StockTalk:
TMF Interview With 3Dfx Interactive CEO Greg Ballard
With Yi-Hsin Chang (TMF Puck)

September 17, 1998

Part 2 of 3

TMF: How much do you think Banshee will eat into the sales of Voodoo2?

Ballard: It won't eat into it at all in OEM because they exist in different levels. Voodoo2 is a very high-end choice for OEMs, and Banshee is also able to go into OEMs but thought of as more of a mainstream choice. At retail, frankly, I don't think it's going to eat into it too much because we've been very careful to explain that Voodoo2 is still the best choice for the active gamer. Because it has dual pressure mapping it can do multiple textures, it will always be the best choice for somebody who plays games like Quake and Unreal and some of the games that are heavily dependent upon multiple texturing.

For those people who are computer enthusiasts or who just want to have a really state-of-the-art Windows accelerator with great 2D and Voodoo compatible 3D that's also at the high end of the scale, then Banshee is the perfect choice. We think that the groups segment themselves fairly easily and well. Voodoo2 was never designed for the masses, and Banshee is.

TMF: Does your outlook for the fourth quarter remain the same, or are you expecting either a slowdown or a pickup from the third quarter?

"If we make decisions today that keep us from being number one in '99 and the year 2000, we will have saved millions and sacrificed billions."

TMF: I was looking at your 10-Q from a year ago and 10-K from last year. There wasn't any mention of a "seasonal slowdown" of any sort. Is this something you're discovering as you're maturing? Is this something that you'll have to address from now on? Ballard: It will definitely be a pickup from the third quarter. I'm very comfortable in saying that. We'll probably not achieve the revenue levels that had originally been projected by the analysts for our fourth quarter, but I think that's a function of the fact that both Banshee and Voodoo2 are in the marketplace at the same time. So we're comfortable with the estimate that's come out in the last couple of days for the fourth quarter, and they show us increasing our sales fairly substantial in the fourth quarter over the third quarter.

TMF: How do you plan to remain profitable amid heavy competition? Are you exploring any innovative ways of increasing sales and market share?

Ballard: The old-fashioned way of staying profitable: You control your expenses. But in our businesses right now, the key is to grow revenue side. The temptation when you have a quarter like we've had in the third quarter is to cut your expenses everywhere, to go in and try and find savings in R&D and cut back on marketing dollars. We've done a little bit of that, but we've really resisted the temptation because we think this is a temporary setback, and, in fact, what we really think the battle is for right now is 1999.

If we were to cut back on our R&D, it might improve this quarter, it might improve it next quarter but I guarantee you in the third or fourth quarter of next year we would see a significant impact on our profitability and our management. Right now we believe that we're chasing a multibillion dollar opportunity here, and if we have a temporary setback in profitability in our third quarter, I don't want to take steps that endanger the long-term nature of this business.

You know, we've sometimes been criticized -- I read the message boards like everybody else does -- for not responding more aggressively to the short-term setbacks that we've had on our stock price. But for a relatively young guy, I'm still a predominantly old-fashioned person, and I really do believe that you run a company for the long run. I think it's especially true with this 3D opportunity that we're faced with right now because the opportunity, to be honest with you, in the third, fourth quarter of 1998 absolutely pales by comparison to the opportunity in 1999, in the year 2000. If we make decisions today that keep us from being number one in '99 and the year 2000, we will have saved millions and sacrificed billions. I just think that's not the way that the shareholders, if they had the chance to take a throw, would want me to behave.

"The product road map for this company is extremely exciting, very aggressive and guarantees us dominance."

TMF: Is there a Voodoo3 in the works or some other new product that we can expect any time soon?

Ballard: Well, I will tell you this: As excited as I am about our current products, our future products make me shiver with excitement. We have the most exciting, the most aggressive road map in the business, and we know more or less where our competitors are. And over the course of the next year we believe that the distance between us in performance will increase rather than decrease. So without commenting on the specifics of whether there is a Voodoo3 or a Banshee2 or whatever, I will say that the product road map for this company is extremely exciting, very aggressive and guarantees us dominance.

TMF: Have you considered publishing your road map so your shareholders and investors know where you're headed and your competitors won't be able to use that uncertainty against you?

Ballard: The problem with doing that is that you always introduce the element of uncertainty into the consumer when you do that. If we told you that we had a big product coming out -- I'm not saying we do -- but if we had one coming out in three months, then the person sitting there thinking about buying a Banshee might hesitate and say, well, maybe I should wait another month or two. It actually has less to do with our competitors because the fact of the matter is our competitors know our road map almost as well as we do. That's just the nature of this business.

The real reason why we don't disclose our road map more actively is because we're such a heavily retail-based company. Now, some of our competitors don't care about retail. They're not selling to the gamers, they're not selling to the retail computer enthusiasts. Their business is with the OEMs, and the OEMs have to buy on a particular cycle so they can't afford to wait three months. But consumers really can, and so like almost all consumer products companies, we are very careful in how we talk about our next-generation products for fear that we will have created a disincentive for people to buy immediately.

So what we tend to tell people instead is, look at our track record. There's never been a time where we have failed to have the performance leader in the marketplace. There's never been a time where we have been late publicly in introducing a product. Internally we may have missed some of our milestones, but publicly we've never made a statement in which we have not delivered, and we've always delivered to the performance specifications that we've set.

Now, some of our leading competitors have announced products that sound great on paper, and the best example of that is nVidia. They announced a product that everybody said was going to be a huge, huge Voodoo chip killer, as a matter of fact, it was going to be better than a Voodoo2 SLI. Instead the product that's out in the market right now is substantially lower in performance than what they originally claimed.

So we can announce our road map, but to me the issue is the marketplace -- are the analysts, is the press going to hold people accountable as to what they say they're going to do? And, in fact, we have delivered consistently to what we said we were going to deliver, and we will continue to do so.

TMF: You mentioned a big marketing and branding effort in the second half when we last talked in June. When do you plan to launch this, what will it entail and how much will it cost?

Ballard: Well, I can't give you the details of the cost, but I will tell you that it will start hitting in the October/November timeframe, and it will be extensive. It's actually a very nice theme rallying around the power of our technology. It will emphasize Voodoo2 with some branding impact on Voodoo Banshee. We continue to believe that in retail, Voodoo2 can be the strongest selling product for us. Voodoo Banshee will do quite well as well. Voodoo Banshee will be carrying its own momentum. You'll start seeing them [ads] in the October/November timeframe.

TMF: So will this be television ads, magazine ads?

Ballard: We have not yet disclosed exactly what we're going to do. The chances are that we will not do television in the immediate future.

Part 3

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