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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
November 12, 1998
DIAMOND MULTIMEDIA SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware
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(State or other jurisdiction of incorporation)
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0-25580 77-0390654
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(Commission File No.) (IRS Employer Identification Number)
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2880 Junction Avenue
San Jose, California 95134
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(Address of Principal Executive Offices)
(408) 325-7000
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(Registrant's Telephone Number, Including Area Code)
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Item 5. Other Events
On November 12, 1998, Diamond Multimedia Systems, Inc. (the "Registrant")
issued a press release, a copy of which is filed herewith as Exhibit 99.1.
Item 7. Financial Statements and Exhibits
(c) Exhibits
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99.1 Press release issued by the Registrant on November 12, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DIAMOND MULTIMEDIA SYSTEMS, INC.
Dated: November 16, 1998 By: /s/ James M. Walker
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James M. Walker
Senior Vice President and
Chief Financial Officer
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DIAMOND MULTIMEDIA SYSTEMS, INC.
CURRENT REPORT ON FORM 8-K
INDEX TO EXHIBITS
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Exhibit No. Description
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99.1 Press release issued by the Registrant on November 12, 1998.
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[Diamond Multimedia Systems, Inc. Letterhead]
FOR IMMEDIATE RELEASE
AT DIAMOND MULTIMEDIA AT THE FINANCIAL RELATIONS BOARD
At Diamond Multimedia: Lise Needham (general information)
James M. Walker, Sr. VP, CFO Renee Sarrail (analyst contact)
(408) 325-7333 (415) 986-1591
Ken Wirt, VP Marketing
(408) 325-7376
DIAMOND MULTMEDIA ANNOUNCES RESTRUCTURING
REDEPLOYING RESOURCES TO MORE PROPRIETARY PRODUCT LINES
SAN JOSE, CALIF. -- NOVEMBER 12, 1998 -- Diamond Multimedia Systems, Inc.
(Nasdaq: DIMD), a leader in interactive multimedia and PC entertainment, today
announced plans to implement a cost reduction program in its base business,
including a reduction in force of approximately 20% of its combined full time
and temporary work force. In addition, several other cost reduction steps are
being taken, including the elimination of a number of low margin product lines,
the closing of several small offices, transition to an offshore turn-key
manufacturing model and further strengthening of both in-house and channel
inventory controls. The Company expects that the cost reduction actions will
result in a one-time charge of approximately $17 - $19 million in the fourth
quarter.
"At the end of the third quarter, we announced the implementation of a
short-cycle inventory model as a first step toward reducing our inventory cost
structure," said William J. Schroeder, president and chief executive officer.
"While we believe this step is in our long-term business interests, we concluded
that further changes across the company were necessary to reduce our overall
operating cost structure while still maintaining appropriate resources to
provide excellent service to our customers and grow new product categories. We
examined our overall business model and made a number of difficult decisions
with three primary goals in mind. First, we want to significantly change the
model for our current base graphics and modem lines of business to maximize
profit and cash flow potential and reduce risk. Second, we want to keep our
operating expense levels as low as possible, without cutting into essential
resources, to provide room to invest in new, more attractive lines of business.
Third, we want to focus the Company on higher margin and more proprietary
product lines. In this regard, promising new product lines in which we are
currently investing include our line of home networking products, marketed under
the HomeFree brand, and our portable Internet music player, the Rio. Further, as
announced earlier today, we are working with IBM on an exclusive basis to bring
their professional graphics architecture, developed for the UNIX workstation
market, to the Windows NT market.
"With those three goals in mind, the Company is taking the following steps:
1. We are reorganizing several areas of the Company and will eliminate
approximately 120
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full time positions and 60 temporary positions. Job reductions will come
from across all departments and all geographic regions, although the
heaviest concentration will be in the operations area as we progress to a
more fully turn-key model.
2. We are increasing our focus on controlling channel inventory levels.
Because our stated goal is to have no more than four weeks of inventory in
the channel, we have adopted an accounting policy to reserve all gross
margins on any inventory shipped into the channel that exceeds four weeks
of supply.
3. Subject to the terms and conditions of our authorized distributor and
retailer contracts and in conjunction with our goal of limiting inventory
in the channel to four weeks, we will work with our channel customers to
reduce our exposure to price protection risk.
4. We will focus our development and marketing resources on a limited number
of architectures and suppliers.
5. We have opened a logisitics center in Asia, closer to our third party
manufacturing partners, with a goal to have all of our volume product lines
in full turn-key mode by the first quarter of 1999. The focus of our U.S.
Logistics Center will be narrowed to new product launch plus packaging and
distribution for the Americas.
"We believe that the above steps, along with the introduction of several new,
more proprietary products, including Rio, HomeFree and our new Fire GL
professional graphics products based on the IBM architecture, will return us to
a more stable, predictable and profitable business model," Schroeder concluded.
"While we believe that the above steps are necessary, they will impact our
fourth quarter financial performance," said James M. Walker, senior vice
president and chief financial officer. "In addition to the charge mentioned
above, we expect to complete our valuation analysis of the Micronics acquisition
which, as we previously announced, will result in a charge of approximately $5 -
$7 million in the fourth quarter for in process R & D. On a forward-looking
operating basis, however, we believe the above steps should result in improved
gross margin and reduced on-going operating expense levels."
ABOUT DIAMOND MULTIMEDIA
Diamond Multimedia is driving the interactive multimedia market by providing
advanced solutions for home, business and professional desktop computer users,
enabling them to create, access and experience compelling new media content from
their desktops and through the Internet. Diamond accelerates multimedia from the
Internet to the user with products that include the Stealth and Viper(R) series
of media accelerators, the Monster series of entertainment 3D and sound
accelerators, the Fire series of professional 3D accelerators, the Micronics
series of system boards, the Supra(R) series of modems, and the HomeFree line of
home networking products. Diamond's common stock is traded on the Nasdaq Stock
Market under the symbol DIMD, and its web site address is www.diamondmm.com.
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The above statements concerning future results, and in particular the statements
regarding revenues from new product launches, improved control of inventory,
higher inventory turns, higher margins, new product categories, and improved
profitability constitute forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to a number of risks and uncertainties, which could cause
actual results to differ materially from those projected. Among the factors that
could cause actual results to differ materially are the following: business
conditions and growth in the graphics accelerator and PC multimedia market, the
modem market, the home networking market, the Internet appliance market, the
professional graphics market and the general economy, the volume and timing of
orders received during the period, the timing of new product introductions by
the Company and its competitors, the Company's ability to reduce channel
inventories and minimize price protection exposures, product line maturation,
competitive factors, such as rival chipset designs and pricing pressures, the
availability of third-party components products at reasonable prices, inventory
risks due to shifts in market demand and/or price erosion of purchased
components, changes in product mix, distribution channels, and costs associated
with the development, manufacture and market introduction of new products.
Additional risks are detailed in the Company's filings with the Securities and
Exchange Commission, including its reports on Form 10-K filed on March 24, 1998
and the most recent 10-Q filed on August 14, 1998. The Company may, from time to
time, make additional written and oral forward-looking statements, including
statements contained in the Company's filings with the Securities and Exchange
Commission and its reports to shareholders. The Company does not undertake to
update any forward-looking statement that may be made from time to time by or on
behalf of the Company. Readers should carefully review the risk factors
described in the documents the Company files from time to time with the
Securities and Exchange Commission.
