-------------------------------------------------------
***Trident
Gets IBM Win
(November 5)
Trident Microsystems announced that IBM's notebook PC, the ThinkPad 770X uses the Cyber9397 DVD multimedia accelerator. The notebook is one of the first designs to use Intel's Pentium II 300MHz processor and be equipped with a DVD ROM drive, and an advanced audio capability.
The Cyber9397 DVD incorporates or supports the following:
· Windows 98 WDM DVD (Windows Driver Model with DirectShow). A driver model based on the Windows NT model designed to provide a common architecture of I/O services for both Windows NT and Windows operating systems for specific classes of drivers. These include USB and IEEE 1394 buses, audio, still-image capture, video capture, and HID-compliant devices.
· Windows98 MHS (Multiple Head Standard), a Microsoft standard covering the chip's ability to handle multiple outputs to various display devices such as TVs, LCD or a monitor at the same time with different rates, and resolutions..* Windows 98 WDM Video Capture, a WDM-based kernel-mode extension of Microsoft DirectShow, providing kernel connection
and streaming services as used by the WDM Stream class driver
.* AGP (Accelerated Graphics Port), an Intel port for graphics display.
· PC98, the 1998-99 requirements for PC system and peripheral design that serve as the basis for the "Designed for Windows" logo, as defined in the PC 98 System Design Guide.* DX6, the new API (Application Programming Interface) from Microsoft that covers 3D graphics advancement..* ACPI (Advanced Configuration and Power Interface) a specification that defines a new interface to the system board that enables the operating system to implement operating system directed power management and system configuration and allows instant on PCs.
.* APM (Advanced Power Management), A software interface, defined by Microsoft and Intel, between hardware-specific power management software and an operating system power management driver. It has recently been replaced on Windows 98 compliant systems by the ACPI.
***Dell Picks Omnicomp Graphics for Workstations (November 5)
Omnicomp Graphics announced that DELL Computer Corporation will offer the advanced PCI version of the Omnicomp 3DEMON twinGMX-8/20 to the DELL Professional Workstation and Server lines. In addition, Omnicomp will be making available to DELL its full line of AGP and PCI award-winning 3DEMON graphics accelerators.
Utilizing the new 3Dlabs Glint dual MX + Gamma the 3DEMON twinGMX8/20-PCI supports resolutions up to 1920x1080, double buffered.
***Desktop Age is Over, says IBM Chief Executive - Watch for Wearable Computers (November 4)
According to the Times of London IBM's chief executive said in an interview that the end of the PC age is nigh. "This preoccupation we've had with providing computer capability to the desktop is over," Lou Gerstner told CNBC. Gerstner insisted that in terms of revenue, the company's global services are earning more money and growing faster than any area of hardware sales. Because of the complexity of existing technology, Gerstner believes that there will continue to be opportunities in servicing digital technology. Gerstner acknowledged that PC demand has come back, despite the collapse of the Asian tiger economies. And indeed, machines such as the Aptiva and the ThinkPad have helped keep IBM's profits riding high, more so now the company is aiming to release an Aptiva cheaper than $600 before the end of the year.
The paper went on to speculate that perhaps Gerstner's bold pronouncements were prompted by the promise of a new age of digital devices unveiled by the company's Yamato Laboratory in Japan. To no small media fanfare, the company unveiled a wearable PC prototype that requires neither a keyboard nor a monitor and what is claimed as the smallest hard disk drive in the world. The laboratory announced that it is working on six different prototypes that could reach the shops within two years. The wearable device unveiled to the press last week was smaller than a Pounds 1 coin and weighed just 10oz. The screen is a perspex block which attaches to the arms of a pair of glasses and projects a virtual image two feet away. A handheld switch can select screen instructions and uses a microphone with voice-activated software. IBM believes that aircraft technicians could use the device instead of consulting weighty documents, thus allowing them to continue working without wasting valuable time.
***Fujitsu Marquis Demonstrates Hardware Compositing
The WAVE Report saw the first hardware compositing to come from the Fujitsu Marquis chip. This exercises the API functions for Talisman in DirectX 6. The functions include sprite based composting with affine transformation. These are contained in the Affine and Regulator Library Reference Calls for the Talisman API extensions.
***Looking Forward - Insights from the Embedded Systems Conference
This last week the WAVE Report went to the Embedded Systems Conference to sample another part of the computer industry.
Jim Turley Presentation
An outstanding talk was given by Jim Turley, Senior Editor, Microprocessor Report on "Microprocessors for PDAs, Consumer Electronics and Communications." He proclaimed that embedded is the largest and fastest growing part of the worldwide microprocessor industry. There are 30 - 40 microprocessors in the home of which only 5 are in the home PC. Citing market data from Information Architects he showed that in 1997 the unit sales of microprocessors were:
8 bit - 1.4b
4 bit - 1.2b
16 bit - 390m
32 bit - 150mWhich is 3.14b microprocessors.
Also in 1997, the 32 bit embedded market, the following microprocessor families had these unit volumes:
SPARC 1.5m
ST20 1.75m
29K 2.3m
PowerPC 3.9m
X86 9m
i960 9m
ARM 10m
SuperH 23.5m
MIPS 44m
68K 79.3mTotal 184.25m
The RISC chips include:
SPARC, 29K, PowerPC, i960, ARM, SuperH, and MIPS.
Within the RISC market it was consumer electronics that dominated the unit sales - in particular, home video games. The Playstation and Nintendo are using MIPS and Sega is using Hitachi (SuperH). MIPS is also used in WebTV. Thus, home electronics is a driving factor behind the unit volume in RISC chips and could well count for 50% of the RISC market. Jim stated that the falling cost of the 32bit processors has made the home entertainment market the hot growth area of the next decade. We are entering the era of "free transistors."The PDA market has finally taken off, in part, due to the 3Com Pilot (Motorola 68328). However, the most popular organizer remains the Psion which uses the ARM7100 processor.
Intel has the potential to play an important role in the embedded microprocessor market through its acquisition of the StrongARM design, originally developed by DEC. Although Intel has the existing designs of the StrongARM-110 and StrongARM-1100 it is the next generation designs which will bear the Intel imprint. A second generation design (SA-2) is underway in Chandler, AZ and the third-generation design (SA-3) team is being formed in Austin. It will probably not be until late 1999 before either StrongARM-2 or StrongARM-3 parts surface.
The talk ended with an overview of technology trends. It is expected that there will be more synthetic and synthesizable microprocessor cores. The era of a fixed instruction set design is fading. As customers demand tailored processors they will increasingly drive the microprocessor functionality. An excellent example of this is the Hitachi SH7750 matrix transform capability which does up to two (4 X 4) X (1 X 4) matrix multiplies in one clock cycle. This chip is in the new Sega Dreamcast console and it is tailored to support 3D processing. The ability to custom tailor processors to the needs of buyers is aided by standardized design tools and the relatively cheap cost of transistors. Another trend is the integration of non-standard instruction types. These include: DSP functions, media processing, and code compaction.
Lastly, Jim stated that the desktop computer is giving away to a myriad of consumer electronics items. As he stated, "...it is not about processing anymore." Pricing will be dictated by the "one spouse decision rule," that is the price set at such a level that one spouse in the family can buy it without the approval of the other. Jim speculated that in some families this is $300 or less.
On the Show Floor
The Embedded Systems Conference is focused largely on the board level implementation of microprocessors systems. There were a few signs of consumer end products but this was the exception.The WAVE Report spoke to a number of companies on the show floor and noted the following:
If there was consistent theme at the conference it was that time-to-market pressures are being felt by all. Those tools that support rapid development, debugging and the creation of end products are of greatest interest to developers.The operating systems business for embedded processors is a hit business. The significant money is made when an application for a target processor is a hit in the market. The OS company then gets a royalty stream from each product sold. Typically this is negotiated up front when the initial license is purchased. The market is all the more risky with the proliferation of consumer electronics items using 32bit microprocessors and corresponding sophisticated OS's.
The independent OS company that appears to most closely focus on consumer devices is Wind River Systems. They had a number of consumer electronics items in the booth. When asked about the role of the OS in these devices they were most emphatic on the role of the tools. Having integrated tools that go well beyond debuggers is critical to the rapid time to market objectives of their customers.
Java remains a dark horse. One speaker stated that a virtual machine concept would eventually come to play a major role in the industry but it remains to be seen if it is the JavaVM.
Cadence Design Systems took the concept of hardware and software integration further than others. At the conference it announced tools for the definition, test and re-use of Virtual Components - what they call Virtual Component Co-Design (VCC). These included both software and hardware components. Cadence is strong in the EDA business and this extension into the definition of software modules is another indication of the level of integration of hardware and software for complex SOC (System on a Chip) designs.
Much has been made about the potential that future microprocessors will all be connected either within a network or to the Internet. Yet, we were surprised at the lack of companies with solutions in this area.
We found little concern among the existing embedded OS companies about Microsoft's entry with Windows CE. The reasons given include: The market is large enough that even with Microsoft present, and the rate of growth in the market, there is adequate room for a number of players; Microsoft is still not attuned to the market because the tools do not meet the needs of many developers, the systems falls short in real time capabilities and Microsoft has not shown sufficient flexibility to meet the needs of a hit oriented market.
One developer voiced greater concern about the potential for the embedded version of Windows NT, which was announced at the conference, than Windows CE.
Market Tidbits
We have picked up a number of market tidbits:
80% of the total of all 32 and 64 bit embedded applications will be in telecommunications, office automation and high-end consumer products by 1999. (Information Architects)
20% (51m) of the 265m devices connected to the Internet in year 2000 will be embedded. (Information Architects)
The price of high end embedded microprocessors will decline from $18 in 1997 to $10 in 1999. (Information Architects)
Much has been made about the transition from the PC era in computing to a new era dominated by embedded devices. Certainly much of the attention today is being directed to Information Appliances. Coming away from this conference one is left with the impression that the transition has already begun.
Historically the transitions from mainframes to minicomputers to workstations to the PC have resulted in increases in unit quantities from 10X to 100X. If the transition from the PC to the next era is correct this could result in 1b units per year. Yet, these quantities are already happening in the embedded market. The numbers of units that are directly associated with consumers are much less, however. For example, the 4 bit and 8 bit processors are generally not directly linked to consumer applications. Yet, in the 32bit RISC market, it is consumer products that are driving this trend. This growth is expected to continue.
Thus, the enthusiasm for the future of the embedded market, as reflected in this conference, is understandable. At the same time we see the challenges as being formidable. Some of the issues include: The best analog market for the future of embedded consumer devices is the toy market. That is, seasonal, short product lifetimes, the need to implement for each product a total system from the chips to the end product and its marketing. At the same time there will be relentless time to market pressures. There will be many attempts to make successful products within a category. A good example of such efforts today are PDA's. There have been at least 4 generations of products, including the Apple Newton, and only with the 3Com Pilot has the concept taken off. We are likely to see the same in many other categories including e-books, for example. Once the right combination of features, interface, connectivity and price is reached that market is likely to launch. This is very similar to hand held calculators which emerged based on the HP designs in the early 1970's. We call these threshold products.
A one-product concept in information appliances that parallels the PC, which was largely defined by IBM in the original PC, will not happen. The requirements for product differentiation and reaching a threshold state will drive the whole design process. This includes the ASIC's to the microprocessor to the software to the tools used and the testing. IP and software usability, however, will be important in the migration from device generations.
Software and hardware will be more closely linked than in the PC. Excellent examples are already present in the home video consoles and the 3Com Plam. As Cadence is already showing the line between hardware and software will increasingly become a top level design issue. From the design will come the definition of the microprocessor and its components.
Custom processors will increasingly dominate the designs. They will be a component that is surrounded by IP that includes peripheral interfaces and even other processors suited to the function of the device. Thus, for example, the X86 PC on a Chip is but a transitory concept and its utility will be measured by the needs of the target not its legacy.
The concept of the traditional OS is likely to be significantly changed as these devices evolve. As the devices take on more peripheral functions and their control, some of the OS functions are likely to get buried in the hardware. To the designer the selection of an OS is more likely to be determined by the tools available and the role those tools play in the product development than the kernel.
There will continue to be a diverse OS market. No one company will be able to dominate the wide range of needs in the market. Microsoft's entry is important but its presence will be no different that Intel's currently is (in the embedded market). That is, an important player but not a dominant one.
Intel could be an important player but its impact will likely not be felt until 2000. Its success with StrongARM remains to be seen. Given the continual strong showing of RISC chips it is questionable that X86 based CISC designs will dominate consumer appliances.
***Xilinx Breaks One Million-Gate Barrier with Delivery of New Virtex Series (October 26)
Xilinx announced the first delivery of the Virtex FPGA series. Starting at $10, the family has a density range from 50,000 to one million system gates. The million-gate Virtex FPGAs-an industry first at this density-and a 300,000 gate device are available now.
The Virtex FPGA has built-in capabilities including: solutions for chip-to-chip communication needs amidst multiple I/O standards, numerous clock signal synchronization both inside and outside the device, and management of memory needs.
Virtex FPGAs are designed-in as main system components previously addressed by ASICs, specifically standard cell-based devices. Some examples are 66 MHz/64 Bit PCI applications; OC-3, OC-12 and OC-48 telecommunication equipment; next generation (beyond gigabit) network equipment; satellite base stations; high-performance graphics editing machines; massively parallel compute engines; HDTV broadcast systems; and medical imaging machines.
The Virtex architecture represents aggressive use of an advanced 0.22-micron process to pack one million gates and full utilization of five metal layers for an abundance of high performance routing tracks. The architecture is also easily scalable from 50,000 to one million system gates to offer the robust feature set across a wide range of densities in nine devices.
Projected high volume pricing will start below $10 for 50,000 system gates. Packaging options for the Virtex family will include plastic quad flat packs (PQFP), ball grid arrays (BGA), 1.0-mm fine pitch BGAs, and 0.8-mm chip scale packages (CSP).
***Nokia launches High Capacity GSM System (October 26)
Nokia announced a High Capacity GSM system, which will provide a ten-fold capacity increase compared to conventional networks. Switching capacity will be more than doubled to serve 400,000 subscribers and network investment costs will be significantly reduced.
The products include a Mobile Switching Centre (MSC), Home Location Register (HLR), base station with integrated access transmission equipment, base station controller and a range of tools for training services, planning and information management.
***DVDExpress selected for Presario 1810 Notebooks(October 26)
National Semiconductor Corporation announced that the DVD-enhanced Compaq Presario 1810 Internet notebook PC incorporates Mediamatics DVDExpress a software DVD solution.
DVDExpress technology delivers integrated MPEG-2 video playback, Dolby Digital AC-3 audio and Microsoft DirectShow compatibility, which provides the user a state-of-the-art, DVD capability in a powerful, lightweight notebook PC.
***Sony's DVCAM Format Sells over 50,000 Units (October 26)
Sony Electronics reports that it has sold more than 50,000 units of DVCAM equipment worldwide.
Since November 1996, this professional digital video format has sold into a wide variety of markets. These include corporate, business and industrial, independent videography, education and professional sports, as well as broadcast and cable industries.
***Cisco
Systems Teams with VIP Calling
(October 26)
VIP Calling announced that it has selected Cisco Systems, Inc., the worldwide leader in networking for the Internet, to provide Internet telephony solutions for The VIP Calling Network internationally. VIP Calling will purchase more than $10 million worth of Cisco gateways and switches to deploy in its facilities around the world.
As the leading wholesale provider, VIP Calling traffics substantial carrier minutes between North America and its points of presence overseas. The scalable end-to-end Cisco solution will enable The VIP Calling Network to further expand the volume of minutes originating from both North America and VIP Calling's overseas partners. For Cisco, The VIP Calling Network fully demonstrates the robust capabilities of its synergistic data and voice technologies for the rapidly emerging Internet telephony service provider (ITSP) market.
***Live Picture and Oracle Spotlight Breakthrough Solution (October 28)
Live Picture, announced that it is working with Oracle to add high-resolution images to Web sites built on Oracle8I, a database for Internet computing.
The combination of Live Picture Image Server software, Oracle8i and Oracle interMedia will make it possible to develop database-driven applications supported by high-quality images. Users can interact with and examine the images in detail. This capability enables Web sites and intranet applications targeted at defense and government organizations, online retailers, publishers, and any company that manages large collections of images. Enhancing Oracle8i applications with high-quality Live Picture images allows Web developers to build Web sites that are superior to static sites using low-resolution GIF and JPEG images stored in operating system files.
With Oracle interMedia and the Live Picture Image Server, electronic commerce sites built on an Oracle8i database can, for example, answer shopper queries by returning high-quality mages - as well as related documents and links - that offer users the ability to zoom in for a closer look.
Shoppers can view progressively detailed images of products for sale. For instance, an online shopper might click on a pair of basketball shoes. Because the image is linked to a relational database, that single click can serve as a search for all similar styles. This means shoppers can use images rather than just text strings to retrieve relevant content, resulting in satisfied customers who can make more informed purchases.
Other image-intensive intranet applications will also benefit. Military organizations can search for and examine zoomable satellite or security images, even controlling which users are allowed to view high-resolution versions that reveal confidential details. Online publishers can manage and track the contents of their constantly growing image archives, and can offer different subscription rates based on the quality of image resolution requested by their online readers. In fact, any company with a significant collection of images and image-laden documents will be able to streamline their asset management operations as a result of this collaboration. Live Picture Zoom images allow companies to efficiently store one multi-resolution file for all uses, including display on the Web, large-format displays, and high-quality printing.
Live Picture Zoom images and servers are based on the industry-standard Flashpix image file format and Internet Imaging Protocol (IIP). Developed by Live Picture in collaboration with Hewlett-Packard, Kodak and Microsoft, Flashpix and IIP transmit only the image details requested, rather than sending the entire high-resolution image.
***IPNet Launches e-Commerce Partners Program (October 6&26)
IPNet Solutions, Inc. has announced that Kirk Jones with join the company as Director of Channels and will be responsible for IPNet's e-Commerce Partners Program. The program will focus on expanding relationships with consulting and integration firms, ISVs, and system and IP service providers.
These bi-directional partnerships will help IPNet expand the product and service offerings of its Enterprise e-Commerce Solutions. These software solutions integrate a business' supply-chain with Enterprise EDI, logistics sharing and distribution, web forms, real-time order management, and data exchange.
Another step in this direction is their newly announced IP*web.link, a browser based solution that supports web forms for e-Commerce and EDI trading partner initiatives. IP*web.link will allow Fortune 5000 companies to provide no cost e-commerce options to their trading partners when sending and receiving transactions. This and other modules of IPNet's integrated suite of software applications are designed to provide a common point of management for all business e-commerce needs.
***Zoran
announces third quarter results
(October 22)
Zoran reported financial results for the third quarter and nine-month period ended September 30, 1998.
Total revenues for the third quarter were $11.8 million compared to $11.6 million for the third quarter of 1997 and $7.1 million last quarter. The Company reported net income of $413,000, or $0.04 per diluted share, for the third quarter ended September 30, 1998 compared to $863,000, or $0.08 per diluted share, for the third quarter of 1997 and a net loss of $976,000, or $0.10 per diluted share in the second quarter.
Total revenues for the nine-month period were $30.1 million compared to $30.9 million for the same period last year. The company reported net income of $56,000, or $0.01 per diluted share, for the first nine months of 1998, compared to net income of $2.6 million, or $0.23 per diluted share, for the same period last year.
Product gross margin for the 1998 third quarter was 42.6%, compared to 52.3% in the third quarter of last year and 36.2% in the second quarter. Gross margin on total revenues for the 1998 third quarter was 56.5% compared to 65.1% in the third quarter of last year and 58.4% in the second quarter. The fluctuation in product gross margin is principally the result of changes in product mix, and the percentage of products sold directly to Zoran customers versus indirectly through its marketing partners who absorb most of the associated marketing and sales support costs. Zoran's product and customer mix are subject to substantial quarter-to-quarter fluctuation, which will cause gross margins to continue to vary in future periods.
***Acclaim Entertainment Reports 1998 Results (October 22)
Acclaim Entertainment reported its results for the 1998 fiscal year ended August 31, 1998. The company reported that it achieved net revenues of $326.6 million for the 1998 fiscal year ended August 31, 1998 compared with $165.4 million in the prior year. The company recorded a profit of $20.7 million and diluted earnings per share of $0.37 in the 1998 year.
"We are pleased to report significant revenues and profit for the 1998 fiscal year," said Gregory Fischbach, chairman and CEO of Acclaim. "As a company, we remain focused on our product strategy of developing high quality titles and key brands. Our two-year restructuring effort is now complete. Acclaim has the financial resources to manage its business and grow the company. We have an attainable operating plan and are beginning the next phase of the company's evolution. Our focus now is on expanding our development capabilities and improving shareholder value."
In the 1998 fiscal year, Acclaim successfully delivered ten titles that achieved sales during the fiscal year of over $10 million each including: NFL Quarterback Club 98, All-Star Baseball 99, Extreme-G, Forsaken, Jeremy McGrath Supercross 98, Turok: Dinosaur Hunter, Riven: The Sequel to Myst, WWF: War Zone, Bust-a-Move 2, and NHL Breakaway 98. Of these titles, three sold over $20 million and four sold over $40 million. Seven of these brands have become established franchise titles for the company that it anticipates will deliver predictable revenue in the 1999 fiscal year. Acclaim will release sequels of these brands or franchises in fiscal 1999 which will include: NFL Quarterback Club 99, Extreme-G 2, All-Star Baseball 2000, NHL Breakaway 99, Bust-a-Move 3, WWF Attitude, and Turok 2: Seeds of Evil.
The most recent TRSTS data from the NPD Group reflects that for the first 9 months of the calendar year the company achieved a combined Nintendo 64 and PlayStation market share of 7.2% based on dollars. The company's combined fourth fiscal quarter market share was 12.5% based on dollars.
Gross revenues by platform for the year consisted of 57% for N64, 30% for PlayStation, 10% for PC and the balance in portables and other categories. On a geographic basis, North American operations generated 63% of net revenues and international operations 37% for the year.
"For the fiscal year, approximately 68% of our gross revenues were derived from internally developed product," said Fischbach. "It is our plan to expand our studios and R&D by approximately 20% during the 1999 fiscal year. This expansion will allow us to maintain our goal of the highest quality products and to continue to broaden our product line."
***Gateway Reports Record Shipments for the Third Quarter (October 22)
Gateway reported results for the third quarter ended September 30, 1998. Gateway shipped a record 887,000 PCs in the third quarter, a 43% increase over third quarter 1997 shipments of 622,000. Sales increased 21% to $1.82 billion from $1.50 billion a year ago. Net income in the current quarter was $80.6 million or $.51 per share compared to a net loss of $107.1 million or a net loss per share of $.68 in the third quarter of 1997.
The record unit growth of the Company was primarily the result of the strong performance in the Americas region, accounting for 89% of total unit sales. Unit sales were also very strong in the Asia Pacific region despite the economic situation there; unit shipments were up 74% compared to the prior year third quarter. European unit sales were flat year over year for the same period.
Gateway continued to expand the retail Gateway Country stores with 27 new stores this quarter, bringing the total number of stores to 85. In addition to robust desktop unit sales, the sales of other products were particularly strong. Sales of Gateway portable products hit record high levels in the quarter, up 96% over the prior year and up 38% over the second quarter of 1998, accounting for 11% of total unit sales. Server unit sales were up 297% over the third quarter of last year when the Company entered the business with the acquisition of ALR. On a sequential basis, server units increased 27%. Shipments of the Company's convergence products increased 80% over the prior year third quarter and increased 48% sequentially.
Average unit prices (AUPs) declined 15% to $2,046 in the quarter compared to last year's third quarter and were down 7% sequentially. These declines were caused by industry-wide trends to lower priced PCs and continued reductions in component costs that have not been offset by the introduction of newer technologies.
Because the strong unit sales were offset by the impact of declining AUPs, revenues increased 21% compared to the unit increase of 43% over the third quarter of last year. Revenues in the Americas region were up 27% and revenues in the Asia Pacific region were up 35% to $101.8 million over the third quarter of 1997. Revenues from the European region declined 14% from the third quarter of last year to $106.8 million.
Gross margins in the quarter were at a record high level of 20.8%, up from 20.6% in the second quarter as the Company realized benefits from higher margin products encompassed under the Your:)Ware marketing program, as well as the benefits of the direct model and decreasing component costs.
Selling, General and Administrative expenses (SG&A) increased 21% over the third quarter of 1997 to $264.5 million, and increased 6% over the second quarter of 1998. In both cases the increase in operating expenses is attributable to the strong unit growth experienced during the quarter. In support of the continued growth, the Company also opened a new manufacturing and sales facility in Salt Lake City late in the quarter. However, as a percentage of sales, SG&A decreased sequentially to 14.6% of sales compared to 15.4% in the second quarter. SG&A increased less than previously anticipated by management due to a continuing emphasis on cost control measures.
Operating income for the third quarter this year was $113.4 million compared to a loss in the third quarter of the previous year of $24.0 million before nonrecurring expenses. Operating income increased 35% sequentially over the second quarter. Other income increased to $12.7 million, up 125 % from the prior year and up 16% over last quarter due to increased balances of cash and marketable securities.
Pre-tax income was $126.0 million compared to a loss, after nonrecurring expenses, of $132.2 million in the third quarter 1997. The Company's effective tax rate for the quarter was 36%, consistent with previous quarters this year. The effective tax rate increased over last year due to shifts in the geographic distribution of the Company's earnings. Additionally, the abnormally low effective tax rate experienced in the third quarter of last year resulted from the non-deductibility of certain nonrecurring expenses.Working capital management improvements were made again this quarter. Inventory turns reached another record high for the Company at 33 turns, which is up from the 12 turns at the end of the third quarter last year and the 30 turns achieved in the second quarter of this year. The cash conversion cycle was reduced to almost a negative 4 days. Cash and marketable securities hit a record level in excess of $1 billion at the end of the quarter.
***NEC Reports H1 Net Loss, Predicts Full Year Loss (October 23)
Newsbytes reports that NEC announced financial results for the first half of the fiscal year 1999, the period from April to September, 1998, and its first losses in the first half since fiscal year 1994. The announcement was made just hours after company chairman Tadahiro Sekimoto resigned in the wake of a defense payback scandal.
At group level, the company said net sales fell 10.9 percent to 2, 113.09 billion yen ($17.76 billion), operating income dropped 85.7 percent to 15.29 billion yen ($128.58 million), income before income taxes fell 24.54 billion yen ($206.34 million) into the red and it announced a net loss for the six months of 19.73 billion yen ($165.88 million). The loss represents the first time NEC has slipped into the red during the first half for five years.
Commenting on the performance of its various business sectors during the period, NEC said its sales of communications equipment and computers were both lower after its corporate customers cut back on spending. In the semiconductor market, NEC said it saw negative growth in the market as a result of declining memory prices and softening demand for logic ICs.
In its information systems division, the company reported a 13.7 percent slide in communications systems and equipment sales to 712.35 billion yen ($5.98 billion). Sales of computer and industrial electronics systems were down 3.9 percent to 879.36 billion yen ($7.39 billion) and semiconductor revenues dropped 18.3 percent to 431.24 billion yen ($3.63 billion).
Looking at the second half of fiscal 1999, the period to March 31, 1999, NEC said it expects to see "the results of the Japanese Government's economic countermeasures and its efforts to stabilize the financial system become apparent."
As a result, NEC forecast its full year consolidated net sales are expected to be 4,900.00 billion yen ($41.19 billion), barely unchanged on net sales in the previous year of 4,901.12 billion yen ($41.20 billion) but lower than the company's prior estimate, announced in May this year, of 5,100.00 billion yen ($42.88 billion).
It also announced it expects a net loss, the first since fiscal 1993, of 35.00 billion yen ($294.24 million). Last year, the company announced a net profit of 41.30 billion yen ($347.20 million) and, in May, predicted net income would rise to 55.00 billion yen ($462.38 million).
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