| Stock Profile: ATI Technologies |
Dateline: 7/6/98
The last year has seen great changes in computer technology. Speeds are expanding, prices are shrinking, and the two dimensional world of computer graphics is going 3D. Only a year ago Luc Hatlestad wrote in Red Herring magazine that 1997 was shaping up as the year in which 3D would "entrench itself firmly into the collective consciousness of the high-tech industry." He cited a report from UBS Securities predicting 3D accelerators would enjoy a sales growth from 8 million in 1996 to 27 million in 1997 and reach 110 million units per year by 2000.
The technology had hitherto been prohibitively expensive for the average home user. Only professional graphics artists and designers were willing to pay the price, but the industry was maturing.
And where the high end graphics had previously been confined to development of games, Hatlestad predicted there would be a proliferation of 3D into other uses, and once that happened, there would be no turning back. Steve Tibbitts, the cofounder of Sllicon Reality, predicted that "by the end of 1998, every new PC will have 3D capability in some form".
What was needed to drive the market was a killer app that would demand 3D graphics. A business app in particular, such as a 3D enhanced version of Power Point, would do the trick. Or enhanced graphic capabilities on the Internet. Or videoconferencing.
Back in May 1997 when Hatlestad wrote the article, some movement towards 3D was progressing. Intel introduced MMX technology, though Drew Peck, a technical analyst at Cowen & Company suggested MMX was not a full-scale solution. "MMX can perform multimedia tasks," he said, "but only one at a time. There aren't a lot of people deep-sixing their PCs to run out and buy MMX-enabled ones."
Hatlestad also noted that standardization was needed. Microsoft's Direct3D wasn't cutting the mustard in its attempt. Silicon Graphics' OpenGL looked promising. But, in any event, 3D was on its way. "The real world is 3D," noted Charles Boucher, coauthor of the UBS report, "so the more realistically you can simulate it on a PC, the more people will demand it. It's still several years away, but that demand could make 3D ubiquitous."
What have we seen since the Red Herring article? Digital Video Disc or DVD. Cameras you can attach to your PC for videoconferencing. Full motion video on Websites. Enhanced 3D graphics in games. And yet, the market has barely been scratched. Most people are hanging on to their old PCs - upgrading them, but reluctant to shell out for a new system. (I know that I fall into that category, having upgraded my 486 to 24 MB RAM, adding a 3 GB hard drive, and upgrading my modem.) And even with new computer sales, there's still lots of basic Pentium 166s sold. But there are signs that a change is in the offing.
The scenario painted by Red Herring sounds like it has all the elements for the start of a Gorilla Game (see my review of the book The Gorilla Game).
It has a discontinuous innovation with high switching costs. People have to switch from their old PCs to new ones equipped for high tech graphics. The visionaries have moved. But the pragmatists (the herd) are standing at the chasm, not quite ready to jump yet.
There is a need for standards. MMX is seen as not filling the bill. Neither is Direct3D.
A big factor is price. The herd wants inexpensive goods. Prices have been dropping. The under $1000 computer is here at last. You can almost hear the herd shuffling its feet in anticipation. They're getting ready for the big move!
But in an unusual turn of events, the Gorilla is starting to emerge already in this market. The turn of events is that the standard is not being determined by the end consumer. It is being determined by the computer manufacturers. The standard is Intel's AGP or Accelerated Graphics Port. But companies like Compaq, Dell, IBM, Acer, Sony, NEC, Hewlett Packard, Apple, Packard Bell, AST and more are all moving to one company to supply graphics accelerators based on that standard. That company is becoming a Gorilla. The company is ATI Technologies.
When Luc Hatlestad was writing his Red Herring article, ATI stock was selling at the equivalent of $4.50. On April 23 it split four-for-one and is today trading around $19.50, a phenomenal gain in one year. In fact, as recently as mid-June it was trading at $16.20.
The Second Quarter figures for the period ended February 28, 1998 were announced on April 9th. They showed an 89% increase in Second Quarter sales and a more than tripled earnings per share. Now we are waiting for the Third Quarter figures to be released on July 9th. In an article in the Globe & Mail June 24, Technology Reporter Mark Evans reported that a survey of nine financial analysts predicted the earnings per share would again be triple the previous year's. ATI is now poised to join Northern Telecom and Newbridge Networks as one of the few Canadian high tech companies grossing over a billion dollars a year in sales.
What does ATI do that has created such phenomenal growth? Quite simply, ATI is on the cutting edge of the graphics revolution in computers.
ATI's AGP graphics accelerators are given the highest rating in a survey reported in Computer Reseller News June 15th. According to ATI's Website, their 3D RAGE PRO is "the most complete AGP controller on the market offering performance up to four times faster than other AGP solutions." They claim it is the only graphics vendor to fully support Intel's AGP specifications. Apparently the computer manufacturers agree, as seen by the contracts noted above.
They've also received kudos from PC Magazine, Wired, Windows Magazine, PC Gamer, computer pundit John Dvorak and more for their products. Their All-in-Wonder Pro graphics controller, Xpert@Work and XCLAIM products all draw rave reviews.
The All-in-Wonder allows you to turn your PC into a television, and includes video capture and MPEG support. XCLAIM does the same for the Mac. PC Magazine said of the RAGE PRO based Xpert@Work, "the ATI Xpert@Work held its own, outperforming its newer competitors. The product cycle for 3D graphics hardware can be as short as three to six months; only rarely does a product maintain a performance edge over that length of time." (May 1998)
But not only does ATI have the leading 3D graphics accelerator, it also has significant investments in other new technologies as well. It offers a Software DVD system that lets your DVD player incorporate the graphics enhancements of ATI's AGP graphics accelerators. And it is working with Compaq and a slew of other computer and monitor manufacturers to introduce digital flat-panel display monitors. This new technology is a less costly, less complex alternative to the rival Plug & Display interface. ATI's Peter Eisler predicts this low-cost model will "accelerate the FPD (flat-panel-display) monitor market by about a year."
ATI is not without competition. In the graphics card field it faces stiff competition from California's Diamond Multimedia and Trident Microsystems, and from Montreal's Matrox Electronics Systems, all of which rated very close to ATI in performance in the Computer Reseller survey.
Should you buy those others as well as ATI as group, following the Gorilla Game strategy of buying the basket? Or has ATI already been crowned the Gorilla in this game? Or is it even in a Gorilla Game?
Many new computers already carry ATI graphics cards. By fall, every major manufacturer will include an ATI card. Whether people buy a new Compaq, a new IBM or a new Acer computer (or any of the other many brands listed above) they'll be buying an ATI graphics card. Like the famous sticker that says "Intel Inside" on most computers, they could easily add one that says "ATI Inside". That penetration of the market spells Gorilla Power in my mind.
More and more people will be upgrading to newer computers as new graphics intensive applications come on-stream. Streaming video on the Web, DVD, and new applications software designed to use the full resources of AGP based graphics capability will drive the market. In my home, the current old 486 will be given to the kids. Dad wants a new, high speed, full motion video capable computer! If a cheapskate like me plans to upgrade within the next six months, can the rest of the public be far behind?
Graphic Content: from Red Herring May 1997
ATI Wins Graphics Card Race: from Computer Reseller News June 15, 1998
Group Launches Digital Interface for Monitors: from EETIMES May 11, 1998
Silicon Investor Discussion (see reply # 802 for Globe article)
ATI On-Board - list of computer manufacturers using ATI chips
Type in ATI's stock symbol "ATY" in the box and
click to get the current quote & chart.
We are pleased to announce a winner in our Win a Book contest. There were only eight entries altogether, so everyone had a pretty good chance of winning. And the winner is Howard Cossever who sent me an emailed entry with the following note: "I would like to win the book for my wife. She has just joined a woman's investment club and she would like to "cook up" different topics of discussion at future meetings."
Howard, I hope your wife enjoys the book and gets a lot of useful information from it. To all our other entrants, thanks for entering and better luck next time!
Disclaimer: As with all my columns here, I should re-iterate a precaution. I am not a professional financial advisor. I am a financial journalist and editorialist. The views in these columns are my personal opinions. The author also owns shares in ATI Technologies.
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