Nat Semi Shops Cyrix Around,
But Will There Be a Buyer?
By CHRISTOPHER GRIMES
Dow Jones Newswires
When two engineers left Texas Instruments Inc. to start Cyrix Corp. in 1988, they had a lofty goal: to build a dream chip, the fastest microprocessor in the PC industry.
But today, as parent company National Semiconductor Corp. shops the business around to a handful of companies, there is a real possibility that Cyrix's legacy could be little more than a pool of red ink.
Nat Semi bought Cyrix for $570 million in 1997, correctly predicting an explosion in the market for cheap PCs running on low-cost chips. Yet buying Cyrix thrust Nat Semi into a battle that already had a Goliath and a David: Intel Corp. and Advanced Micro Devices Inc. Caught in the crossfire of the heated PC-chip price wars between those two and hampered by its own execution problems, the losses mounted at Cyrix, reaching $35 million in the most recent quarter.
So, when Nat Semi said earlier this month that it was putting Cyrix on the block, many assumed that there would be few takers. After all, who wants to pick a fight with Intel?
Even by Nat Semi's account, the pool of companies with the resources and the interest to buy Cyrix is small -- small enough that the company hasn't hired outside help to show the business off. "We've got the resources internally to shop this division around," a spokesman said. "Clearly, there's a very limited number of people that would be interested."
The company has also hinted that if Cyrix hasn't sold by the end of the year, it would likely write it off and take the loss -- an eventuality that some on Wall Street expect.
Joe Osha, an analyst at Merrill Lynch & Co., said he assumed right off the bat that Nat Semi would end up writing the Cyrix business off.
Such a write-off would come to about $300 million, he estimated, adding that he thinks Nat Semi could also write off an underutilized factory in Portland, Maine, for another $400 million or so.
"It's going to be monstrous," he said.
But Mr. Osha said he's recently been entertaining the idea that some company could buy Cyrix. Other industry watchers agree, saying there is an intriguing, though slim, opportunity for Cyrix to help a company become a viable alternative to Intel and AMD.
"In the right hands, it could be an attractive property," said Nathan Brookwood, principal analyst at Insight 64, an industry group in Sebastopol, Calif. "The engineers [at Cyrix] have demonstrated the ability to put together an Intel-compatible microprocessor. There aren't too many people in the world who can do that."
Cyrix has a core of 300 engineers in Richardson, Texas, led by Mark Bluhm, vice president of engineering. And Mr. Brookwood says this group is likely being "actively courted by other semiconductor suppliers."
Steve Tobak, senior vice president of marketing at Nat Semi, said Cyrix is "very sellable" because of the engineering talent in the Richardson-based group.
"Essentially, we consider both the design team and the intellectual property at Richardson as being world-class and of interest to a large number of companies," he said, adding that Nat Semi is talking to a "short list" of domestic and non-U.S. companies about Cyrix.
Despite its troubles, the Cyrix chip did a solid job of winning top-tier customers such as Compaq Computer Corp. and International Business Machines Corp., among others. Though its world-wide market share hovers above 5%, having such customers could be an asset to a possible buyer.
A broad list of companies mentioned as possible acquirers includes IBM; Samsung Corp. of South Korea; Toshiba Corp. and NEC Corp. of Japan; and AMD.
IBM, though rumored for weeks to be in talks with Nat Semi prior to its announcement of intent to shed the division, has given little indication of interest. In his recent address to Wall Street analysts, IBM Chairman and Chief Executive Louis V. Gerstner said explicitly that he no longer wanted to fight in the microprocessor war with Intel.
Analysts said Samsung, Toshiba and NEC are all viable as buyers of Cyrix, however. "The Asian companies can be very effective competitors," Mr. Brookwood said. "These companies have the manufacturing prowess to make these kinds of products."
Samsung has been rumored to be in talks with Nat Semi, said David Lin, chief executive of privately held Rise Technologies, an upstart in the Intel-compatible chip-design market.
But Mr. Osha said he considers Samsung a less likely suitor than NEC or Toshiba, noting that Samsung is busy fighting in the intensely competitive DRAM memory-chip market.
"Do not discount NEC and Toshiba," Mr. Osha said. "They have a lot of money. They are highly competitive manufacturers. They are among the most likely acquirers."
As Intel's main competitor, it would seem most likely that AMD would buy Cyrix. But the company renegotiated its loan terms last year, and is in the midst of preparing an expensive new factory in Dresden, Germany.
"Their ability at this point to do more debt financing is pretty limited," Mr. Osha said. "I don't think they have the organizational or the financial resources to do that."
Samsung had no comment on its interest in Cyrix; Toshiba said in an e-mail that it hasn't received a proposal from Nat Semi about Cyrix, calling the idea "mere speculation." An NEC spokesman declined comment in an e-mail, IBM has repeatedly said that it has no comment and AMD didn't return calls for comment.
Besides the risk of getting into a war with Intel, buying Cyrix also carries with it the risk of entering what is increasingly considered a maturing market. Nat Semi itself is shedding Cyrix to focus on the market for Internet appliances -- specialized devices that can connect to the Web.
"It's going to be harder to generate revenue in the desktop-PC microprocessor market," Mr. Osha said. "That's a calculus that's going to enter into anybody's decision" about whether to buy the division.
Intel, Mr. Osha said, is well positioned to continue to prosper because it is moving into the higher echelons of computing, with its chips running high-dollar workstations and servers. But right now, AMD and Cyrix are firmly rooted at the lower end of the PC market.
Still, Mr. Brookwood estimates the total microprocessor market has a value of about $25 billion in total annual sales. "There aren't many segments of the microprocessor market that are that large," he said.
Added Mr. Osha: "Cyrix is a deal for somebody if they want to take a run at this market. The question is, is there anyone out there who feels like getting into a slugfest with Intel, which is never fun."
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