1999 - ReplayTV: Customer Support Home

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1999
ANNUAL
REPORT
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sight
sound
speed
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“ The
CHOICES AND OPPORTUNITIES
in front of us are
unprecedented and we
are E X C I T E D by our
”
prospects for the future.
S3 INC.
KEN
POTASHNER
CHIEF EXECUTIVE OFFICER
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TO OUR SHAREHOLDERS
1999
was a tremendously exciting year for S3. The year
started with the company in a very difficult position
having lost its technology leadership position and having its long-term
viability challenged. Through a strong focus on execution, we delivered
innovative products, made key acquisitions and exited the year
positioned for growth. The company has diversified itself from a
provider of graphics accelerator components to a provider of
Internet appliances. The choices and opportunities in front of us
are unprecedented and we are excited by our prospects for the future.
Key objectives for 1999 were as follows:
• Introduce the Savage4, Savage/MX and Savage/IX products to
regain OEM presence in the desktop and notebook PC markets
• Strengthen our intellectual property portfolio through
negotiations with Intel
• Launch our integrated technology strategy with VIA Technologies
• Begin participation in high-growth, high-value technology
markets outside of the graphics arena
We feel that we have met all the key objectives for 1999 and have
set forth full-year 2000 objectives designed to ensure a leadership
position as a provider of Internet appliances.
Key objectives for full-year 2000 are as follows:
• Sustain market leadership positions for our Rio digital audio
players and our HomeFree home networking solutions
• Substantially proliferate our product offerings within the
Internet appliance markets
• Align major co-marketing relationships with industry
leaders to further leverage our technologies
• Achieve aggressive growth targets for our Internet
appliance opportunities
FINANCIAL PERFORMANCE
In fiscal 1999, which ended on December 31, 1999, total sales rose
over 50% to $352.6 million. This compares with $224.6 million for
1998. Net loss for 1999 was $30.8 million compared to a net loss of
$113.2 million for 1998. S3’s operating results for 1999 include
Diamond’s results from its September 1999 acquisition date onward.
• Acquisition of Diamond Multimedia enabling us to benefit from
ownership of the industry-leading Rio digital audio players
• Our USC foundry venture announced its intention to merge with
United Microelectronics Corporation and, as a result of this merger,
our USC investment is now valued at approximately $1 billion
• Joint venture with VIA Technologies providing us with leadership
integrated technologies
• Spin off of RioPort.com and signing of partnerships with MTV
Networks Online, Vulcan Ventures and Oak Investment Partners
positioning us for substantial future financial gains
OUTLOOK
S3 enters into a new phase in its history, having accumulated several
of the key pieces necessary to pursue an industry leadership position
as a provider of Internet appliances. It is our intention to take advantage
of the lead we’ve achieved with our Rio300 and Rio500 players and
offer a comprehensive line of products targeting digital media markets
including home, mobile and automotive applications.
We continue to invest significant resources internally as well as externally
through third party partnerships, alignments and projects. We have
formed an equity position and strategic alignment with Intellon
Corporation, which will enable us to apply power line technology
to our products and allow consumers to use the electrical wiring of
their home to move information. This will complement our wireless
and phone line home networking solutions.
We have partnered with Transmeta to bring forth the industry’s first
Crusoe-powered Internet appliance, which we believe will
be a tremendously exciting product for the company and will
facilitate a broad array of strategic partnerships.
Combining a strong product and technology portfolio with
a solid cash and equity base, S3 is well positioned
to achieve rapid growth in the Internet
appliance market.
I want to express my appreciation
to our shareholders, employees,
customers and partners for their
loyalty and support.
1999 HIGHLIGHTS
1999 was a very productive year for S3 as we reemerged as a leader in
the graphics sector and also repositioned the company as a leader in
Internet appliances. Key highlights for the year included:
• Successful launch of the Savage4, Savage/MX and Savage/IX
products enabling us to reengage with major PC OEMs
KEN POTASHNER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
S3 INC.
ANNUAL REPORT 1999
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1999 MILESTONES
DECEMBER 1999
JUNE 1999
• S3 announces that VIA Technologies will invest $145 million in
S3, increasing VIA’s equity position in S3 to 14.9% and further
strengthening the partnership and collaboration between the
two companies
• S3 announces Mobile Savage/MX and Mobile Savage/IX,
revolutionizing notebook PC graphics with the industry’s
first “desktop-equivalent” mobile accelerators. Major PC
manufacturers, such as Toshiba, NEC and MicronPC.com
follow with first Mobile Savage notebooks
• S3 announces acquisition of the assets of Number Nine Visual
Technology Corporation. The acquisition allows S3 to consolidate
its graphics business with IBM and add highly skilled hardware
and software engineering resources
• S3 partners with Covad Communications to provide consumers
with one-stop shopping for high-speed Internet access (ADSL)
and residential gateway hardware
NOVEMBER 1999
• S3 and VIA finalize joint venture
to bring high-performance
integrated graphics and core logic
chipsets to the volume OEM
desktop and notebook PC markets
In September of 1999, S3 Incorporated
acquired Diamond Multimedia Systems
OCTOBER 1999
• S3 creates equity partnership for RioPort.com with Vulcan Ventures,
Oak Investment Partners and MTV Networks Online, with S3
holding a 41% equity stake. RioPort to explore IPO in 2000
SEPTEMBER 1999
• United Semiconductor Corporation, a semiconductor manufacturing facility in which S3 holds an equity interest, enters a
merger agreement with United Microelectronics Corporation.
As a result of the merger, in February 2000, S3 receives
252 million shares of United Semiconductor Corporation.
These shares are currently valued at about $1 billion
FEBRUARY 1999
• S3 announces Savage4. Widespread industry adoption follows,
with over 50 system and add-in card manufacturers including
Compaq, IBM, Packard-Bell NEC and Diamond Multimedia
selling Savage4-based products worldwide
JANUARY 1999
• S3 enters a patent cross-licensing agreement with
Intel Corporation, marking another
milestone in S3’s strategy to
regain PC graphics leadership
and penetrate new markets
In June of 1999, S3 Incorporated
announced its mobile Savage
family of products.
• S3 acquires Diamond Multimedia Systems, Inc., entering the
industry for Internet appliances, broadband communications,
home networking and complete graphics and audio solutions
• Diamond launches the second-generation Rio 500 portable
Internet music player and the industry’s first USB
home networking product with cross-platform support
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“
1999 was a tremendously
exciting year for S3. Through
A STRONG FOCUS
on execution, we
delivered innovative products, made
key acquisitions and exited the year
”
POSITIONED FOR GROWTH.
S3 INC.
KEN
POTASHNER
CHIEF EXECUTIVE OFFICER
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“ S3 enters into a
NEW PHASE IN ITS HISTORY,
having accumulated several
key pieces
necessary to pursue an
industry leadership position as a
”
provider of internet appliances.
S3 INC.
KEN
POTASHNER
CHIEF EXECUTIVE OFFICER
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S3’S BUSINESS FOCUS
S3’S OTHER ASSETS
S3 Incorporated designs, develops, manufactures and
distributes Internet appliances, multimedia products and
interconnectivity devices.
In addition to the inherent assets of its three distinct businesses,
S3 also holds other substantial assets, including a 41% stake in
RioPort.com Inc., 252 million shares of United Microelectronics
Corporation currently valued at approximately $1 billion, a strong
intellectual property portfolio and an extensive customer base.
S3’s Diamond Multimedia Communications Division is the
industry’s largest supplier of home networking cards and digital
audio players, as well as the industry’s second largest supplier
of branded modems. Diamond Multimedia Communications
is also focused on bringing to
market a wide range of new
Internet appliances.
Product brands within
the Communications
division include the
HomeFree line of
home networking
and DSL gateway
products, the revolutionary Rio family of
portable digital audio
players and the Supra
line of modems.
In 1999, the Rio family continued to evolve
with the second-generation Rio 500
handheld player.
S3’s Multimedia Division is an industry-leading provider of notebook graphics chips, graphics add-in boards and audio add-in
boards for the OEM, channel and retail markets. In addition, S3’s
Multimedia Division has entered into a partnership with VIA
Technologies to produce a family of highly integrated graphics
and core logic chips for the value segment of the desktop and
notebook OEM PC markets.
Product brands within the Multimedia division include the
Savage family of desktop and notebook graphics chips, the
Viper, Stealth and SpeedStar series of graphics boards and
the Monster Sound and Sonic Impact series of audio boards.
S3’s Professional Graphics Division designs, develops and
markets graphics solutions for the Windows NT and Linux
workstation markets. Based on exclusive access to IBM’s
high-end graphics technology, S3’s Fire GL line of add-in
boards establishes S3 as a leading provider of OpenGL
hardware accelerators.
Formerly a subsidiary of S3, Rioport.com has since been
established as an independent company through an equity
partnership formed by S3, Vulcan Ventures, Oak Investment
Partners and MTV Networks Online. Pursuing an Initial
Public Offering strategy, RioPort.com is focused on becoming
the dominant provider of B2B digital audio services as well as
a platform for the distribution and download of digital music
and spoken word audio. S3 remains RioPort’s largest investor
with a 41% equity stake.
In 1995, S3 entered into a joint foundry venture with
United Microelectronics Corporation (UMC) to build
United Semiconductor Corporation (USC), a leading-edge
manufacturing facility in Taiwan, R.O.C. In addition to
providing S3 with world-class manufacturing capacity for the
past five years, this equity investment has also resulted in a
financial windfall for the company as S3’s stake in USC is to
be converted into 252 million shares of UMC stock worth
approximately $1 billion. Adding to its UMC holdings, S3 entered
2000 with nearly $105 million worth of cash and investments
and added another $145 million through a recently completed sale
of its stock to VIA Technologies. With a strong balance sheet, S3
is well positioned to continue investing in its high-growth
businesses in 2000.
Another key asset for S3 is the growing strength of its intellectual
property portfolio. Differentiating itself from its competitors,
S3 is a technology-rich company that has spent ten years
building its IP portfolio through internal development,
purchases and third party licensing agreements with Intel,
Cirrus Logic and Nvidia. Moving forward, this strong IP
portfolio should serve S3 well as it continues to grow and
expand in both new and existing markets.
S3 maintains an extensive customer base consisting of the most
notable PC manufacturers, distributors and retailers worldwide,
including Dell, Compaq, IBM, MicronPC.com, NEC, Packard-Bell,
Toshiba, Fujitsu, Best Buy, Circuit City, Virgin Megastores,
CompUSA, Electronics Boutique, Fry’s Electronics, Merisel and
Tech Data among others. This extensive, high profile customer
base is key to S3’s current and future success in the PC and
consumer/Internet appliance markets.
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CURRENT & FUTURE PRODUCT PLANS
RIO DIGITAL AUDIO PLAYERS
Diamond Multimedia redefined consumer audio with the rollout
of its revolutionary Rio 300, the industry’s first handheld digital
audio player. The Rio family continued to evolve with the secondgeneration Rio 500 handheld player. One of 1999’s hottest technology products, the PC and Mac-compatible Rio 500 stores and
plays up to two hours of music with higher fidelity, while giving
consumers more freedom to manage their content and providing
a USB connection for blazing download speeds. S3’s Diamond
Multimedia Communications Division is set to soon announce its
third generation handheld Rio players, giving it a significant time
to market advantage as its third generation Rio players will now
compete against other companies’ first
generation offerings. As a result, Rio
currently holds a majority share
of the handheld digital audio
player market. In addition to
its handheld Rio devices,
S3’s Diamond Multimedia
Communications Division
is also committed to
building a wide range
of new products in 2000
that move the digital audio
experience to every place
people enjoy music.
S3’s forthcoming Internet appliance,
codenamed DayTripper, establishes
a new platform for Internet users on the go.
HOMEFREE HOME NETWORKING AND DSL RESIDENTIAL
GATEWAY PRODUCTS
S3’s Diamond Multimedia-branded HomeFree family of products
allow consumers to network multiple PCs throughout their home
via phone lines or wireless technology to share Internet access,
content and peripheral devices, and to engage in multiple platform
applications such as head-to-head gaming. HomeFree Phoneline
USB allows for simple installation through a USB connection and
is the only cross-platform (Windows and Mac-compatible) home
networking product on the market. HomeFree Phoneline 10Mbps
provides consumers with faster speeds and more bandwidth, transferring data up to 10 times faster than current 1Mbps solutions.
In addition, the recently announced HomeFree ADSL Residential
Gateway acts as an interface between an external DSL service
provider and an internal HomeFree network, allowing consumers
to network their DSL connection throughout their entire
household. Through a partnership with Covad Communications,
the nations largest DSL service provider, S3’s Diamond Multimedia
Communications Division will tie the marketing and sales of its
HomeFree Phoneline and Residential Gateway products with
Covad’s services, providing consumers with the industry’s first
one-stop shopping DSL solution. Moving forward, S3’s Diamond
Multimedia intends to expand the leadership position of its
HomeFree products through advances in broadband communications
and home networking technologies. One such technology, power
line networking, enables consumers to use a home’s existing power
grid to network devices using conventional wall power plugs. S3
is pursuing this technology through an equity investment and
partnership with Intellon Corporation. Intellon’s recently
introduced PowerPacket technology enables power lines to
carry data reliably at speeds up to 11Mbps and is expected
to provide core technology for S3’s Diamond Multimedia
branded HomeFree power line products.
SUPRA MODEMS
Under the Diamond Multimedia brand, S3 markets
a family of award-winning dial-up fax/modems
that include its highly successful SupraExpress and
SupraMax series of products. The SupraExpress series
of products are external fax/modem solutions that
connect via a serial cable or USB interface, support
the 56K ITU standard (V.90) to deliver fast, reliable
connections and are PC and/or Mac compatible. The SupraMax
series of products are internal fax/modem solutions that connect
via the PCI or ISA interface for legacy configurations, while
providing an upgraded 56K connection.
INTERNET APPLIANCES
A rapidly emerging market with high-growth potential, S3 is
pursuing opportunities in the Internet appliance market through
a diverse range of products that combine S3’s expertise in home
networking, digital audio, consumer design and ease of use with
core technology from industry leaders such as Transmeta,
Cirrus Logic, Ravisent and others. In addition to its Rio and
HomeFree products, S3 has also announced a product, codenamed
DayTripper, that uses Transmeta’s Crusoe processor. Running
mobile Linux, weighing two and a half pounds and featuring a
10.4” LCD display, USB and wireless Internet connections, a
hard disk, a touch activated interface and an 8-10 hour battery
life, S3’s DayTripper is designed for web surfing, portable
multimedia, electronic books, streaming audio and video
and basic productivity applications. The DayTripper is expected to
formerly launch in mid-year with initial versions geared toward
vertical application usage and follow-up versions designed for retail.
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“
Page 13
The company has diversified
itself from a provider of graphics accelerator
components to a
PROVIDER
of
”
Internet appliances.
S3 INC.
KEN
POTASHNER
CHIEF EXECUTIVE OFFICER
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“ 1999 was a very
P R O D U C T I V E year
for S3 as we reemerged
as a leader in the
graphics sector.”
S3 INC.
KEN
POTASHNER
CHIEF EXECUTIVE OFFICER
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C U R R E N T & F U T U R E P R O D U C T P L A N S C O N T.
MOBILE SAVAGE GRAPHICS CHIPS
Based on S3’s Savage desktop architecture, the mobile Savage/MX
and mobile Savage/IX bring state-of-the-art 3D graphics acceleration
and digital video playback to the notebook PC market, allowing
users to run the same applications on their notebook as on their
desktop. The Savage/MX provides a high-performance, costeffective solution for desktop replacement notebooks, while the
Savage/IX features a unique integrated memory design supporting up
to 16MB - the most available on the market today – to provide an
ideal high-performance solution for thin and light notebook computers.
Providing higher performance than competing solutions, the mobile
Savage chips have been designed into multiple notebooks from
Toshiba, NEC and MicronPC.com, with several other top-10
manufacturers planning additional designs. Building on this
momentum, S3 plans to follow mobile Savage with the launch
of several new mobile products, including higher performance
products based on S3’s advanced graphics architectures.
S3-VIA INTEGRATED GRAPHICS/CORE LOGIC CHIPS
After forming an exclusive, multi-year joint venture, S3 and VIA
Technologies have begun launching a family of high-performance
integrated graphics and core logic chipsets for the volume OEM
desktop and notebook PC markets. S3 and VIA believe that there is a
substantial need in the volume OEM PC market for integrated products
that provide tremendous cost-savings without sacrificing performance.
Leveraging S3’s cutting-edge graphics and video technology and
VIA’s comprehensive chipset technology, S3 and VIA are focused
on exploiting this need and outperforming the rest of the industry
with higher performing, cost-competitive solutions. With the first joint
product scheduled to be in mass production in the first quarter of
2000, S3 and VIA have already begun work on next-generation designs
based on each company’s respective technology roadmaps. These nextgeneration designs include an integrated mobile chipset, a higher
performance integrated desktop chipset and several AMD K7 designs.
S3’S VIPER, STEALTH AND SPEEDSTAR BOARDS
Delivering a wide range of performance and functionality for PC
productivity, entertainment and gaming applications, S3’s Viper, Stealth
and SpeedStar products provide the industry’s most comprehensive
family of graphics add-in board solutions.
One of the best all-around graphics solution for the PC market at less
than $200, S3’s Diamond Viper II delivers great gaming performance on today’s hottest 3D games including Quake III: Arena and
Unreal Tournament. In addition, Viper II delivers stunning digital
video (DVD/DTV) and TV functionality for consumers and highresolution 2D imagery and flat panel support for home office
users. Extending the functionality of the Viper II, S3 recently
announced a newly designed low-profile Viper II DVI board with
AGP 4X support. Delivering Viper II levels of 3D and DVD
performance in a smaller design footprint, as well as comprehensive
DVI support for digital display technologies, the new Viper II board
provides OEMs with a graphics solution that meets the size
constraints of radically slimmer PC form factors.
Providing optimal price/performance, S3’s Diamond Stealth III S540
and Diamond Stealth III S540 Xtreme boards continue to have great
success in the volume retail and OEM PC markets, while S3’s
Diamond SpeedStar A55, SpeedStar A90 and SpeedStar A200 boards
are spearheading S3’s efforts to gain significant market share in the
reseller, integrator and white box channels. Based on multiple versions
of S3’s Savage4 and Trio3D graphics chips, these boards continue
to drive a substantial portion of S3’s graphics revenue.
S3 MONSTER SOUND AND SONIC IMPACT AUDIO CARDS
Based on silicon from ESS Technology, S3’s Monster Sound and
Sonic Impact boards deliver a wide range of audio solutions for the
retail and OEM markets. Featuring advanced 3D positional audio
technology and Quadraphonic HRTF-based “true” 4 speaker playback,
the Monster Sound MX400 provides high-quality audio for PC
gaming and music playback, while the Sonic Impact 100 offers a
lower cost, best-of-class sound solution for today’s PC consumers.
S3’S FIRE GL PROFESSIONAL GRAPHICS BOARDS
Based on IBM’s high-end graphics technology, S3’s Fire GL1
provides advanced performance in 2D and 3D NT workstation
graphics, making it ideal for CAD/CAM and digital content
creation applications for Windows NT and Linux. Available
in both PCI and AGP versions, the Diamond Fire GL1 comes
with 32MB of memory and includes a full suite of software drivers
for the leading work-station graphics applications. A highly
successful product, the
Fire GL1 will be
complemented by
a new family
of higher
performing
Fire GL
products for
release later
this year.
S3’s low-profile Viper II DVI board
powers Intel’s Cape Falcon Concept PC.
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FINANCIAL HIGHLIGHTS
REVENUES
- in millions of dollars
439
NET INCOME
- in millions of dollars
436
42
35
352
316
225
140
9
6
(113) (30.78)
94
EARNINGS
95
96
97
98
99
- per share in dollars
94
RESEARCH
95
96
97
98
99
- and development in millions of dollars
.81
79
79
73
.75
63
42
.17
.14
18
(2.22) (.52)
94
95
96
97
98
99
94
95
96
97
98
99
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“
Combining a STRONG PRODUCT
and technology portfolio with a solid
cash and equity base, S3 is well
positioned to achieve rapid growth in
”
the INTERNET APPLIANCE MARKET.
S3 INC.
KEN
POTASHNER
CHIEF EXECUTIVE OFFICER
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“
I want to express my
APPRECIATION to our
shareholders, employees,
customers and partners for
”
their loyalty and support.
S3 INC.
KEN
POTASHNER
CHIEF EXECUTIVE OFFICER
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C O R P O R AT E I N F O
BOARD OF DIRECTORS
CORPORATE HEADQUARTERS
Kenneth F. Potashner
CHAIRMAN, PRESIDENT AND CHIEF
S3 INCORPORATED
EXECUTIVE OFFICER
2841 MISSION COLLEGE BOULEVARD
S3 INCORPORATED
SANTA CLARA, CALIFORNIA
Terry N. Holdt
CHAIRMAN, PRESIDENT
95054-1838
AND CHIEF EXECUTIVE OFFICER
ENTRIDIA CORPORATION
408.588.8000 PHONE
408.980.5444 FAX
WWW.S3.COM WEBSITE
William J. Schroeder
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HOLONTECH CORPORATION
S3 SALES OFFICES
DALLAS, TEXAS
Dr. Robert P. Lee
NORCROSS, GEORGIA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INXIGHT SOFTWARE, INC.
(A XEROX NEW ENTERPRISE COMPANY)
RESEARCH TRIANGLE PARK, NORTH CAROLINA
SANTA CLARA, CALIFORNIA
VANCOUVER, WASHINGTON
James T. Schraith
BEIJING, CHINA
EXECUTIVE VICE PRESIDENT, SALES AND MARKETING
QUANTUM CORPORATION
HONG KONG
Dr. Carmelo J. Santoro
SEOUL, KOREA
DIRECTOR
SINGAPORE
STARNBERG, GERMANY
S3 OFFICERS
Kenneth F. Potashner
CHAIRMAN, PRESIDENT AND CHIEF
TOKYO, JAPAN
EXECUTIVE OFFICER
Walter D. Amaral
SENIOR VICE PRESIDENT, FINANCE
TAIPEI, TAIWAN
WINNERSCH, UNITED KINGDOM
ANNUAL MEETING
CHIEF FINANCIAL OFFICER
Paul G. Franklin
PRESIDENT, MULTIMEDIA
PARIS, FRANCE
SAARBRUEKEN, GERMANY
THE ANNUAL MEETING WILL BE HELD
ON MAY 15TH, AT 9:00 A.M. AT
THE TECHMART
5201 GREAT AMERICA PARKWAY
SANTA CLARA, CALIFORNIA
DIVISION
Andrew L. Wolfe, Ph.D.
INVESTOR INFORMATION
VICE PRESIDENT
CHIEF TECHNICAL OFFICER
Claude Barathon
PRESIDENT, INTERNATIONAL
OPERATIONS
Steve A. Kennedy
SENIOR VICE PRESIDENT, WORLDWIDE
William R. Bidermann
SENIOR VICE PRESIDENT, ENGINEERING
SALES AND MARKETING
S3 INCORPORATED
INVESTOR RELATIONS
2841 MISSION COLLEGE BOULEVARD
SANTA CLARA, CALIFORNIA
95054-1838
408.588.8000 X8086 PHONE
408.980.5444 FAX
TRANSFER AGENT AND REGISTAR
GENERAL COUNSEL
BANKBOSTON, N.A.
C/O EQUISERVE
P.O. BOX 8040
BOSTON, MASSACHUSETTS
PILLSBURY, MADISON & SUTRO LLP
PALO ALTO, CALIFORNIA
02266-8040
781.575.3120 PHONE
HTTP://WWW.EQUISERVE.COM
COMMON STOCK
NASDAQ SYMBOL: SIII
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S3 INCORPORATED
2841 MISSION COLLEGE BLVD
SANTA CLARA CA 95054
408.588.8000
WWW.S3. COM
SCU # 3810-AR-00