S3 Closes Diamond

SAN FRANCISCO (08/23/2000) - The multimedia add-in board business is starting to resemble an episode of Survivor--pretty soon, only one may be left. The latest casualty is S3 Inc., a once powerful graphics vendor that decided to shut down its board business when it could not find a suitable partner.

The company announced its withdrawal from the market in early August. That announcement was followed by the resignation of its chief financial officer.

"With the exception of hard-core gamers, people aren't as interested in upgrading as they once were," says Paul Crossley, an S3 spokesperson. "The PCs you buy today have a range of power that will last you for some time. So you buy something that will fit all your needs. And the add-in card business is not a very profitable business to be in anymore."S3 recently partnered with Via Technologies Inc. in its chips business. It was seeking a similar partner--where the business would be continued and not dismantled--for its multimedia boards. S3 acquired Diamond just a year ago. It has recently marketed boards that use a mix of their technologies.

When S3 didn't find an appropriate partner, the company decided to shut down the business and redistribute the personnel to its more profitable Internet appliance business. According to Crossley, several products are in development in this area, which concentrates on the manipulation and replay of digital music.

S3 will continue to supply and support the existing customers of Diamond Multimedia brand PC graphics cards, as well as existing channel partners and vendors who repackage its graphics cards, but will cease developing the line.

Less Need, Say Analysts

The news didn't surprise observers. Analyst Tim Bajarin says the company had lost steam, while graphics analyst Jon Peddie says the shutdown "had been expected for a while.""S3 was one of the companies that made Windows work better," Bajarin says. "In the early days of the GUI, it was one of the first to realize and anticipate the demand for a third party chip set. But when graphics became mainstream, business suffered, and the company had to reinvent itself."Diamond has been tarnishing, Peddie notes. "They have declined in market share quite rapidly, and the Diamond brand name for add-in boards has lost its luster," Peddie says. "They did well for a while filling existing contracts, but were unable to come up with a good enough new design to compete." Often, it's only hard-core gamers and graphic designers who feel the need to add a third-party graphics board, Peddie adds. Contributing to this was the tendency of Intel to upgrade processor power more frequently, to the point where independent board designers could barely keep up, much less stay ahead.

Crossley says some layoffs will result from the move, but most of the 150 people affected by the shutdown will find positions elsewhere within the company.

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