How does this story change if IBM tries to solve IDT's production problems? Or is this an indication that IDT is not a substitute for the loss of Cyrix?
Regards, Mark
Good Timing Turns Bad For IDT MPU
From Page One of Electronic News: September 21, 1998 Issue
By Robert Ristelhueber
Santa Clara, Calif.--The explosion of the sub-$1,000 personal computer market this year should have been a windfall for Integrated Device Technology. The chipmaker introduced its line of inexpensive WinChip microprocessors last year aimed precisely at the emerging low-end PC market. Its timing and strategy seemed to have been perfect.
Instead, IDT finds itself scrambling to catch up, stuck with the wrong products at the wrong time. While rivals Advanced Micro Devices and National Semiconductor have together managed to capture half the sub-$1,000 market from under Intel's nose, IDT's efforts have remained background noise in the $20 billion PC processor business.
Company officials admit they were caught off-guard by the aggressive performance ramps of rival suppliers at the low end. "Our disappointment is we've not kept pace with the megahertz race," says Dave Côté, vice president of marketing. "It's something we need to get back on track with."
The fastest processor IDT is shipping in volume today runs at 240MHz. By contrast, National's Cyrix unit produces a MII chip running at 333MHz, AMD offers a 300MHz K6 part, and Intel recently introduced a Celeron processor at 330MHz.
That gap has put IDT at a big disadvantage. "The products IDT are offering are just not as attractive" as those being shipped by rivals, contends Dean McCarron, principal analyst with Mercury Research in Scottsdale Ariz. The U.S. market is particularly speed-conscious, concedes IDT's Mr. Côté: "Americans want more power like they want muscle cars."
"We really don't see them much on the radar screen," says Steve Tobak, vice president of corporate marketing for National Semiconductor. "The only place we've run into IDT seems to be in China."
IDT's inability to produce competitive offerings can also be blamed on execution problems. The company began sampling its next generation WinChip 2 and WinChip 2 3D parts four months ago, and hoped to be shipping in volume by now. But the decision to move all production from its San Jose fab to Hillsboro, Ore. has delayed volume production until November.
Even then, the bulk of the WinChip 2 parts will initially fall short of the 266Mhz speed seen as the entry point for the desktop market, Côté admits. IDT doesn't expect to crack the 300MHz barrier until the first quarter of next year, when it plans to ship a device with a 128k level-one cache.
IDT is by far the smallest of the processor players, with only about 40 employees at its Austin, Tex.-based Centaur Technology subisidiary, where its MPUs are designed. Intel, and to a lesser degree National and AMD, can draw upon much greater resources to stay competitive.
IDT's announced strategy from the start was to focus on second- and third-tier markets, relying heavily on distributors. In the U.S., it is selling to PNY Technologies and Evergreen Technologies for the upgrade market, while Millennium Electronics is producing PCs through its NetRam Computers subsidiary priced at $499.
Overseas, IDT has landed Evesham as a customer in England, while Korea-based Trigem is marketing systems based on the IDT chip. The company suffered a setback recently, though, when Trigem was dropped as a supplier to the giant Costco chain of stores in this country.
Longer term, IDT harbors ambitions to join Cyrix and AMD as a supplier to top-tier PC companies such as Compaq and IBM. "It's still key to our success," Mr. Côté says, adding that the company must first catch up in the speed wars.
It hopes to do that next year, when WinChip 3 is planned for introduction. Using a 12-stage pipeline, that device will be capable of running at 400 to 600MHz, according to Mr. Côté. IDT hopes to sample the part in the first half of 1999, with volume planned for this time next year.
The company had been counting on WinChip to help offset the wrenching slump in its other product lines, particularly static RAMs. IDT reported a $50 million net loss on revenues of $134.5 million in the quarter ended June 28, and earlier this month announced it would take a non-recurring charge of $205 million to $240 million during this quarter because of overcapacity.
But Mr. Côté remains optimistic about the WinChip business, pointing out that IDT has only been selling the devices for less than a year. IDT shipped about 85,000 WinChips in the second calendar quarter this year, a figure that will rise to 200,000 during this quarter, Mr. Côté said. "There's still a huge opportunity in the low-cost PC and network appliance markets," he asserts.
Tony Massamini, an analyst with Semico Research in Phoenix, says the low-end segment "is getting kind of crowded," resulting in low ASPs and poor margins. Other players besides IDT are getting into that space, including start-up Rise Technology, he adds.
Nevertheless, the desktop processor market is so huge that IDT can benefit greatly with only a tiny market share, Mr.Massamini says: "Just one half of one percent equals $100 million." |
