S3, Diamond Make Merger Official

Graphics chip maker S3 and Diamond Multimedia Systems expect to announce today that the shareholders of both companies have voted to approve the merger.

The proposed deal, announced on June 22, will bring together S3 - the leading maker of graphics chips - with Diamond Multimedia, which makes graphics cards, communications products and the Rio portable audio player, in a stock swap worth about $165 million.

"This gives us top-to-bottom capability in the graphics card business," Scott Tandy, director of corporate strategic market at S3. "And we're entering new businesses, too. We can put a package around the PC - from the pipes to get on the Internet, to the audio and video technologies for multimedia."

The merged company will be reorganized into new divisions: The multimedia division will handle graphics chips and boards, and S3 will maintain a separate professional graphics unit. The communications unit will incorporate analog modems, broadband communications products, home networking products and the Rio players. Finally, RioPort.com, the audio content download site for MP3 files, will remain a separate division.

S3's Tandy said the company intends to make further acquisitions.

"This doesn't end S3's aggressiveness in the market," he said. "We think there's more consolidation that can happen in the graphics industry. We believe that there will be more to announce."

Tandy also said S3 will expand into new product areas, with Internet appliances and other digital devices that expand the Rio's capabilities. Tandy suggested, as an example, an MP3 audio player for cars.