TDFX ---GRADE:: B

Pre-Open Alert on TDFX on Advance notice of the following news...

Here's an odd twist: 3dfx Interactive (TDFX), which has just won a court ruling in its patent-infringement lawsuit against competitor nVidia, may get gobbled up by nVidia. 3dfx makes software that modifys three-dimensional images. Its stock trades at 3 1/8--down from 14 in March--giving it a tiny market cap of $120 million. nVidia, which provides 3D graphics for PCs, trades at 60, with a market cap of $4 billion.

nVidia may have to pay huge damages to 3dfx as a result of the court decision. ``But nVidia could solve a lot of problems by buying 3dfx outright,'' says one analyst. Even if nVidia were to pay $10 a share for 3dfx, he says, that would come to only $394 million--peanuts compared with nVidia's big market value.

3dfx would be an ideal buyout for nVidia because of 3dfx's acquisition of GigaPixel, which had been awarded a contract by Microsoft to provide chips for its WebTV Networks' X-Box project. Later, Microsoft scrapped the deal because of concern that GigaPixel might not have the necessary engineering resources. Microsoft awarded the job to nVidia. But 3dfx's recent purchase of GigaPixel gives the latter the engineering needed for the Microsoft job. By acquiring 3dfx, a buyer could gain control of GigaPixel's technology, which produces chips that require less power.

One New York investment manager, a big 3dfx stakeholder, says this turn of events modifys a ``potential home run for anyone who buys 3dfx stock at its currently depressed price.''