3DLabs Acquires Intergraph's Intense3D

Electronic News, April 17, 2000 by Arik Hesseldahl

The consolidation of the volatile and competitive 3D graphics chip business continued last week as 3DLabs Inc. said it has agreed to acquire the assets of Intergraph Corp.'s Intense3D business unit in an all-stock deal valued at about $22 million based on 3D Labs' closing price on Wednesday.

3DLabs specializes in high-end graphics chips for professional workstations and high-end PCs. Analysts said that by acquiring the Intense3D assets, it is essentially eliminating a competitor in an already crowded marketplace.

"Intense3D has been a historical competitor of 3DLabs," said Peter Glaskowsky, a graphics chip analyst with Cahners MicroDesign Resources, Sebastopol, Calif. "This acquisition really mirrors what 3DLabs did when it acquired Dynamic Pictures a few years ago."

When 3DLabs acquired Dynamic Pictures Inc. in 1998, Glaskowsky said, it picked up Dynamic's customer base and also its business in building graphics boards. And while some of Dynamic's products remained in the 3Dlabs lineup, most are essentially brand names now.

"The professional 3D business has been overcrowded for some time," Glaskowsky said. "The amount of available revenue is relatively moderate. If you get only a few hundred thousand sales a year at $1,000 or $2,000 each, then you're only talking a few hundred million a year, and there's only so much of that you can devote to research and development. That means you're looking at maybe one or two major chip releases a year."

For Intergraph, the deal comes as the company looks for a way to survive following years of bitter legal feuding with Intel Corp. Huntsville, Ala.-based Intergraph still has its workstation business, but has been late with new products as a result of a poor working relationship with Intel.

"Intergraph can still buy products from 3DLabs for its systems, so there is no loss there," said John Latta, president of 4th Wave, an Alexandria, Va.-based consulting firm. "Integraph is in much the same situation that SGI is in a a graphics company with no graphics. SGI bet big on Windows NT and then gave up. Intergraph bet big on graphics and gave up. The business of selling workstations with graphics is a commodity business and if a company cannot compete in these markets it is confined to the increasingly narrow vertical markets including simulation and scientific computing."

While 3DLabs more or less controls the market segment, Latta sees a new competitive threat to the company in the form of Nvidia Corp.

"3DLabs got a high-end product line, which is well-entrenched with the key applications software companies including MCAD," he said. "This is a big boost for 3Dlabs. The downside is that this is a small market and what Intense3D gives them is more market share and more revenue. The long-term viability of this market is questionable as 3D technology expands into all segments from low-capability, low-cost integrated parts; portable graphics; game boxes; and into the high end. Already Nvidia is nibbling at the low end of the professional 3D market."