Shares in ATI Technologies Inc. fell Monday after the video chip-maker warned third-quarter revenues will fall below estimates, a drop observers say reflects tough competition for sales of graphics cards to gaming enthusiasts.
ATI stock (TSX:ATY) fell $1.65, or nearly nine per cent, to $17.38 on the Toronto Stock Exchange after it said revenues for the quarter ended May 31 will total about $530 million, about five per cent below the low end of the revenue range it provided in March.
Analysts surveyed by Thomson Financial had forecast revenues of $584 million for the quarter.
ATI further said it expects revenues for the fourth quarter of its current fiscal year to be about $600 million - well below the $659.8 million expected by analysts.
ATI traditionally collects about 90 per cent of its sales from the PC market - providing graphics chips installed directly into a computer motherboard. However, it has been attempting to increase its presence in the consumer market - graphics and multimedia products for handheld communication devices, digital televisions, cellphone and game consoles.
ATI said revenues from DTV and handset communicators were "within expectations." However, the company said sales fell below previous estimates in the so-called "discrete market" for graphics cards that consumers can install into a desktop or laptop computer - the kinds of cards gamers purchase to improve the speed at which graphics are processed, resulting in a clearer, smoother picture.
It's not the first time ATI has missed analysts' expectations: in December, the company's stock dropped after disclosing that sales for its September-November period rose 30 per cent, which was below outside forecasts.
ATI's chairman, K.Y. Ho, is also currently embroiled in an insider trading case with the Ontario Securities Commission enforcement branch, that alleges that Ho and his wife, Betty, received a total of $7 million in benefits through transactions in April 2000 with the help of undisclosed material information.
The couple deny knowing at the time that ATI couldn't deliver expected sales and profitability for the fiscal third quarter of its 2000 financial year.
The cause of ATI's reduced revenue expectations is the intense competition for sales of graphics cards to gamers from Nvidia Corp. Nvidia's SLI system includes a motherboard that supports two connectors capable of having two of Nvidia's graphics cards plugged into them.
However, the impact Nvidia's graphics cards are having on ATI is surprising. It does not make economic sense that gamers would fork out money for two $500 graphics cards they could plug into a PC.
ATI has answered Nvidia's SLI technology with its dual-slot Radeon Xpress 200 CrossFire platform, aimed at "blistering-fast visuals" for "gaming and multimedia enthusiasts alike."
However, CrossFire will not be shipped until late July or early August, leaving no credible opportunity for this problem to be rectified before ATI's fiscal year ends on Aug. 31.