SANTA CLARA, Calif. --- August 26, 1998 --- Continuing to take the 3D gaming world by storm, S3 Incorporated (Nasdaq: SIII) announced today that it has worked closely with Epic MegaGames to fully optimize its Savage3D accelerator for the Unreal game engine. Based on its support for 32-bit true color rendering, large textures (up to 2K x 2K) and palletized textures, S3's Savage3D is the first 3D accelerator to
provide an uncompromising hardware platform for the Unreal game engine.

Additionally, S3 will continue to work closely with Epic MegaGames to deliver a version of Unreal that takes advantage of S3's Microsoft-endorsed texture compression technology - speeding up game play while enhancing image quality by allowing for the use of 24-bit textures and up to a 4X resolution increase.

"With its 32-bit color, excellent frame rates and no performance penalty for turning features on, Savage3D is currently the best choice Unreal accelerator in its price range," said Mark Rein, vice president, Epic MegaGames. "The texture compression is amazing. It's almost impossible to tell the difference between compressed and non-compressed textures in Unreal on the Savage3D - I challenge users to run the game in both modes and try to spot the difference!"

"Savage3D and the Unreal engine together comprise the most compelling entertainment platform available for the PC market today," said Rick Bergman, vice president of Marketing for S3 Incorporated. "With true color rendering support for up to 240 MB of textures in one scene, the Savage3D hardware platform unleashes the true potential of Unreal."

About Epic MegaGame's Unreal Engine
Epic MegaGames Inc. is a privately held company based in Rockville, Maryland with a wholly owned subsidiary in the United Kingdom. Established in 1991, Epic produces, markets and distributes cutting-edge PC games. Previously known for Jill of the Jungle, Jazz Jackrabbit and Epic Pinball, the company is now best known as the creators of the hit PC 3D action game Unreal and the Unreal Engine, which it has licensed to several top PC game developers for games in a variety of genres. Epic distributes its products directly to end users using the shareware model and through worldwide retail distribution with major game publishers. Additional Company information can be obtained through Epic's World Wide Web site at http://www.epicgames.com/.

About S3's Savage3D Accelerator
Savage3D outperforms all shipping 3D accelerators in AGP performance, trilinear mip-mapping, texture compression and DVD/video processing. In addition, Savage3D is the first 3D accelerator to include S3TCO, which was selected by Microsoft as the standard compression technique in DirectXO. By compressing data up to 1/6 the normally required space, S3TC enables Savage3D to deliver 4X AGP performance and
essentially doubles the chip's frame buffer size by allowing more textures to be stored.

Per S3's recent press release (August 18th), many of today's top PC gaming companies are looking to S3's Microsoft-endorsed texture compression technology as a building block for the development of more compelling and texture-rich 3D games. One of these companies is GT Interactive Software, publisher of Unreal. According to Michael
Bartholomew, Chief Technology Officer for GT Interactive Software Corp., "Today's gamers demand excellence in aesthetics as well as gameplay. Enhanced Texture Compression will help ease our current bandwidth problems, giving us greater freedom to provide a more visceral gaming experience."

Savage3D design wins have been announced by Hercules, Diamond Multimedia and STB Systems and boards are expected to be available by end of Summer. For more detailed information about Savage3D and to access detailed white papers, photos, Unreal screen shots, product sheets and press releases, log onto the S3 website at www.S3.com and click on the Savage3D logo located on the front page.

About S3 Incorporated
S3 Incorporated, founded in 1989 with headquarters in Santa Clara, California, is a premier supplier of multimedia acceleration hardware and its associated software. S3 is committed to applying its expertise in video, graphics and multimedia acceleration to create innovative and affordable products for the home, desktop and mobile markets.

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Except for historical information contained herein, the matters set forth in this press release, such as statements relating to the market acceptance of Savage3D, Savage3D's performance, and the availability of boards using Savage3D are forward-looking statements that are subject to risk and uncertainties, including the impact of competitive
products and pricing and of alternative technological advances, the ability of the company's foundries to ramp Savage3D to sustained volume production in a timely manner, market acceptance of the company's and its customers' new products, customers' product marketing timelines, and other risks detailed from time to time in
S3's SEC reports, including its Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. S3 is a registered trademark of S3 Incorporated. The S3 corporate logo, Savage3D and S3TC are trademarks of S3 Incorporated. Other marks referenced herein are the property of their respective owners.

S3 is a registered trademark of S3 Incorporated. The S3 corporate logo and Savage3D are trademarks of S3 Incorporated. Other marks referenced herein are the property of their respective owners. All third party quotes and product information are furnished by the respective companies.