August 19, 1999 5:00 AM PDT

Intel retreats from graphics chips

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The world's largest and most profitable chipmaker can't seem to cut it in the graphics world.

Intel is getting out of the business of making discrete graphics chips for personal computers, according to a company spokesman, a market it entered less than 18 months ago to fanfare and dismal sales. The company will continue to produce "integrated" chipsets, which combine a standard PC chipset with a graphics processor, but these products will likely remain targeted at computers selling for $1,000 and less.

The retreat is the result of poor sales and mediocre products, critics say, and is merely the latest in a series of missteps by Intel in this market.

In 1997, the company purchased notebook graphics chipmaker Chips and Technologies, a deal that closed last year at a cost of about $430 million. So far, no products taking advantage of technology acquired in the merger have emerged, sources inside and outside the company say.

"It [graphics] has been a pit for them for years," said Peter Glaskowsky, analyst at MicroDesign Resources. This most recent push, in fact, is only the latest failure. Intel tried graphics chip designs in the early 90's, but these never saw the light of day.

In 1998, the company released its first graphics chip for desktops, the i740. Many industry executives and analysts predicted that Intel's financial and manufacturing muscle would make the i740 a fixture in the PC graphics world.

Competitors, however, quickly released chips that outperformed the i740. Intel had to sell the chip at fairly low prices to dealers in Asia, sources said, and the i740 was eventually canceled.

Moreover, the recent decision to get out of standalone graphics chips means the death knell for similar products. Intel has scuttled the 752, a graphics chip for desktop PCs introduced in April, as well as its successor, a chip called the 754 that was once destined for the second half of this year, the company spokesman said.

A third chip, a future notebook graphics processor code-named the Mount Blanc, has also been terminated, sources said.

The 740, 752, and 754 chips were based on technology from a company called Real3D, in which Intel had invested. Intel also took a $24 million stake in workstation graphics specialist Evans & Sutherland last year.

The remaining graphics product Intel has left on the market is the 810, a chipset that combines a traditional PC chipset with a two- or three-dimensional processor. Early versions of the 810 contained a bug, according to Intel, but those problems have been fixed.

The company's lackluster performance can be attributed partly to its size. Unlike Intel, most graphics companies are relatively small and nimble.

"They literally have all the resources they need. They have a huge engineering staff and all the IP [intellectual property] protection they need. They have the manufacturing," said Jon Peddie, president of Jon Peddie Associates, a consultancy based in Tiburon, California. "But they are just too comfortable. They just don't have the same sense of panic that the smaller companies like Nvidia have."

The Chips and Technologies acquisition, Peddie added, seems to have been a mistake. "They bought what they thought was the market leader," he said. In fact, the company was already on the way down, losing market share to NeoMagic, the current leader in this arena.

Although Intel will continue to make integrated chipsets, success there could also be difficult. Such integration tends to degrade graphics performance, experts say.

Graphics chips are also relatively cheap: A fast 3D processor can sell for $20 to $40. As a result, high-performance PCs will likely continue to depend on standalone chips over an integrated product.

Intel may resort to licensing the graphics component for these chipsets rather than make it on their own, speculated Glaskowsky.

"Intel seems committed to the 810 and subsequent integrated core-logic products, but if it cannot also deliver competitive discrete graphics chips, it should reconsider its decision to develop the necessary graphics technology in-house," he wrote in a report today.

The 752, he added, "failed to receive even the modest welcome" anticipated from computer makers.

 

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