IDT struggles to revive its microprocessor business
By Mark Hachman
Integrated Device Technology Inc. has now fallen victim to
the microprocessor flu, acknowledging it will need outside
help to keep its ailing PC-chip business afloat.
The disclosure follows National Semiconductor Corp.'s
decision to exit the discrete PC-microprocessor business,
either by phasing out the business or by selling it off to a
third party.
IDT, Santa Clara, Calif., reportedly is considering several
options, including licensing its patents or selling an equity
stake in IDT to a third party. One potential candidate is IBM
Microelectronics, but an IBM spokesman declined to
comment.
According to Dave Côté, vice president of marketing for IDT,
the company is currently reviewing its overall WinChip
strategy and therefore is unable to provide specifics about
the strategy at this time. Until some sort of partnership
arrangement is solidified, he said, it doesn't make sense to
speculate on IDT's plans for the WinChip business.
Companies such as Advanced Micro Devices, IDT, National,
and Rise Technology have been repeatedly slapped down by
Intel's technological, marketing, and branding clout. They've
all attracted attention by promoting flashy technical designs,
but have been tripped up by the economics of chip
manufacturing.
“If anything, the actions taken by National would make it OK
to admit the challenges of remaining in the microprocessor
business,” said A.A. LaFountain III, an analyst with
Needham & Co. Inc., New York.
The WinChip line was supposed to sacrifice some technical
glitz for a smaller die size and reduced manufacturing cost.
Analyst Dean McCarron of Mercury Research Inc.,
Scottsdale, Ariz., said IDT's WinChip product line could
probably make money selling at prices of $25 to $30, given a
volume of about a million units a quarter.
But National's troubles in the PC-microprocessor business
seem rosy by comparison, McCarron said. While National
captured 6% of microprocessor unit sales during the first
quarter, IDT's share fell to 0.7%, down from 0.9% the
preceding quarter, he said.
In its exit from the market, National would seem to have
provided IDT and its competitors with some available
business.
“The net effect is a positive for us,” said a spokesman for
Advanced Micro Devices Inc., Sunnyvale, Calif. “Cyrix's
market share was about 4% [6%, according to Mercury].
That business will go to either Intel or us.”
The spokesman called Rise Technology Co. and Integrated
Device Technology Inc. “relatively insignificant” competitors.
A spokesman for Santa Clara-based Rise disagreed,
claiming the company is well positioned. “With National
Semiconductor exiting the PC-semiconductor business,
there's an apparent void in CPU offerings for sub-$600 PCs,”
he said. “Rise Technology is ready to fill that void with the
family of mP6 microprocessors.”
Update: Why National couldn't make Cyrix work
By Mark Hachman
After failing to find a safe harbor for its PC-microprocessor strategy, National Semiconductor Corp. didn't weigh anchor-it scuttled the ship.
Conceding defeat to x86 market leader Intel Corp., National this week said it will exit the discrete PC-microprocessor business and sell most or all of its South Portland, Maine, fab in the process. The restructuring will cost the Santa Clara, Calif., company 550 jobs and up to $300 million in one-time charges.
“We will immediately cease slugging it out in the PC-processor market, which has been dragging down our financial performance for several quarters,” said Brian L. Halla, National's chairman, president, and chief executive.
The retreat is the latest setback for National, which has spent enormous resources trying to loosen Intel's grip on the CPU crown. Despite a two-year effort, National's share of this market fell to 6% in the first quarter, according to Mercury Research Inc., Scottsdale, Ariz.
Indeed, National executives have made no secret of the fact that the company has been forced to heavily discount its MII processors because the clock speeds consistently failed to compete with the performance of Intel's low-cost Celeron chips.
“Believing that Intel would not and could not compete in the low-end [PC] space was a mistake,” Halla told analysts in a conference call this week.
And while the MII was priced for the consumer space, it ultimately proved to be a costly architecture for National. In the company's most recent fiscal quarter, the device contributed only 10% to National's $500 million in revenue, and was directly responsible for a $27.2 million loss. Halla estimated that an additional $120 million would have been required to install copper-interconnect technology at the
South Portland fab to keep the MII competitive with the Celeron.
In total, the planned cuts could save National about $100 million in the short term. The company will also close its Santa Clara R&D center, which will save another $20 million per quarter, according to Donald Macleod, National's chief financial officer. The move is expected to improve gross-profit margins from 31% last quarter to 50% by May 2000.
Shifting focus to new markets
By bowing out of the PC-processor race, National is free to pursue its SOC strategy with renewed vigor, while allowing its higher-margin analog and wireless businesses to shoulder more of the load. But the shift is still a departure for Halla, whose previous stint with LSI Logic Corp. was marked by deep involvement in SOC and digital design.
“Our cores have followed a roadmap in the PC space [from] generation to generation,” said Steve Tobak, National's vice president of corporate marketing. “But we're beginning to understand that microprocessors for our target markets are taking on an embedded tone.”
National's fascination with the digital world took root long before Halla came on board nearly three years ago, and stemmed from what one analyst termed “an inferiority complex.” The notion was that if a company wasn't doing digital products, it wasn't doing much, said G. Dan Hutcheson, an analyst at VLSI Research Inc., San Jose.
“For two decades, National has tried to be a major player in the digital space,” Hutcheson said. “Ironically, though, National has for three decades made its money in analog.”
Although an SOC strategy has been Halla's hallmark, it was Cyrix Corp. co-founder Jerry Rogers who sowed the seeds that National would later nurture. Well before it became a merger target, Cyrix created a separate microprocessor-design unit dedicated to integrating multimedia functions-a move that caused much dissension within the promising Dallas-based technology house. “From a 50,000-foot level, my idea was to do digital processing in the 486 CPU without separate audio and video chips,” said Rogers, who left Cyrix shortly before it was bought by National.
While a vocal contingent remained focused on raw processor clock speeds, Cyrix's development of a multifunctional CPU bore fruit in 1996, when its first integrated chip, the MediaGX, was adopted by Compaq Computer Corp. The following November, National acquired Cyrix for about $550 million.
Because of National's reputation as an analog and mixed-signal technologist, Cyrix's acquisition and SOC strategies generated a great deal of attention at the time. But troubles assimilating Cyrix, coupled with an ill-fated foundry relationship with IBM Microelectronics, soured the marriage.
“I don't think anyone thought National Semiconductor was the ideal candidate [to buy Cyrix],” Rogers said in an interview this week. “But [National] had a strong enough [patent] agreement with Intel to keep [Cyrix] out of court most of the time.”
Having narrowed its focus, National is now pinning its hopes on the emerging information-appliance market, a free-for-all among various RISC and x86 camps-including Intel, which plans to launch an integrated processor next year. Nevertheless, National claims to have a significant lead in a market which is “ours to lose,” Tobak said.
Even so, National's course remains studded with obstacles, according to analysts. “My concern about them selling the fab and moving to outside foundries is that when Intel's turning out 700-MHz integrated chips, they'll be shipping 400-MHz chips,”said Scott Randall of SoundView Technology Group Inc., Stamford, Conn. “National had an
embedded 486 part, and it bombed. Why? It was too slow.”
Leadership questioned
National executives downplayed the restructuring by painting it as a simple extension of the company's SOC strategy. Still, some market watchers said National-and Halla especially-have strayed dangerously off course. One observer even said a change of leadership might be in store at the company.
Joe Osha, an analyst with Merrill & Co. Inc. in New York, praised Halla's decision as “a major step in the right direction.” But he also predicted Halla and National will soon part ways. “Right now, the company's in a crisis,” Osha said. “They don't want to exacerbate that by chopping the head off their leadership. I don't want to impugn Halla as a person, but I will say that his credibility is enormously
damaged.”
Osha recited Halla's four priorities, a list of goals the executive often uses to evaluate National's performance: improving the company's LAN business; expanding its analog-product portfolio; transferring Cyrix's microprocessor line to the South Portland fab; and boosting processor clock speeds. “Right now, they're one for four,” Osha said.
In an interview this week, Halla saw the situation in a different light and claimed to be “batting a thousand on these things.” He said National had delivered on its promise to get Cyrix's chips into the South Portland fab, and still expects to take advantage of that facility as a foundry customer. Meanwhile, National has improved its LAN business, he said, and its analog products continue to shine. “This doesn't represent any change at all in our strategy,” Halla
said.
As National refocuses, the company is in talks to sell off its MII business, but will retain a separate team to refine its MediaPC SOC, according to Tobak. Of the one-time charges, National will spend $60
million to write off the remaining MII inventory and close a
research fab at its Santa Clara headquarters by August.
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