Surveying The Low-Cost Landscape

National said May 5 it plans to sell off the bulk of its Cyrix Corp. subsidiary, leaving a handful of chip makers vying against Intel Corp., mostly in the low-priced PC market: Advanced Micro Devices Inc., Integrated Device Technology Inc. (IDT) and upstart Rise Technology Co.

National's decision underscores how competitive the PC processor market is, analysts said.

"It's more of an indicator that this is a really bad place to be now," said Bruce Bonner, principal analyst at researcher Dataquest, San Jose, Calif.

"Computational microprocessors used to have very good profit margins," he said. However, with the price war breaking out between Intel and AMD, that is not the case anymore, he said.

Intel, Santa Clara, Calif., this year has gone after the sub-$1,000 PC market with a vengeance, continually boosting the speed of its Celeron processor while waging an aggressive price war with AMD, Sunnyvale, Calif.

"National got hit with the shrapnel and got collateral damage from the air war between Intel and AMD," Bonner said.

In bowing out of the PC processor business, National executives said the struggle in that market was dragging down the company's financial performance.

Still, Santa Clara-based National said Cyrix will continue to work on its PC processor road map, which targets the sub-$1,000 PC market. But Nathan Brookwood, analyst at Insight 64, Saratoga, Calif., said that is going to be difficult in light of the proposed sale. Cyrix engineers likely will be looking for other jobs.

"National is concluding that there are easier ways to make business in the semiconductor business than competing with Intel," Brookwood said. "Intel is a fierce competitor. That's the problem all companies competing with Intel face. You have to be very good if you want to play in the major leagues."

Todd Barrett, network sales manager at CPU Sales and Service Inc., Waltham, Mass., said most customers in his company's market of small and large businesses likely will not notice Cyrix's absence. His company sells Intel and, on rare occasions, AMD chips.

While National is opting for the information-appliance market, some companies such as AMD and Santa Clara-based Rise are forging ahead with their PC processors.

AMD has high hopes for the K7 chip, which it plans to launch midyear. Some analysts said the chip promises to put AMD higher up on the performance ladder.

Rise representatives, meanwhile, issued a statement immediately after National's announcement, saying the company was ready to fill the "apparent void in CPU offerings for sub-$600 PCs" with its mP6 microprocessors.

Santa Clara-based IDT, however, is keeping quiet.

The company is "reviewing its overall strategy regarding the WinChip product line," said Dave Cote, vice president of marketing at IDT.

"IDT is looking at a variety of alternatives for partnership arrangements, and until one is solidified, it doesn't make sense to speculate on the company's plans for the WinChip business," he said in a statement.

Intel was the only vendor to make a profit in the first quarter, said Michael Slater, principal analyst at MicroDesign Resources, Sebastopol, Calif., in a recent report about the PC processor market.

Boosted by a much higher average selling price, Intel produced about $5.2 billion in PC-processor revenue in the quarter, compared with AMD's $335 million, Cyrix's $75 million and IDT's $7 million, he said.

IDT, with the industry's smallest die size and low overhead, hopes to be profitable at a smaller scale and lower average selling price, he said. Rise, Slater said, is challenged with its larger die size and fabless model.