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Competition in Chip Industry Is About to Get a Bit Fiercer

Microprocessors: New products and a possible antitrust suit against Intel will keep heat on the three largest manufacturers.


SAN FRANCISCO — Amid steady reports of an impending Federal Trade Commission antitrust lawsuit against Intel's mountainous empire, the competitive landscape of the microprocessor industry is rapidly shifting underfoot.

On Thursday, one of Intel's chief competitors, Advanced Micro Devices, announced a new version of its flagship central processor, dubbed K6-2, that appears to have significant price and performance advantages over competing Intel chips. AMD announced that IBM and Fujitsu, as well as a number of smaller PC makers, will use the K6-2.

And today, Intel's other key rival, National Semiconductor, expects to announce a large deal with Wyse Technology, a leading maker of computer terminals that use Microsoft Windows. The agreement calls for San Jose-based Wyse to buy 1 million chips produced by National's Richardson, Texas-based Cyrix subsidiary during the next three years. The plan involves both the current MediaGX processor series and a commitment to National's PC-on-a-chip technology.

Products based on the single-chip concept, which would consolidate most PC functions on a single processor and represents National's core product strategy, will emerge in the first half of next year, the company says.

The announcement follows on the heels of a deal with Packard Bell NEC, one of the largest PC makers, to use Cyrix microprocessors as the brains for low-cost computers that Packard Bell NEC expects to account for more than half its sales by the end of this year.

Analysts say aggressive pricing on AMD's new chip, which includes special 3-D capabilities targeted at the game market, should give it a boost over Intel offerings designed for $800 to $1,500 PCs.

"You'll see $800 machines with very good 3-D performance," said Martin Reynolds, an analyst with Dataquest in San Jose.


Meanwhile, AMD insists that nagging production problems are a thing of the past. If so, that could help the company reverse its recent financial slide. For the quarter ended March 29, AMD lost $55.8 million because of weakness in the semiconductor market and the failure to meet demand for certain versions of its K6 line. It was the company's third straight quarterly loss.

"There's no way, short of industrial espionage, to know" if AMD's manufacturing woes are over, said chip analyst Michael Slater of Sebastopol, Calif.-based MicroDesign Resources. But Slater and other analysts say that AMD's confidence in its manufacturing is credible, given the company's past openness about production problems.

Against this backdrop of competitive pressure, the FTC is looking into allegations that Intel has used its near-monopoly in PC central processors to dominate other important markets--a possible violation of the Sherman Antitrust Act. Intel processors are used in the majority of PCs, and according to Dataquest, the company grabbed about 80% of industrywide revenues for microprocessors in 1997.

Intel has consistently denied violating antitrust laws. It conducts training for its employees to ensure compliance with all antitrust guidelines, spokesman Howard High said. And after a previous two-year investigation, ending in 1993, the FTC elected to take no action against the company.

The alleged antitrust violations in the current investigation include the selective withholding of information from PC makers that use Intel chips but are engaged in disputes with Intel. In a prominent case involving Huntsville, Ala.-based Intergraph, a maker of advanced computer workstations, the U.S. District Court for the Northern District of Alabama recently enjoined Intel from engaging in such practices.

Another major part of the FTC probe may involve allegations that Intel has unfairly attempted to move the industry to a new, proprietary standard for connecting central processors to a PC's main circuit board. That technology, known as Slot 1, replaces Socket 7--an open industry standard still used by Cyrix, AMD and other companies. Slot 1 was introduced last year with Intel's Pentium II processor family.

"It's reasonable to infer that the new packaging for the Pentium II was [designed] to exclude competitors," said Phil Lemmons, editorial director of San Francisco-based PC World magazine. But ironically, he added, "that strategy backfired at the low end, because it's a very expensive packaging."

The added expense, plus disappointing performance from Intel's new Celeron processor designed for low-cost PCs, has boosted the Socket 7-based products of both Cyrix and AMD.

Earlier this year, it became clear that some competing companies--including AMD and Cyrix--can build Slot 1-style processors and related components as a result of long-standing cross-licensing agreements. Intel also recently awarded a license to the portion of Slot 1 involving chipsets--the processors that control subsidiary PC functions such as memory and communications pathways.

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