Diamond Multimedia Reports Results for the Fourth Quarter amd Year Ended Dec. 31, 1996.

SAN JOSE, Calif..--(BUSINESS WIRE)--Jan. 23, 1997--Diamond Multimedia Systems, Inc. (NASDAQ:DIMD), a leader in the Internet multimedia market, today reported financial results for the fourth quarter and the year ended December 31, 1996.

For the year, revenues were $598.1 million, up 28 percent from $467.6 million in 1995. Net income was $16.3 million, or $0.46 per share, on 35.2 million shares outstanding in 1996, compared to a loss of $41.3 million, or ($1.55) per share, on 26.7 million shares outstanding in 1995. Net income for 1995 included a $76.7 million one-time in process technology write-off related to the acquisitions of Supra Corporation and SPEA Software AG.

For the fourth quarter, revenues were $166.5 million, down 12 percent from $190.1 million in the fourth quarter of 1995, but up 35 percent from the September 1996 quarter. Net income for the quarter was $7.8 million, or $0.22 per share. In the fourth quarter of 1995, the Company reported a net loss of $24.9 million, or ($0.78) per share, which included a $38 million one-time in process technology write-off related to the acquisition of SPEA Software AG.

"Worldwide demand for leading-edge multimedia solutions continues to grow with increased multimedia content on the Internet and on the desktop. We believe that our products are well positioned to support multimedia content development, applications and communication, from the Internet to the hard drive to the screen," said Bill Schroeder, president and CEO, Diamond Multimedia.

"Although our unit growth was in the high double digits, rapidly declining DRAM prices limited our overall revenue growth to 28 percent for 1996. Our focus on managing cost in a high-volume environment helped lead to improved gross margins in the fourth quarter, 22 percent this year, up from 21 percent a year ago and 20 percent in the prior quarter," stated Jim Walker, senior vice president and CFO.

"The Diamond brand name continued to build strength during the year as we garnered numerous industry and product awards," said Schroeder. "We introduced a number of products including the FireGL series of professional 3D graphics accelerators, the Supra Netcommander ISDN modems, the Monster 3D graphics accelerator for gaming enthusiasts, and an integrated videoconferencing product for desktop users, the Supra Video Phone 3000. Moreover, our core Stealth 3D line of multimedia accelerators achieved industry-leading benchmark scores and both our Stealth 3D 2000 XL and Netcommander ISDN won PC Magazine Editors' Choice Awards."

"At Comdex, we announced a number of new technologies and partnerships that we expect to expand our product line in 1997, including DVD/MPEG-2 kits to be launched in conjunction with Toshiba, and advanced positional 3D audio technology for accelerating audio content based on Microsoft's DirectSound 3D API. In addition, the Company announced its intention to develop and market a line of 56Kbps modems based on Rockwell International's K56Plus technology," continued Schroeder.

At year end Diamond had $120 million in cash and short-term securities, up $14 million from the prior year. Inventory levels declined to $64 million compared with $90 million at the end of 1995, and inventory turns improved to 8.2 times, up from 6.1 times last quarter. Days sales outstanding for the fourth quarter were 46 days compared to 43 days last year.

Diamond Multimedia

Diamond Multimedia is driving the Internet multimedia market by providing interactivity and connectivity 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. Products include the Stealth and Monster 3D series of media accelerators, the FireGL series of professional 3D graphics accelerators, and the Suprar series of modems and ISDN adapters. Diamond also markets sound cards and multimedia and video phone upgrade kits.

Headquartered in San Jose, CA, Diamond has sales, marketing and technical support facilities in Vancouver (Wash.), Singapore, Seoul, Tokyo, Starnberg (Germany), Paris and Winnersh (U.K.). Diamond's products are sold through local and international distributors as well as directly to major retailers, VARs and OEMs worldwide. Diamond's common stock is traded on the Nasdaq Stock Market under the symbol DIMD.

How to Contact Diamond Multimedia

There are many ways to reach Diamond for sales support, technical assistance, driver updates and general information:

Internet Web Site: http://www.diamondmm.com

Diamond Multimedia's Headquarters and Visual Systems Division: 408-325-7000; Fax: [phone]

Communications Division (Supra brand modems) Main Phone Number: 360-604-1400; Fax: [phone]

European Division (Germany): [phone]; (UK): [phone]; (France): [phone]

Korean Office (Seoul): [phone]; Fax: [phone]

Japanese Office (Tokyo): [phone]; Fax: [phone]

ASEAN Office (Singapore): [phone]; Fax: [phone]

Support Information Line for Communications: 1-800-774-4965

Product Support (Voice), Visual Systems: 408-325-7100; Communications: 541-967-2450; Europe (Germany) [phone]; Europe (UK) [phone]; ISDN Support Center 408-325-7110; Fire GL Support Center 408-325-7120

Product Support (Fax), Visual Systems: 408-325-7171; Communications: 541-967-2401; Europe (Germany) [phone]; Europe (UK): [phone]; (France) [phone] Pre-sales Information, Visual Systems: 1-800-468-5846; Communications: 1-800-727-8772 Investor Relations: 408-325-7476; Fax-On-Demand: 1-800-346-3329; International Fax-On-Demand: 201-433-1778

24-Hour Fax-On-Demand Service, Visual Systems: 1-800-380-0030; Communications: 541-967-0072

FTP sites: ftp.diamondmm.com; or Supra: ftp.supra.com

BBS for Visual Systems 408-325-7080 (to 14.4 Kbps) or 408-325-7175 (to 28.8 Kbps) or 408-383-0551 (ISDN); Communications BBS: 541-967-2444; Europe (Germany) BBS at [phone] (to 28.8 Kbps) or [phone] (ISDN); Europe (UK) at [phone]-

Except for historical information contained herein, the matters set forth in this press release, such as statements relating to the Company's ability to successfully exploit technological and market developments, the timing and success of new product introductions by the Company and its competitors, and the Company's ability to invest in new technologies and to enhance its existing systems are forward-looking statements that are subject to risks and uncertainties, including the impact of competitive products and pricing and alternative technological advances, the timely and successful development and market acceptance of new products and upgrades to existing products, and other risks as detailed from time to time in Diamond Multimedia's SEC filings, including its most recent Forms 10-K and 10-Q. -0-

Note To Editors: Monster 3D and Supra are either trademarks or registered trademarks of Diamond Multimedia Systems, Inc. All other trademarks referenced are the service mark, trademark or registered trademark of their respective manufacturers. This announcement relates to products whose launch are in the United States of America. The product names, contents, prices and availability may differ elsewhere in the world according to local factors and requirements.

                  DIAMOND MULTIMEDIA SYSTEMS, INC.
                 Consolidated Statements of Income
              (In thousands, except per share amounts)

                           Three Months Ended       Year Ended
                              (Unaudited)
                           12/31/96  12/31/95   12/31/96  12/31/95

Net sales                  $166,497  $190,056   $598,050  $467,635
Cost of sales               129,983   150,031    485,284   359,285
Gross Profit                 36,514    40,025    112,766   108,350
Research and development      4,955     4,103     18,824    10,665
Selling, general and
 administrative              19,788    15,354     66,209    39,311
Amortization of intangibles   1,339       937      5,025       937
Write-off of in process
 research and development        --    38,000         --    76,710

Total Operating Expenses     26,082    58,394     90,058   127,623
Income (loss) from
 operations                  10,432   (18,369)    22,708   (19,273)

Interest income (expense),
 net                            550         8      1,979    (1,291)
Other income, net             1,344     1,407      1,245     1,357
Income (loss) before provision
 for taxes                   12,326   (16,954)    25,932   (19,207)
Provision for income taxes    4,493     7,958      9,595    22,140
Net income (loss)            $7,833  ($24,912)   $16,337  ($41,347)
Common shares and
 equivalents                 35,628    32,050     35,195    26,724
Net income (loss) per share   $0.22    ($0.78)     $0.46    ($1.55)

                     DIAMOND MULTIMEDIA SYSTEMS, INC.
                  Consolidated Condensed Balance Sheets
                          (in thousands)

                             At Dec. 31, 1996   At Dec. 31, 1995
                                (unaudited)
ASSETS
Current assets:
Cash and short-term investments   $120,147         $106,203
Accounts receivable                 85,268           90,640
Other receivables                     ----           13,129
Inventories                         63,704           89,635
Other current assets and deferred
 taxes                              30,987           23,034
     Total current assets          300,106          322,641
Fixed assets, net                   12,883           10,152
Other assets                         3,222            6,385
Goodwill and existing technology    16,227           12,551
     Total assets                 $332,438         $351,729

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt  $18,068          $18,077
Trade accounts payable and other
 accrued liabilities                86,510          111,477
     Total current liabilities     104,578          129,554
Long-term debt, net of current
 portion                             2,730           11,705
Deferred taxes                         835            1,860
     Total liabilities             108,143          143,119
Stockholders' equity               224,295          208,610
Total liabilities and
 stockholders' equity             $332,438         $351,729

CONTACT: Diamond Multimedia Systems, Inc.

James M. Walker, 408/325-7333

Ken Wirt, 408/325-7376

OR

FRB

Lise Needham or Bonnie McBride, 415/986-1591