Nvidia to Purchase Rival 3dfx

Nvidia will purchase all of the graphics-related assets, patents, pending patents, trademarks, chip inventory, and brand names, including the well-known Voodoo brand, from 3dfx, says Nvidia spokesperson Derek Perez. Nvidia will pay a total of $US112 million, including $US70 million in cash and 1 million shares of stock, the companies announced Friday. It will not, however, acquire 3dfx's graphics board business, as Nvidia is not a graphics board producer but focused on chips, and best known for its GeForce2 family.

Meanwhile, 3dfx plans to eventually dissolve its graphics card business, says Steve Lapinsky, a senior vice president. It will continue to support existing products through the warranty periods, he says. The company will not leave existing 3dfx customers to fend for themselves, he said.

It's still unclear what Nvidia intends to do with its purchase, Perez says. The company will examine ways to incorporate the 3dfx technology, patents, and brands, Perez says. "We could just wrap the technology into our own," he says. "And the 3dfx brand could play a role; we could call Voodoo our own."

That's unlikely, says Peter Glaskowsky, senior analyst with Microdesign Resources. Nvidia's technology is already largely superior to 3dfx's, and the company has strong brands of its own, he says. He suspects Nvidia is buying the struggling 3dfx simply to eliminate some competition in the tough retail market, he says.

How 3dfx fell

Nvidia's purchase of 3dfx marks a turning point in the graphics industry because the two companies were once fierce rivals, Perez says. Both companies were pioneers when the graphics industry started to take off in the mid-1990s. In 1998, they released very competitive products: 3dfx's Voodoo2 and Nvidia's RIVA TNT. "In 1998 things started to get interesting, and the competition began to heat up," he says.

That battle waged for several years, but recently it became clear that 3dfx had lost, according to Glaskowsky. The company's sales sagged, and its technology, while good, isn't as strong as that of Nvidia or fellow industry leader ATI, Glaskowsky says.

The retail graphics board market, which went soft this year, was 3dfx's venue, Lapinsky says. Higher prices and competition severely hurt the company, as did rising component costs. Operational problems troubled its newest factory in Juarez, Mexico, while delays releasing its latest product compounded the company's problems to the point of no return, he says.

Glaskowsky offers his own take. "The essence of this transition is 3dfx was doing good work, but not as much good work as Nvidia," he says. Nvidia set high goals, met them, and became the industry powerhouse, he says. While 3dfx holds a strong retail position, its tendency to miss shipment dates prevents it from winning large vendors and big sales the way Nvidia does.

The last great 3dfx card is the Voodoo2, Glaskowsky says. But consumers really needed two cards for optimum performance, an investment of about $US400, he says. Over time the company's technology just wasn't strong enough in the rapidly evolving graphics market, he says.

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