SANTA CLARA, Calif. -- S3 Inc. here said it is working with Via Technologies Inc. to present a revised proposal for a graphics chip joint venture, which was unexpectedly blocked a month ago by Taiwan's new government.

S3 was set to transfer its graphics assets to the Taiwan joint venture by the end of July, but the transaction was derailed when the government denied approval of the venture and asked for additional undisclosed information (see July 7 story). When the deal was blocked, S3 officials expressed concerns over the new government's policies on international cooperation in the chip business, but those worries were later downplayed by the company and Via officials.

While Taiwan's Ministry of Economic Affairs initially denied the joint-venture application, it has indicated "a willingness to reconsider its decision upon receipt of revised information," said Ken Potashner, chief executive officer and chairman of S3. "We are working with VIA to try to present a proposal that is acceptable to the Taiwanese government. S3's mobile and integrated chips continue to experience widespread success," added the CEO, while the company released its second-quarter results.

The Santa Clara company posted net revenues of $135.8 million compared to $57.3 million in the second quarter 1999. However, S3 also posted a net loss of $36.3 million in the second quarter, including charges for its move to shut down its graphics board business and exit PC graphics. With those charges, S3 would have posted a $12.1 million loss.

S3--a high-flying graphics chip-set company in the 1990s--has been transforming itself into an Internet systems company in the past year. As part of that transition, the company agreed to sell its graphics business to partner Via Technologies in Taiwan for $323 million in cash and securities (see April 11 story). The S3-Via joint venture, announced in late 1999, plays a key role in S3's move out of the graphics segment.

"Shutting down the graphics board business to maintain focus and momentum reflects our commitment to rebuilding S3 as a digital media and Internet appliance company," Potashner said. S3 now plans to put more resources behind its Rio handheld digital audio players, home networking, and information appliances businesses.