September 2, 1998 11:25 AM PDT

Intel clones face tough market

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Some relatively small start-ups with big ambitions are planning chips aimed at taking away business from Intel, but they face daunting obstacles that question their very survival.

Two newcomers, Transmeta and Rise, are working on low-cost, low-powered chips for desktops and portables. A third, Metaflow, is planning an Intel clone with parent company ST Microelectronics.

In addition, Acer has licensed chip-making technology from IBM and will start to make Intel compatible chips for an upcoming line of information appliances.

Although the microprocessor market remains one of the more profitable segments in the semiconductor industry, substantial marketing and manufacturing hurdles lay between design and commercial success. As with many products in other industries, mass production is often the real test--and in some cases the ultimate undoing--of a new chip.

Lengthening their odds still further is a market where established challengers such as Advanced Micro Devices are facing strong price competition. And Intel remains the dominant player by far, making chips that are used in an estimated 85 percent of all personal computers. (Intel is an investor in CNET: The Computer Network.)

"There's a pretty high barrier to entry, but it's still a lucrative market," said Dean McCarron, principal analyst at Mercury Research.

The difficulty of the challenge can be seen in the experience of International Meta Systems, which filed for bankruptcy protection last year. In November 1996, the company obtained patents for a reduced instruction set computer (RISC) product that could also read Intel-style instructions. (Intel chips are based on the older complex instruction set computing, or CISC, format.)

Nonetheless, chinks in Intel's armor are proving too difficult to resist for some challengers.

Rise will announce its mP6 processor October 12 at the Microprocessor Forum, sources at the company said, and shipments will begin soon afterward. Aimed at the desktop and mobile market, the mP6 will consume less power than Intel equivalents.

Transmeta is said to be working on roughly the same thing but is wrapping the project in more secrecy. The company did not return calls, and its Web site had no content as of today.

Transmeta, however, appears to be staffed by known industry figures. Employees include Linus Torvalds, creator of Linux, and Robert Collins, a former Texas Instruments engineer better known for founding the Intel Secrets Web site, which is dedicated to ferreting out news about the chip giant. It also has the financial backing of billionaire Paul Allen, a cofounder of Microsoft. (Allen is also an investor in CNET.)

While most observers suspect that Transmeta will come out with an Intel clone for mobile chips, some sources indicated that the company's chip may run Windows programs through a form of highly efficient emulation to avoid patent or copyright issues. This is similar to the strategy pursued by IMS and Exponential, another one-time high flyer that folded last year.

Notebooks could prove to become a good entry market for a clone maker. Power consumption has historically been a problem for Intel, and the mobile-computing market was a relatively low design priority for many years. Only recently has Intel been delivering notebook chips competitive with its desktop line.

Intel's mobile processors tend not to be cheap either, generally commanding a significant premium over desktop products running at the same speeds. Intel made strides in curbing the power consumption of its chips with the Tillamook-class Pentium MMX processors released late last year, but power consumption rose again with the proliferation of the Pentium II architecture.

"There is some vulnerability in the portable market," McCarron said. "With Intel processors, you can typically have performance or lower power but not both."

But opportunity and execution are two very different things in the business of microprocessors.

"These guys get to first base on a good design," said Steve Tobak, vice president of sales and marketing at National Semiconductor, which makes the Cyrix line of Intel-compatible processors. "Then you have brand development, channel development, intellectual property protection."

Cyrix itself went through the wringer in becoming one of the leading Intel clone makers. For years, Cyrix struggled to gain customers with its first Intel clone chips. Most of its sales went to computer dealers and regional vendors. At the same time, it had to defend against various copyright and patent lawsuits brought by Intel. Cyrix landed its first design win with a major manufacturer in early 1997 when Compaq Computer chose to use the Cyrix MediaGX, the first integrated processor, in its first sub-$1,000 PC.

That boosted the company's market share. A year later, however, production shortfalls led Compaq to adopt chips from AMD in its consumer line.

Cyrix's travails demonstrate that even if a start-up succeeds in manufacturing and brings a chip to market, there's no guarantee that PC makers will adopt it. McCarron pointed to the experience of IDT, another clone maker, as a company still looking for a sale breakthrough.

IDT came out with its WinChip last year, shipping roughly 100,000 of the processors in the first quarter. But that number promptly dropped to 80,000 in the second quarter for lack of demand. To date, no first-tier PC maker--such Compaq, IBM, Dell, or Hewlett-Packard--have adopted the IDT chip.

Pricing is also a problem. Even as PC prices continue to fall, Intel, AMD, and Cyrix are all trying to expand their market share. For newcomers, that translates to a tight market against established competitors better able to absorb increasingly small profit margins.

"Getting customers is not insurmountable. If it is cheap enough someone will buy it. These people want to out-AMD AMD. The question is, is there room enough to outmaneuver AMD. Price is Intel's weapon," said Danny Lam, director of Fisher-Holstein, an analytical firm. "People can build clones, but the question is execution."

 

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