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For the quarter, net revenues were $128.7 million, compared to $172.3 million for the second quarter of 1998. The company incurred a net loss for the second quarter, including losses incurred by its newly formed RioPort division, of $10.8 million, or $0.30 per share, compared to a net loss of $8.3 million, or $0.24 per share in the second quarter of last year. Excluding the losses related to the RioPort division, which the company intends to carve out as an operating subsidiary in the third quarter, net loss was $5.4 million, or $0.15 per share. Net revenues year to date were $272.7 million, compared to $358.5 million for the first two quarters of 1998. Net loss for the first half of 1999, including the RioPort division, was $9.4 million, or $0.27 per share, compared to a net loss of $0.4 million, or $0.01 per share for the first half of 1998.

“We took several actions during the second quarter which, while having a negative impact on second quarter performance, we felt were necessary to implement our longer term strategy, “ said William J. Schroeder, president and chief executive officer. “We increased spending in our RioPort division during the quarter to aggressively pursue an early-mover opportunity available to us in the market for digital music over the Internet. Because this is a time-perishable opportunity, we felt we needed to fund it to the maximum extent we could afford. This investment has resulted in several long-term strategic wins for RioPort and, therefore, for Diamond, including our recently announced relationships with MTV and Universal Music. We also made a substantial investment in our Communications Division during the quarter, specifically in the area of home networking, including our planned residential gateway offering, and broadband modems.”

“In addition to our investment in emerging market opportunities, we took a number of steps in anticipation of our merger with S3 that also affected performance for the quarter,” said James M. Walker, senior vice president and chief financial officer. “We pushed hard toward the end of the quarter to clear legacy and other products out of our inventory. This was especially true of 3Dfx-based products in our core graphics business, where our focus is on the nVidia and S3 architectures, and 3Dlabs-based products in our professional graphics business, where our going forward focus is on the IBM architecture, to which we have exclusive access for our markets. This resulted in revenue with very low or no gross margin, as well as scrap charges on certain inventory items. Consequently, core graphics and professional graphics were each reduced to about breakeven for the quarter.”

About Diamond Multimedia

Diamond Multimedia is a leader in PC multimedia and Internet connectivity, providing advanced products that enable desktop computer users to create, access and experience compelling new media content from their PC’s and through the Internet. Products include the Rio series of Internet audio appliances, the Stealth and Viper® series of video accelerators, the Monster series of 3D gaming accelerators, the Fire series of professional graphics accelerators, the Supra® series of modems, and the HomeFree line of home networking products. Diamond's common stock is traded on the NASDAQ under the symbol DIMD, and its web site address is http://www.diamondmm.com. The Company’s Internet music portal site is at http://www.RioPort.com and its e-commerce site is at http://www.estore.diamondmm.com.

The above statements concerning future results and going forward strategy, in particular, statements concerning the market opportunity for digital music over the Internet, home networking, graphics chip architectures and the potential benefits of log term relationships, 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 are the following: business conditions and growth in the graphics and multimedia accelerator market, the modem market, the Internet music market, the home networking market, the professional graphics market and the general economy, the volume and timing of orders received during the period, the timing of new product introductions or establishment of Internet portals by the Company and its competitors, product line maturation, competitive factors, such as rival chipset designs and pricing pressures, the availability of third-party components 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 reports on Form 10-K filed on March 31,1999, and on Form 10-Q filed on May 15, 1999. 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.