Letter from STB

(This is a letter from STB Systems in reference to The Richter Scale column on the death of the graphics board industry, published on 9/17/96).

To the Editor:

Reading the Richter Scale in the September 17th issue of the PCGR brought to mind a cable that Mark Twain once sent to the Associate Press. It read; “The reports of my death have been greatly exaggerated.”

Under the banner of “PC Graphics Board Trauma,” Jake delivers a spirited indictment of the PC graphics board business. With this rebuttal, I will attempt to refute the “death spiral” theory he advances and shed some additional light on this topic.

The column details the events that have conspired to rob Jake of his faith in our business. All of which, at first glance, could seem quite menacing. The first of these is the presence of more large stable chip companies in business today. Although the column provides sound business advice to these companies about being trusted and developing “sexy” products, it never really explains how the successes of S3, Cirrus Logic, and Tseng should be adversely effecting the add-in board industry. Intuitively, one would expect larger silicon developers to deliver superior products resulting in stronger board companies.

The second proposition, cat-like in its ability to survive, is that all of the system vendors will opt to put graphics on the motherboard. We actually see more evidence against this than ever before as the incremental cost of using add-in cards continues to decline and OEMs place additional importance on maintaining flexibility in a market with ever shortening product life-cycles.

Another of the column’s observations is that consolidation among PC manufacturers is continuing in a growth market. Short of these companies gaining monopolistic power, this may actually be viewed as a benefit to add-in board manufacturers. It allows us to provide greater support resources to a smaller number of larger customers. It also allows us to be more efficient logistically and assume less credit risk.

All of which have the potential to contribute to profitability. The Network Computer may or may not be the next great wave. There are many sound arguments on both sides (and some not so sound). Regardless of the success of the NC, growth in the mainstream personal computer business is healthy and the majority of forecasts available predict it will stay that way. Witness the current share prices of companies such as Compaq Computer, Gateway 2000, and Dell Computer, all of which are within percentage points of their 52 week highs.

Ironically, the column offers as its only real evidence, “…the recent declines in the stock prices of some of the leading graphics board vendors.” It is true that a couple of high profile companies have taken a beating lately. However, Wall Street’s disappointments with these companies came primarily as the result of flawed inventory management systems, failed product strategies, and/or weak operational controls. On the other side of the coin, the share price of the world’s second largest graphics board company (NASD: STBI) has more than doubled this year. We suspect that Matrox (privately held) is also enjoying a profitable year.

As a computer industry marketer (read this cynical and paranoid), I always prefer to seek out and review empirical evidence from trusted sources before reaching a conclusion. With the foregoing in mind, let’s take a look at some additional market data.

First, International Data Corporation provides us with a well researched and comprehensive examination of the add-in board market in its, “Desktop and Graphics Multimedia, Intel VGA Add-In Board Market Review” for 1996. In this report, IDC forecasts a robust 13% compounded annual growth rate through the year 2,000 for the add-in board business.

Next, we head out to the street where we find one of the nation’s largest computer superstore chains recording a nearly 300% growth in sales from the previous year in the add-in video card category.

Finally, our most beloved and trusted source for industry information, “PC Graphics Hardware Market Report” recently reported an almost inexplicable 34% quarterly growth in the add-in board business.

So, don’t send for Dr. Kevorkian just yet. We, along with leading analysts and researchers, see an add-in board industry that is alive and flourishing. I hope I have helped Jake find some of his lost faith and provided additional insight on this subject.

Very truly yours,

John Gunn
Director of Marketing
STB Systems