LAS VEGAS (CNNfn) - Two years after striking out in a new direction, graphics-chip maker 3dfx is going back to its roots in an attempt to regain the company's dwindling strength in an increasingly tight market.|
The company plans to close its Juarez, Mexico, card manufacturing plant and remove itself from the business of building the graphics cards that reside in desktop PCs. This is an abrupt switch from the December 1998 takeover of STB Systems, which 3dfx heralded as a move that would put them in charge of their own destiny. Instead, that move -- combined with numerous production delays and supply problems -- has removed the company from its once-dominant position in the industry.
"We're trying to be more fiscally responsible," said Lisa Grubb, a spokesperson for the company. "Basically, we're reinventing ourselves."
3dfx in August reported a second-quarter-revenue decline of more than 36 percent from the previous year. A substantial reason for the loss was the delay of its Voodoo5 graphics boards, which - though introduced at 1999's Comdex show -- were not available at retail until nearly late in the second quarter. At this year's Comdex, 3dfx has chosen to focus on products currently available - and says it will stop predicting when its next-generation chips (code-named Mosaic) will be available.
"In the past, we've put out a lot of expectations and have failed to meet them," said Nayan Patel, divisional marketing manager of desktop graphics. "We have a big black eye right now in our ability to execute. We know that."
The company says it will now sell its chips to third-party manufacturers, who will create the boards that go in computers. Because 3dfx is in its quiet period (its latest earnings are due next week), officials declined to say how much of a write off would result from the closing of the Mexican plant.
Other graphics companies, such as nVidia (NVDA: Research, Estimates) and S3, focus on developing new generations of their 3D graphics chips, then sell those to manufacturers, such as Creative Labs (CREAF: Research, Estimates), which manufacture the boards. With the STB acquisition, 3dfx halted this process, relying instead solely on its own manufacturing facilities. Now, it will have to re-approach these former allies and forge new relationships with them.
The company's not betting its entire future on PC graphics, though. While it will retain the "Voodoo" name - a very familiar one in graphics and arguably the company's most valuable asset -- it is branching into new territory. It recently released the VoodooTV card, allowing PC users to use their computer monitor as a TV screen. And it plans to use the recently completed acquisition of competitor GigaPixel Corp. to forge into new areas, such as set-top boxes, cellular phones, game consoles and handheld PCs.
Most of those areas are in the very early stages of incorporating 3D graphics - or in some cases, any graphics at all. And others, such as game consoles, already have deals with other graphics companies. The company acknowledges it has a long road to travel before it is an industry force again.
"It's going to take time," said Patel. "It's not going to be a quick fix."
3dfx (TDFX: Research, Estimates) shares slipped 9 cents to $4 on the Nasdaq exchange in afternoon trading.