sjmercury.com
Posted at 6:22 p.m. PST Sunday, March 22, 1998
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.'' |
