Below is the interview with Ballard by Wall Street Corporate Reporter which I copied from Bloomberg:THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOTBE IN ITS FINAL FORM AND MAY BE UPDATED. Mr. L. Gregory Ballard "What makes me valuable is a little different from the average CEO at agraphics semiconductor company and that is my unfamiliarity with theworld of semiconductor technology until joining the company 18 monthsago. My background was actually in the software side of the business andmore particularly the entertainment software. In the past, my backgroundspanned cable programming and more recently video games as head of oneof the larger video game companies in the United States. The reason theboard of directors decided to hire me was that they wanted somebody whohad the perspective of an entertainment marketing person to create in3Dfx (Company: 3Dfx Interactive Incorporated; Ticker: TDFX; URL:http://www.3dfx.com) a strategy different from the strategy pursued bygraphics companies. "In the past, most companies in technology have focused solely ontechnology to create a faster chip with a better price performance. Ourfocus has been on technology, and we have done a very good job at beinga leader in technology. In addition, we have fashioned a very highprofile brand image for the company, a direct relationship withconsumers and a unique set of relationships with the content providersto ensure that our technology is the target for their efforts. InSilicon Valley, they have become so used to business-to-businessrelationships that they have forgotten that the ultimate consumer ofthese products is a relatively unsophisticated consumer when it comes tobits and bytes, but a very sophisticated consumer when it comes todiscerning on brand. At this company, we have the technology thatimpresses the product manager at a computer company combined with thebrand image that is going to reassure a consumer that they are buyingthe best in the entertainment experience." 3Dfx Interactive, Inc. "3Dfx makes high-performance 3D chipsets, software and technology forthe interactive electronic entertainment market. The Voodoo( family of3D accelerator chipsets can be found on 3D graphics add-in cards fromsome of the industry's leading manufacturers including DiamondMultimedia, Creative Labs and Intergraph. Anyone who plays games on acomputer or in an arcade will tell you that 2D just doesn't cut itanymore. People want to immerse themselves in the game experience. Theywant games that look good and that move and that lets them feel likethey are there - on the ice rink, in the jungle, or on the battlefield.Increasingly, the product that people turn to when they want a true 3Dexperience is a chip from 3Dfx Interactive." Incredibly fast 3D images "In a classic silicon sense, we have created a chip that allows thecomputer to display incredibly fast 3D images to display games at alevel that is now ten times the quality and performance that you areable to see in a Nintendo (Company: Nintendo Company Limited; Ticker:NTDOY; URL: N/A) 64 or Sony (Company: Sony Corporation ; Ticker: SNE ;URL: http://www.sony.co.ip) Playstation. In addition to creating thattechnology, we make sure that the game developers are producing gamesthat use this technology. In that way when somebody buys a chip from3Dfx, whether they get it on an add-in board or directly from a computermanufacturer, they are buying entertainment and not simply asemiconductor silicon chip. A wealth of titles will be available by thefourth quarter of this year, and we guarantee that those titles will runbest on our technology. The chip on a board at retail right now is alittle over $200 U.S., and we expect that price to come down over thecourse of the holiday. When the chip was first introduced, the boards onwhich they were installed sold for $299 U.S. at retail, but we believeit will be priced at $199 U.S. for the holiday season." Only safe bet is 3Dfx "There are other people in the market who sell chips that have goodperformance, but not as good as us. The difference is that they do notplay some of the leading titles that have been developed by leadingcompanies. A great example of that is the title 'Unreal' which wasproduced by a leading edge company who we worked very closely with tomake sure our hardware was central to their software strategy. If youtake that game right now and play it on the equipment of any of ourleading competitors, the game literally does not run; and that is thesecond most popular game in the world right now! The third most populargame called 'Final Fantasy VII' plays on many people's boards, but itdoes not play on our leading competitor's boards in video because ofcertain architectural issues. We are the only chip set that canguarantee it is going to play virtually all of the games in themarketplace. If somebody wants to play games, which after all is theonly reason that you need 3D in your computer, the only safe bet is3Dfx. The good news is that you also get the highest performance chip inthe market." Growth strategy "3Dfx has relationships with virtually every major publisher, includingmost prominently, Electronic Arts, who is the giant of the industry. Wehave a formal strategic alliance with them where we are the acceleratorof choice for all of their development activities, and engage inextensive cross-promotions with them. In addition, we have similaralliances, although not as formal, with companies including Sony,Activision (Company: Activision Inc ; Ticker: ACTI ; URL:http://www.activision.com) and Eidos (Company: Eidos plc; Ticker:EIDSY; URL: http://www.eidosinteractive.com/corporate.html) . We havebeen busy working to develop those relationships and that is one of thereasons that I am here as opposed to somebody from one of the Siliconcompanies in the Valley. I have been working with those people for tenyears and already have the relationships that enable those relationshipsto work." Overseas focused in Europe "Right now about 50% of our business is overseas. Most of that isfocused in Europe because in Asia most games are actually played onconsoles. However, even in Japan there is an increased interest in 3Dacceleration for PCs. We are very much an international company, andvery much focused on making sure that we are the leading company in eachmarket. In fact we recently opened a European office to ensure that ourpresence in Europe is getting the same attention as the U.S. market." Cultural divide "There is no language issue at all. In Japan, they have grown used toNintendo, and so even Sega had a hard time selling in the Japanesemarket. That is because the Japanese market was dominated by Nintendofor game play. Now PCs have become a more prevalent in Japan, but thegames that play on PCs are different from the games that they have grownused to playing on Nintendo. Japan is the one place that we see a realcultural divide as they have not adopted the American cultural norm, andsimply do not like the games that we play. Since that is most of what isavailable to the PC, there has not been wide spread adoption of PCgaming in Japan. We expect that to change over time, but expect Japan tobe one of the more resistant markets. "Our focus is not on making games - we leave that to software publisherswho are better at that. I suspect that if the Japanese market shows somepromise, companies such as Sierra will penetrate that market. Wecertainly hope that happens because our hardware sales will increase.Our software is what makes the computer's hardware run - it is notentertainment software. What we put inside the computer is the hardwarethat makes 3D and interactivity happen. We then have software that weput on top of that hardware to communicate and interconnect with theentertainment software that an Electronic Arts might develop. Thatinterface between hardware and entertainment software is typicallycalled an API. What we do is provide an API and not the actualentertainment software." The year 2000, and beyond "The market's potential is enormous, and there are estimates that therecould be as many as 110 million computers shipped by the year 2000. Webelieve that virtually every one of those computers will have 3Dtechnology in it, and we will play in the upper 60% of that market. Thatwould be 60 to 70 million units in the year 2000, and we hope to have asignificant share of that. This is already a sizable business, but webelieve it could become even more sizable very quickly over the nextcouple of years. Right now, there are only two competitors that we spendmuch time talking about internally. One is a small privately heldcompany called Nvidia that has very strong technology, and the othercompany is called S3 (Company: S3 Incorporated; Ticker: SIII; URL:http://www.s3.com). S3 was a former leader in this industry whoserevenues have faded, however they have new technology and are now 'backin the hunt'. I believe that 3Dfx and those two companies are going todivide the lion's share of that 60 million units." Other uses for 3D "The 3D technology is already being used in applications other thangames on the Internet where people use 3D for web applications. Verysoon, I can see 3D technology being used in business applications whereyou will see graphs, presentations and different effects in 3D andPowerPoint. Once that begins to happen, 3D will become pervasive incorporate presentations. In the future I believe that 3D will become animportant part of business computers as well as consumer computers." Achieving leadership in the market "To achieve leadership in the market we talk to people in the media suchas The Wall Street Corporate Reporter, who spread the word. We alsoadvertise in key gaming magazines, and increasingly in lifestylemagazines. In the fourth quarter, you will see a campaign in many of thePC magazines as we develop our newest product called Voodoo Banshee(,which is a traditional Windows accelerator product. We have 'raised afew eyebrows' by doing direct consumer branding advertising, whichnobody else has ever done in this business before, and will continue todo that in the future. Additionally most of our advertising will be donein the U.S. with a strong second place in Europe." Canada and Mexico "Mexico is not a big market for our products right now mainly because oflow income levels and PC penetration in Mexico lags most of the moredeveloped countries. Canada is actually pretty interesting because ithas an active installed base of PCs." Working capital "3Dfx went public in June of 1997, and completed a secondary offering inMarch of this year. We now have $95 million U.S. in the bank, and thatis certainly adequate to meet all of our working capital needs throughthe foreseeable future. The only issue is any acquisitions that we maydo down the line. We do not have a target set of acquisitions in mindand tend to look opportunistically at deals as they are offered to us.We are a self-contained company, and do not want to suddenly get intothe modem or DVD business. It is not clear that we can go outside ourcompany and buy technology that will help us in our base business. It ispossible that we may make some acquisitions over time, but it is notclear to me exactly where they would be." Finding employees "An issue for us six months ago was the fact that we were having a hardtime hiring qualified people fast enough. We then became a very 'hot'company in the Valley. At the same time the number of companies who wereexiting our business increased dramatically, and so more engineersbecame available. Those two factors have helped us become verysuccessful in hiring people." Management's stake "Management has a substantial stake in the business, and that keeps ourattention focused on the bottom line in a big way. Over the last coupleof quarters, we had some insiders take liquidity in the market, buttheir holdings were vastly larger than the small amounts than theyactually sold. The insiders maintain a very high position in thecompany, and continue to believe in its fundamentals. We are very muchtied to the profitability of the future and believe that this businesswill continue to grow and excel. Our basic strategy from the verybeginning was to create a very strong retail based franchise for ouraccelerators and then to leverage that position in terms of brand andtechnology into the OEMs. We have clearly dominated in the retail side.The big question as we approach the end of 1998 is if we will besuccessful in leveraging that position into the OEM marketplace, and ourresounding answer to that is yes!" 3D chipsets, software and technology For interactive electronic entertainment "We are the only chip set that can guarantee it is going to playvirtually all of the games in the marketplace. If somebody wants to playgames, which after all is the only reason that you need 3D in yourcomputer, the only safe bet is 3Dfx."
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