Opti puts itself on the block

Electronic News, Feb 9, 1998 by Peter Brown, Jim DeTar

Milpitas, Calif.--Graphics chipset company Opti, having last week reported that its fourth quarter revenues were less than half what it had reported a year earlier, said it has decided to call it quits.

The company said last week in a statement it will try and sell the assets of the company or divest certain parts of the company to outside sources. Jerry Chang, co-founder, chairman and CEO of Opti, attributed the company's slide to a general malaise in the PC chipset market, but sources close to the company said a complex set of factors caused Opti's slide, including fierce competition from former partner Intel, compounded by sometimes bitter in-fighting among several of the companies' four co-founders: Mr. Chang, Kenny Liu, Raj Jaswa and David Lin.

Mr. Chang said last week: "This past fiscal year has been a difficult period for the company as well as many semiconductor companies providing ICs to the personal computer industry. Due to the difficulties that we have been experiencing, the board of directors of Opti has determined that it will retain the services of an investment banker to advise on the best course of action.

"Such plans are expected to involve finding a purchaser for the company or selling off the operating businesses and assets followed by the distribution of funds to shareholders. We believe that this course of action is best for the company, its employees, and its shareholders." Former company executives such as Steve Tobak, now VP of marketing and communications at National Semiconductor, although reluctant to discuss details, said that it was a combination of factors that brought Opti to this juncture.

"Opti's demise was the result of multiple problems, some outside, such as competition from Intel, and some internal," Mr. Tobak said.

However one former employees who asked not to be named painted a picture of a company that was in trouble as far back as 1993. Management disputes reportedly played a big part in Opti's decline. In the early 1990s Opti was reported to have had a great relationship with Intel. When the product transition to the Pentium came in that time frame, all of the chipset companies had VESA (Video Electronic Standards Association) bus chipsets. Pentium microprocessors needed PCI buses to operate properly and the choice was either to design a PCI bus interface or go to a bridge solution to bridge the VESA to PCI. Then Intel aggressively moved into the chipset business with its own PCI chipsets. Opti came to market with a bridge chipset but its sales were hampered by the fact that it was slower than Intel's, and Opti lost market share. A second, and perhaps more powerful, factor was the erosion of the company's management. Kenny Liu, who was CEO in 1993, left the company and Opti hired Ray Farnham, now executive VP at Integrated Device Technology, with a mandate to turn the company around and take it to the next level. However, before Mr. Farnham had a chance to make any significant changes, disputes among the remaining three founders made it difficult for him to act and he left the company within a year, reportedly at the request of the board. Mr. Jaswa and Mr. Lin left shortly thereafter, leaving Mr. Chang as the only remaining member of the original four co-founders. In addition, Opti, a volume supplier of multimedia chipsets to the PC market, has been plowing through what have been rough waters in the graphics market in recent months. Although some graphics companies are thriving, others are having trouble staying afloat.

Recently Tseng Labs and Oak Technology both ended their graphics accelerator business by either selling off the technology or completely stopping development. Cirrus Logic also recently said it would no longer develop new graphics accelerators.

Opti last week reported its 4Q financial results for 1997. 4Q revenues ended Dec. 31, 1997 were $13.6 million, as compared with $28.3 million for the comparable quarter of 1996. Net profit for 4Q97 was $1.4 million, or 10 cents per share, as compared to a net loss of $373,000, or 3 cents per share, for 4Q96.

Total operating expenses were $5.3 million for 4Q97 as compared with $7.8 million for 4Q96. Net sales for the FY ended Dec. 31, 1997 were $67.8 million as compared to $118.7 million for the comparable period in 1996. Net loss for FY97 was $5.4 million, or 42 cents per share, as compared to a net loss of $14.1 million, or $1.13 per share, for 1996.