a repost from the intc thread...
To: Paul Engel (50979 )
From: Xy Zhao
Monday, Mar 23 1998 9:19AM EST
Reply # of 50985
Intel gets a challenge from 3 deals with IBM
BY TOM QUINLAN, Mercury News Staff Writer
Since 1993, Intel Corp.'s not-so-secret weapon in the battle for
microprocessor dominance has been its ability
to produce more chips faster and cheaper than anyone else.
Now three companies with strong microprocessor technology -- National
Semiconductor, Advanced Micro
Devices Inc. and Integrated Device Technology Inc. -- have come up
with a common solution to the
manufacturing problem: IBM.
In the last few weeks, both IDT and AMD have announced agreements
under which IBM's Microelectronics
Division will manufacture their latest, Pentium compatible chips.
National's microprocessor subsidiary, Cyrix
Corp., has been taking advantage of IBM's manufacturing prowess for
years and now hopes to strengthen the
relationship.
The intriguing result: International Business Machines Corp. -- a giant
electronics concern that nevertheless
does not market its own Intel clone -- may now be the single most
significant factor challenging Intel's control
of the microprocessor market.
Suddenly, computer makers that had considered the Santa Clara chip
giant the only consistently reliable source
of microprocessors now have a reason to look at the competition.
''If a computer manufacturer is going to design in a processor, he's going
to make sure that he can get those
chips in significant quantities,'' said Kelly Henry, a senior industry analyst
with the market research firm
International Data Corp. ''A partner like IBM adds a lot of credibility.''
Intel had no comment on the developments.
For all three companies, IBM offers a solution to a vexing problem:
Despite the fact that each produces critically
acclaimed products compatible with Intel's Pentium line -- and despite
the fact that those chips are priced lower
than Intel's comparable products -- Intel's market share has stayed
between 85 and 90 percent.
In part that's because Intel has money and knows how to spend it. Intel
invests between $3 billion and $4
billion each year in capital spending -- an amount that nearly equals the
annual revenues for its three rivals
combined.
Intel's war chest may become even more important as the industry
implements a number of crucial -- and
expensive -- changes to the way the most advanced and powerful
processors are made over the next three years.
''The issue is that the more advanced process you use, the faster your
chips go, and that's where Intel's
competitors have fallen down,'' noted industry analyst Linley Gwennap,
editor of the Microprocessor Report, a
San Jose-based newsletter.
AMD, for example, has struggled to produce its K6 chips; in order to
supply Compaq and IBM, it had to
restrict the availability of its chip to other computer makers. And National
cited manufacturing problems at
Cyrix as it reported disappointing earnings a few weeks ago.
Excess capacity
That's where IBM comes in. The world's largest computer company has
leading-edge manufacturing
technology. And it also has excess capacity -- the result of a decision
several years ago to exploit its ability as a
foundry, or contract manufacturer, and a choice to cut back on
production of memory chips. IBM also makes
the PowerPC microprocessor, which powers Apple's computers, and a
wide variety of specialty chips.
Technologies IBM will soon be able to offer its microprocessor
customers include:
The ability to replace the aluminum wiring inside chips with copper,
which conducts electricity better and can
be used in smaller and faster processors.
The ability to handle the new, larger 12-inch silicon wafers. Compared to
8-inch wafers, these allow 2 1/2
times the number of chips, which drastically lowers the unit cost.
A ''.18 micron process'' technology, essentially a way of diagraming chips
in a smaller area, which allows
them to run faster.
IBM expects to start manufacturing using all three processes next year.
Intel, in contrast, isn't expected to put
them into place until the year 2000, meaning the economies of scale
might shift -- at least temporarily -- to
competitors.
IBM hasn't committed to making its best technology available to its new
partners. But sources indicated that all
three companies are interested and actively negotiating deals for those
technologies with IBM.
''We noticed a lot more interest in IBM as a foundry partner after we
announced in September that we had a
process for using copper,'' said IBM Microelectronics Director of
communications Tom Beermann. ''A lot of
companies started contacting us when it became clear that we were on
the leading edge of process technology.''
Sunnyvale-based AMD sees its foundry agreement with IBM -- which
will start producing chips in the fourth
quarter of this year -- as just one in a series of moves to strengthen the
strategic relationship between the two
companies, said Ben Anixter, AMD's vice president for external affairs.
IBM already uses AMD's K6
processor in some of its PCs.
''IBM's leadership in process technology was an important element in our
signing the agreement with them,''
Anixter said. ''They do have wonderful technology.''
But, he noted, AMD cannot depend on IBM alone. ''We don't even start
getting chips from them until the
fourth quarter. If we don't start executing ourselves in the second and
third quarter, we're history.''
Work closely with IBM
National too intends to produce its own microprocessors. (When Cyrix
Corp. existed as a separate company, it
did all its manufacturing through contracts.) But the company
acknowledges IBM's advantage.
''We intend to continue to work closely with IBM,'' said Brian Halla,
CEO of Santa Clara-based National.
''IBM has leading edge technology, and we've worked closely with IBM,
as both National and Cyrix, to help
develop that technology. We want to work even more closely with them
in the future.''
For example, IBM has already mastered -- and is offering to its foundry
partners -- a .25 micron manufacturing
process, while moving some of its own production to .18. National,
AMD and IDT are still implementing the
.25 process -- and for each company, the work is costly.
''We could spend the money and build the production capacity (using
new technologies) ourselves,'' said Dave
C"t,, vice president of marketing for Santa Clara-based IDT, ''but it
doesn't make sense for us to do that from a
business standpoint. It might make more sense to rely on IBM to do it
for us, initially.''
IDT's three-year deal, announced March 17, calls for IBM to provide an
unspecified number of WinChip C6+
Pentium compatible chips starting in the fourth quarter of this year.
Of course, relying on someone else for leading edge technology isn't
without peril. Anixter said AMD is well
aware of that.
''Our orders from IBM represent just a small fraction of their overall
business. You can't expect them to tweak
their production facilities constantly just for us,'' he said.
And in fact, even if the three companies are willing to pay to get IBM's
most advanced technology, they will
still probably end up behind Intel, Gwennap said.
''IBM's first priority is its own products, including the PowerPC chip.
Everybody else is second,'' he added.
But even being second -- with IBM as a partner -- could be better then
trying to slug it out toe-to-toe with Intel.
''It's likely that they'll still be six to 12 months behind Intel if they rely on
IBM,'' Gwennap noted. ''If they
went with anyone else, they would probably be 12 months to two years
behind.'' |
