S3 buys Diamond Multimedia

Following net losses in Q1 this year, S3 Inc has signalled a definitive change in direction by entering into an agreement to acquire Rio MP3 and graphics vendor Diamond Multimedia.

Announced this week, the deal, worth $US173 million in stock, comes just days after Diamond Multimedia won a significant court victory over the Recording Industry Association of America -- one of the world's most influential industry bodies -- which attempted to block the sale of Diamond's MP3 Rio players.

Citing new directions in Internet appliance and home networking, S3's CEO, Ken Potashner, said: "The acquisition is part of our ongoing strategic plan to return S3 to profitability and diversify into related high-growth areas.

"By merging the strengths of both companies, we intend to create a major force in the industry for Internet appliances, broadband communications, home networking and complete graphics solutions."

The agreement is to be finalised by October and Australia is unlikely to feel any effects until then, claims Pieter Vanderschaar, Diamond country manager, Australia-New Zealand.

Previously only available through third-party OEM products, the move will provide S3 with a distribution channel in Australia.

Vanderschaar forecasts Diamond will retain its branding. "Both companies have strong brand equity. The bottom line is the company will be called S3 but it's likely both S3 and Diamond branded products will remain," he said.