Wave Issue 9712 5/21/97 Article 3-01

***S3 - Unfolding Their 3D Strategy
by John Latta

S3 has been the 3D market leader in terms of unit volume but we at the WAVE
Report and others have been asking: where is the technology? During a
recent visit to S3 we were given more details on the company's 3D strategy.
Philip Bernosky, Senior Business Marketing Manager, Home Products,
described S3 as a company whose products are driven by the applications
which end-users employ - be it the home or office. They are continually
asking the question - What are the compelling applications that we will
make better with S3's technology? At the same time the company has a
pragmatic approach to the chip business. What drives their business is the
answer to another question: For a given design what is the maximum number
of gates that can be included on a chip and still meet an introductory $30
price point to the OEMs? The interplay between the first and second
question addresses the issue - how is the budget for gates allocated in
functions on the chip in terms of 2D, video, and 3D functions? When the
first Virge part was announced at COMDEX 1995 the gate budget was 250,000
and this meant limited 3D but it was the first time 3D could be included.
In early 1998 the gate budget goes to 1M and the performance level of 3D
will rise significantly. In fact, S3 has introduced its last chip that is
2D only - all future chips will have 3D.

To address the applications issue S3 has been proactive in promoting
markets that it feels will drive demand for 3D. This happened first in the
games area with its attempt to jump start 3D with a developer conference in
1996 and promotion of its S3d API. Next came its support of VRML, the
investment in Intervista and the promotion of RIO. Corresponding with this
investment was the announcement of a venture fund managed by S3. S3 has now
disclosed the third leg of its strategy - office productivity using 3D.
Indications are that this could range from the user interface to the
traditional office applications including spreadsheets and presentation
programs. S3 believes the next area for 3D growth will be on the desktop.
With that will also come investments that S3 will use to support its
commitment to this market.

On the chip side S3 will move from a company supporting just the mainstream
into one that will segment its business into four levels: Zero (<$1,000
PCs), low, mainstream and high end. Today it considers the chips from
companies such as 3Dfx and 3Dlabs as being niche products. In spite of
their high relative performance they only sell in small quantities and this
has not been S3's market thrust. In Q1 1998 this will change. S3 will enter
these markets with high performance solutions and the chips will use, in
part, Microsoft's Talisman technology.

S3 is seeing its business shift to where 3D is approaching the dominant
market share. For example, in Q1 1997 it shipped 10M chips of which 4M had
3D and they expect the percentage 3D share to continue to increase.

www.s3.com/