The End Of An Era: 3dfx Selling Assets & Shutting Down

Itis a sad day for Mac gamers and PC gamers alike. 3dfx announced today that they would be selling their assets to NVIDIA and effectively shutting their doors. The sale of their assets will reportedly fetch US$112 million. The company cited market dynamics and other problems that forced the company to make the move. Late last month, the company surprised the industry with the announcement that they would no longer be manufacturing their own boards and would shut down their manufacturing facilities.

The company chose to pursue Full Screen Anti-Aliasing (FSAA) instead of the fastest frame rates, a move that cost them major market share. While 3dfx made a great argument for the benefits of FSAA, PC gamers were much more focused on getting the fastest frame rates, and NVIDIA was able to scoop up that demand. The GeForce and GeForce 2 product lines propelled NVIDIA past 3dfx and has threatened ATIis long time market share lead. The loss of market share was too much for 3dfx to overcome. According to 3dfx:

In an effort to protect its creditors and maximize shareholder value, 3dfx Interactive, Inc. announced today that it will substantially reduce all of its workforce as part of an initiative to significantly reduce expenses. In addition, the company said its Board of Directors will recommend to its shareholders that they approve the sale of most of the companyis assets to NVIDIA Corporation as outlined in a definitive agreement between the companies that was signed today, and also approve a plan to dissolve the company following completion of the asset sale.

"After aggressively pursuing a wide range of options that take into consideration the interests of our creditors, our shareholders, our employees and our customers," said Alex Leupp, president and CEO, 3dfx Interactive Inc., "we strongly believe that to reduce expenses, sell our assets and dissolve the company provides the highest return to our creditors, shareholders, and employees."

"We expect that the combined technologies of 3dfx and NVIDIA will continue the legacy that 3dfx began in 1994, " Leupp continued. "NVIDIA is the number one supplier of graphics technology to the OEM market. With the addition of 3dfxis high-quality technology that leads the retail market, we believe the combination of the two will result in even greater PC graphics leadership."

The target market for 3dfx has historically been the retail graphics market, a market that 3dfx has dominated since 1998. The segment represents approximately 10 percent of the overall graphics market, and is subject to extreme volatility and unpredictability. Specifically, high inventory expenses, decreasing margins, and slowing demand have done irreparable harm to 3dfx. While the company had recently announced plans to expand its business into additional markets, it has been unable to invest in its expansion under current business and financial market conditions.

The company announced that it plans to substantially reduce its costs in order to best conserve its resources. These cost-cutting measures include a reduction of substantially all of the companyis workforce by early next year, reduction in office space, and other efforts to reduce non-essential expenses. 3dfx is also providing manufacturing services to third parties to help cover the overhead associated with its Juarez, Mexico manufacturing facility pending the sale of that facility. In the meantime, 3dfx expects to continue to maintain an adequate workforce to support its customers.

The Board of Directors, with the assistance of the companyis advisors, has undergone exhaustive efforts to explore many alternatives including raising new financing to continue its operations and exploring various strategic alliances and business combinations. It has concluded that the best interests of the creditors and shareholders will be served by selling its assets to NVIDIA Corporation, as outlined in a definitive agreement between the companies signed today, and also to approve the plan for dissolution.

Under the terms of the agreement signed today, NVIDIA has agreed to pay a value of $112 million ($70 million cash and one million shares of registered NVIDIA common stock as value based on NVIDIAis closing price on December 14, 2000).

Upon signing the definitive agreement, NVIDIA has agreed to loan to 3dfx $15 million for working capital, which will be credited to the cash portion of the purchase price. In addition, 3dfx and NVIDIA have agreed to stay the patent infringement litigation between them through closing of the transaction, at which time the suits will be jointly dismissed with prejudice. Assets included in the transaction include all 3dfx intellectual property and chip inventory as well as certain other assets. In addition, upon signing the definitive agreement, 3dfx transferred to NVIDIA the "3dfx" and "Voodoo" brand names and trademarks.

The closing of the transaction is subject to a variety of conditions, including 3dfx shareholder approval, receipt of governmental approvals including the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and receipt of all necessary consents of third parties. After closing the NVIDIA asset sale and upon 3dfx shareholder approval, 3dfx will proceed to pay or adequately provide for its debts and liabilities. 3dfx will thereafter distribute its remaining assets to its shareholders in one or more distributions.

You can find a link to the companyis conference call that held today.