's fourth generation 128-bit graphics chip claims to offer "significantly improved 3-D capabilities" and the first products based on the part are expected to be introduced during the first half of 1998. S3 is readying its own new product, the GX3, expected to hit the market within a few months.