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3dfx’s latest gambit

Ronald Hanaki
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Great minds think alike. Credit the troika of Ryu Connor, M5Brian, and William Culver for sending in this CNNfn link. Oh, Dr. Faustus, where art thou? Proving that vertical integration is not all that it is cracked up to be, 3dfx has chosen to cut their losses and consolidate.

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.

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.

So an emasculated 3dfx is going back to its roots as an IP company. I seem to recall a modern day ‘Oracle at Delphi‘ say something eerily similar about a year ago:

Oh, good. Where was I? Oh, yes. What do you see now for 3dfx?

Vito: It’s an interesting time for the company. For many, many years now, I have foretold the limitations of their retail strategy, and when I predicted the loss of their CEO some thirteen years ago, I also said that it would result in the company shifting its strategy towards a more orthodox graphics chip company approach. Therefore, and I believe I said this some five years ago, 3dfx really needs to concentrate on operational issues in order to maintain its position in the market. That means hiring the kind of managerial talent that is capable of managing technology, rather than brand. So, as I said only eighteen years ago, 3dfx will probably end up looking no different than ATI, S3, or Nvidia does today.

He has since moved on, but in his heyday Omid Rahmat wrote some particularly astute columns about the graphics business under the title of “Second Hand Smoke” for Tom’s Hardware. Here is what he said about Gigapixel and other 3D IP companies:

3D IP companies have to be more concerned about addressing the needs of manufacturers that want to squeeze the 3D into either an existing design, or as part of some strategic component design. I don’t honestly know if that is good or bad from a technology standpoint. Certainly, PowerVR has proven that the best intentions in the world don’t add up to the best products. However, my contention is that in the desktop graphics market there is room for 3 big players, and everyone else is just not going to have the investment funds needed to compete in 3D. Therefore, 3D IP may be the best hope that’s available to anyone who isn’t ATI, Nvidia, or S3.

It will be a tough road for 3dfx to regain its luster and credibility. Rahmat left us with this precious parting shot:

ATI, and I said this before, will be the first $5 billion graphics chip company in the world. Nvidia will be nipping at their heels, but ATI is king of the business. As for 3dfx – someone, somewhere, sometime, is going to buy them out. There, that’s it.

Yet, I wonder where the hope comes from. 3dfx remains steady. Why? Beats me. Has anyone figured out that the most lucrative market for 3D graphics is the chatter that goes around it in the gaming community, not the actual selling of 3D graphics boards? Certainly is true of 3dfx. They had a shot at greatness, and they blew it on arrogance. Yup, I say arrogance. It annoys me to think that 3dfx management made little attempt to listen to the market, and what was going on around them. Instead, they seemed to choose to belittle the realities of the market, and are paying the price for it now.

Vox populi. Just great stuff. If you enjoyed some of these bits, more of “Second Hand Smoke” can be found here.

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