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National to Quit PC Microprocessor Business

Technology: The firm blames price war and says it will focus on chips for information appliances.


SAN FRANCISCO — Falling victim to plummeting personal computer prices and ferocious competition from Intel Corp. and Advanced Micro Devices Inc., National Semiconductor Corp. said Wednesday that it will stop competing in the market for PC microprocessors.

The Santa Clara-based company will rededicate itself to supplying microchips for inexpensive information appliances, such as digital set-top boxes and hand-held Web-surfing displays. About 550 jobs, less than 5% of its work force, will be cut through early retirement, attrition or layoffs.

"We're leaving the me-too PC processor business," which has become a relentless price war, said Steve Tobak, National's vice president for marketing.

National's Cyrix subsidiary is the third-largest supplier of chips that power Windows-based PCs. But the company garnered only 1.3% of all revenues for Windows-compatible PC microprocessors in the last quarter, while Intel's share grew to nearly 93%, according to Mercury Research in Scottsdale, Ariz.

"If anything, the traditional PC market had diverted National's attention from what it really wanted to be when it grows up," said Michael Feibus, an analyst with Mercury.

Tobak said that National is actively seeking a buyer for Cyrix, but will continue to supply customers and build new processors until the unit is sold.

Whether National will find that buyer remains in doubt, however, said Ashok Kumar, an analyst with investment banker Piper Jaffray in Minneapolis. National is rumored to be close to selling its majority interest in a production plant used to create most Cyrix processors, and plans to keep the MediaGX portion of the Cyrix chip line, leaving little to sell.

National's eagerness to announce that it would leave the PC processor market before securing a buyer suggests that the company felt considerable pressure to demonstrate a plan to curb Cyrix losses--estimated at up to $50 million in the current quarter.

Investors greeted the move enthusiastically, boosting the company's shares $3.06 to close at $17.69 on the NYSE Wednesday.

"The information appliance market is now on the launch pad," said Brian Halla, National's chief executive and author of the strategy.

The company's "PC-on-a-chip"

technology--which absorbs many computing functions onto a single processor--excels in Internet appliances as well as telecom equipment.

But National faces several strong competitors. Intel, for example, produces the StrongArm processor that is expected to compete well in appliances, and recently agreed to acquire telecom-chip provider Level One Communications.

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