Exclusive: S3 expands into sexy consumer markets

S3 is making wide forays outside its core expertise.

Traditionally a graphics card company that has dabbled in other silicon markets, S3 is shifting focus to embrace MP3, DSL and other sexy new technologies.

Kenneth Potashner, chairman, CEO and president of S3, is at the ECTS show in London promising exciting times away from the congested graphics hardware market.

Two years ago, S3's business looked to be falling apart, as it expanded into areas outside of its multimedia remit. Forays into unfamiliar territory -- such as corporate networking hardware -- steered the company into a nose-dive that transformed it from a $1.5bn (£610m) company with annual revenues exceeding $450m and a 55 percent share of the graphics hardware market, to a company with only a $150m market value and only a 10 percent OEM interest.

But Potashner, ex-CEO of Maxwell Technologies, one of Nasdaq's great success stories, is positive the new strategy will work. "Despite the bad times, S3 managed to build up a sizeable war chest, and that value is now coming into our stock," says Potashner. "We have control over our own fabrication plant. We have the ability to treble the size of the company and ship in huge volumes on demand."

Keen to impress the company's favourable position, Potashner says an exclusive arrangement with Intel gives S3 "access to Intel's patents and bus architecture for the next ten years", and "of course we are currently finalising the purchase of Diamond."

These are mighty deals. The Intel pact should allow S3 to develop integrated silicon devices for around $20: half the cost other OEMs will have to pay, and a massive margin in a market searching for the sub-$500 PC.

But it is the acquisition of Diamond, expected to be finalised on 20 September, that is the kicker. Potashner says that by buying Diamond, rather than making an agreement with the company, S3 will get to market quicker and won't have to split profits. It also gains an involvement in key consumer device growth areas.

S3 will create distinct, independent business units focusing on both home networking products, including DSL modem products supporting worldwide standards, and of course, MP3 audio. The MP3 unit is to be named as the RioPort business, but although the communications business will retain Diamond's strong branding in some form, a name has yet to be decided upon. Even the umbrella moniker "S3" isn't sacred, says Potashner.

To round off the year, S3 promises major RioPort announcements to follow up the recent rollout of the Rio 500 player.

Take me to the GameTech ECTS coverage for in depth technical news from the show. For news on the games, go to GameSpot's official coverage.

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