From the ashes of a disastrous fourth quarter, S3 Inc. hopes to rise as a mid-range graphics supplier.
Once the industry's leader in 3D chips, the Santa Clara, Calif., company has fallen on hard times due to missed product cycles and the ascendancy of Toronto-based rival ATI Technologies Inc.
S3's fortunes sank further recently when it failed to include adequate memory addressing in its latest device, the Savage3D graphics accelerator. Instead of bolstering the company's bottom line, the chip dragged down S3's market share and contributed to a $70.3 million fourth-quarter loss. S3 closed its December-ended fiscal year with $224.6 million in sales and a combined loss of $113.2 million.
Now, S3 is banking on the Savage3D's successor, the Savage4, a chip that observers say has received a favorable reception from OEMs. To speed its recovery, S3 has made aggressive prices cuts to the Savage3D to make way for the new, higher-performance chip, a move that cost the company $10 million in fourth-quarter write-downs.
S3 also said it will discontinue its ViRGE 3D and Trio64V2 2D graphics chips, which at one point represented the keystone of the company's midrange market success. Although fourth-quarter unit-shipment figures were unavailable, analyst Dean McCarron of Mercury Research Inc., Scottsdale, Ariz., estimated S3 lost about 1 million 2D unit shipments during the fourth quarter when major OEMs finally made the transition to 3D graphics.
Until the Savage4 enters volume production, S3 will operate essentially as a one-product company, excepting a low-power version of the Savage3D slated for the mobile-PC market later this year.
"It's clearly a turning point for the company," McCarron said.
S3's 1999 roadmap also calls for integrated graphics/core logic products, a benefit of the company's December cross-licensing deal with Intel Corp. And according to Kenneth F. Potashner, S3's chairman, president, and chief executive, the company will embark on several strategic partnerships in the second half of 1999 to transfer its graphics technology to the consumer market.
As for the ill-fated Savage3D, S3 product-line manager Michelle Belusar said the chip lacked the capability to address more than 8 Mbytes of DRAM and did not include multitexturing features. Competitors such as Nvidia Corp. also were caught short by unexpected demand for DRAM frame buffer, but released revised chips.
With the Savage4, S3 has revised both its product strategy and its chip design. Gone are the days of taking on high-performance competitors. "The chip will have higher performance, but won't be designed for the high end of the market," Belusar said.
To broaden the Savage4's appeal, S3 developed low-cost "GT" and higher-performance "Pro" versions, both selling for $25 or less, in 10,000-unit lots. According to S3's own tests, the Pro will yield benchmark scores of more than 730 using the 3DWinBench99 test suite.
The two versions are pin-compatible, but the GT includes only an AGP 2X connection, and its memory interface runs at 125 MHz. The Pro's 4X AGP interface complements its 143-MHz memory bus.