STOCKREPORTS

S3 Incorporated

NASDAQ Symbol SIII In S&P SmallCap 600

Recent Price 10.75 52 Wk Range 22.50 - 9.38

Yield Nil 12-Mo. P/E 10.6

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) 5- Fair Value 15.50 Risk HIGH Earn/Div Rank NR
Technical Evaluation: BEARISH since 12/96 Rel. Strength Rank (1 Lowest - 99 Highest) 13 Insider Activity Neutral

Business Profile 23-JUN-97

The rapid spread of 486 and Pentium chip technologies, coupled with more powerful software packages, has created a need for high-performance graphic tools in both the desktop and portable computer markets. S3's technology has placed it in a leadership position to meet these end-user requirements and should fuel future growth. In September 1996, the company privately placed $103.5 million of 5.75% convertible notes due 2003 for net proceeds of about $100.2 million, which were use to fund S3's investment in a foundry joint venture with United Microelectronics Corp. and Alliance Semiconductor Corp., and for working capital and general corporate purposes. In 1997, the company plans to release several new products through the blending of consumer electronics and the PC platform in order to create more advanced multimedia tools.

Operation Review 23-JUN-97

Based on a preliminary report, net sales in 1996 rose 47%, reflecting strong market demand for the company's 64-bit Trio and ViRGE products. Gross margins narrowed slightly, and following a 51% rise in R&D expenditures and 46% higher SG&A costs, operating profit advanced 42%. With a 50% decline in net other income and after taxes at 35.0%, versus 36.2%, net income was up 37%, to $48,367,000 ($0.95 a share, on 8.3% more shares; $0.94 fully diluted), from $33,374,000 ($0.75; no dilution).

Stock Performance 03-JUL-97n

In the past 30 trading days, SIII's shares have increased 5%, compared to a 8% rise in the S&P 500. Average trading volume for the past five days was 1,137,950 shares, compared with the 40-day moving average of 1,470,037 shares.

Key Stock Statistics

Fiscal Year Ending Dec. 31

Dividend Data: No cash dividends have been paid. The company intends to retain earnings for use in the development of its business, and does not expect to pay cash dividends in the foreseeable future. Two-for-one stock splits were effected in October 1995 and December 1993.

Business Summary 23-JUN-97

As the personal computer continues to evolve into a graphics-oriented, interactive, real-time system, S3 Incorporated believes that demand for its graphics accelerators will grow. The company is a supplier of high-performance accelerator solutions for the graphical user interface environments created by Microsoft Windows, IBM OS/2 and other advanced personal computer (PC) operating systems. S3's integrated accelerator solutions relieve a computer's central processing unit of primary responsibility for graphics processing, and significantly improve the graphics performance of PCs.

The company was one of the pioneers in the graphics acceleration market; its first product, the 86C911 graphics accelerator chip, began shipping in volume in September 1991. Since that time, it has frequently upgraded its product offerings. In 1992, S3 introduced its second generation of products, a family of single-chip, DRAM and VRAM based graphics accelerators. In November 1993, it introduced its third generation of products, 64-bit graphics accelerators, which are also DRAM- and VRAM-based, but offer significant performance improvement over 32-bit products.

In 1994, S3 expanded its product offerings by introducing 64-bit multimedia accelerators, the Vision868 and Vision968. In addition, the company launched its Trio family of integrated graphics accelerators, addressing the need for high performance graphics in entry-level systems. In June 1995, S3 unveiled its Cooperative Accelerator Architecture (CAA) solution, the industry's first graphics, audio and MPEG (Motion Picture Expert's Group) standard solution designed to improve quality and affordability for multimedia on commercial and home desktop PCs. In November 1995, the company introduced its ViRGE family of 3D graphics and video acceleration products, which enables 3D graphics on mainstream PCs; and in December 1995, it unveiled its first Unified Memory Architecture product, the Trio64UV+ integrated graphics and video accelerator, which is designed to eliminate the need for a separate graphics memory.

R&D efforts are currently focused on high performance accelerator and related software products for new markets, such as real-time communications and mobile computing, and on enhanced versions of its current line of products, with an emphasis on 3D acceleration. Meanwhile, company products continue to gain acceptance from some of the PC industry's biggest names. In March 1997, S3 announced new design wins with Dell Computer, Hewlett-Packard and AST Computer. These companies will integrate S3's ViRGE and Trio products into their PC offerings.

Capitalization

Notes Payable: $14,400,000 (3/97).
Conv. Notes: $103,500,000 (3/97), conv. at $19.22 a sh.

Curr. Ratio	3.6	2.6	4.0	3.7	1.9	1.5	NA	NA	NA	NA
% LT Debt of Cap.	30.6	10.4	0.6	0.2	14.4	NM	NA	NA	NA	NA
% Net Inc.of Revs.	10.4	11.2	3.9	13.4	14.5	NM	NM	NA	NA	NA
% Ret. on Assets	12.1	17.2	6.4	14.8	36.9	NM	NA	NA	NA	NA
% Ret. on Equity	20.5	25.7	8.5	NM	NM	NM	NA	NA	NA	NA

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--2770 San Tomas Expressway, Santa Clara, CA 95051-0968. Tel--(408) 980-5400. Website--http://www.s3.com Chrmn--D. P. Banatao. Vice Chrmn--T. N. Holdt. Pres & CEO--G. Johnson. Acting CFO--D. Lindly. SVP & Secy--R. T. Yara. Dirs--D. P. Banatao, J. C. Colligan, T. N. Holdt, R. P. Lee, C. J. Santoro, R. T. Yara. Transfer Agent & Registrar--Boston EquiServe, Canton, MA. Incorporated--in Delaware in 1989. Empl-- 449. S&P Analyst: Ted Groesbeck

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997