Diamond Multimedia reports results for the first quarter ended March 31, 1997.

SAN JOSE, Calif.--(BUSINESS WIRE)--April 17, 1997--Diamond Multimedia Systems Inc. (NASDAQ:DIMD), a leader in the Internet multimedia market, today reported financial results for the first quarter ended March 31, 1997.

For the quarter, net revenues were $112.4 million, down 40% from $187.6 million for the first quarter of 1996. Net loss for the first quarter was $6.0 million, or $0.17 per share, compared to a net income of $11.2 million, or $0.32 per share, in the first quarter of last year.

"Our revenue was affected by a number of factors during the quarter in addition to the normal seasonal patterns, including lower than expected demand in the high end of the mainstream graphics market, the transition from 33.6 kbps to 56 kbps modems, lower product demand in Europe, Korea and Japan, and price declines in both the modem and the graphics markets," said William J. Schroeder, president and CEO.

"Gross margins for the quarter were negatively impacted by both lower volume shipment levels and by aggressive pricing in the channel," stated James M. Walker, senior vice president and CFO. "In spite of the difficult quarter from a revenue standpoint, however, our balance sheet remains strong and we continue to carefully manage our assets."

As of the end of the quarter, Diamond had approximately $98 million in cash and short term securities, down from $120 million from the end of the last quarter, but down approximately $2 million from the end of the first quarter of 1996. Inventory levels increased slightly to $66.4 million from $63.7 million at the end of last quarter and receivables decreased from $85.3 at the end of the last quarter to $80.4 million at the end of this quarter.

"Going forward, we are emphasizing sales of our newly launched products, including 56 Kbps modems, 3D graphics and SCSI I/O adapters, as well as products we start shipping this quarter, such as 3D sound and DVD/MPEG-2 upgrade kits," said Schroeder.

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.

Diamond accelerates multimedia from the Internet to the hard drive with products that include the Stealth series of media accelerators, the Monster series of entertainment 3D and sound accelerators, the Fire series of professional 3D and SCSI accelerators, and the Supra series of modems and ISDN adapters. Diamond also markets multimedia and video phone upgrade kits.

The above statements 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 from those projected are the following: business conditions and growth in the graphics and multimedia accelerator market; the modem 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; product line maturation; competitive factors, such as rival chipset design and pricing pressures; the availability of third-party component 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 report on Form 10-K filed on March 28, 1997. 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. -0-

                 Diamond Multimedia Systems, Inc.
                Consolidated Statements of Income
            (in thousands, except per share amounts)

                                               Three Months Ended
                                                   (unaudited)

                                                     March 31,

                                               1997          1996

Net Sales                                   $112,402      $187,605
Cost of sales                                 92,817       147,543
Gross profit                                  19,585        40,062

Research and development                       5,692         4,803
Selling, general and administrative           22,511        15,983
Amortization of intangibles                    1,316         1,207
Total operating expenses                      29,519        21,993

Income (loss) from operations                 (9,934)       18,069
Interest income, net                             543           225
Other expenses, net                              (55)          (93)
Income (loss) before provision
  (benefit) for income taxes                  (9,446)       18,201
Provision (benefit) for income taxes          (3,495)        7,007

Net income (loss)                            ($5,951)     $ 11,194
Common shares and equivalents                 34,179        35,342
Net income (loss) per share                   ($0.17)     $   0.32


                Diamond Multimedia Systems, Inc.
             Condensed Consolidated Balance Sheets
                        (in thousands)

                                           At March 30,  At Dec. 31,
                                              1997          1996
                                          (unaudited)

Assets

Current assets:
Cash and Short-term investments             $ 98,067      $120,147
Accounts receivable                           80,418        85,268
Inventories                                   66,363        63,704
Deferred taxes and other current assets       30,523        30,987
   Total current assets                      275,371       300,106
Fixed assets, net                             13,550        12,883
Other assets                                   3,121         3,222
Goodwill and other intangibles, net           14,911        16,227
   Total assets                             $306,953      $332,438

Liabilities and Stockholders' Equity

Current liabilities:
Current portion of long-term debt           $ 23,809      $ 18,068
Trade accounts payable and other
  accrued liabilities                         61,430        83,253
Income taxes payable                            --           3,257
   Total current liabilities                  85,239       104,578
Long-term debt, net of current portion         2,493         2,730
Deferred taxes                                   613           835
   Total liabilities                          88,345       108,143

Stockholders' equity                         218,608       224,295
   Total liabilities and stockholders'
     equity                                 $306,953      $332,438

CONTACT: Diamond Multimedia

James M. Walker, 408/325-7333

Ken Wirt, 408/325-7376

or

FRB San Francisco 

Ann Trunko (general information), 415/986-1591

Bonnie McBride (analyst contact), 415/986-1591