Intel’s Imitators : Clones of 386 and 486 Chips Fuel Competition

Only 18 months ago, Intel Corp. had a monopoly on the 386 and 486 computer chips that power most advanced personal computers.

PC manufacturers were totally dependent on the Santa Clara semiconductor giant, and all a PC buyer really needed to know was which Intel chip was inside his machine.

Today, however, the computer chip market has become a brutal competitive battleground. Intel is being challenged not only by longtime rival Advanced Micro Devices, but also by the likes of upstart Cyrix Corp. and a revamped IBM.

The result: lower chip prices, a slew of new choices for PC manufacturers and customers alike--and a lot of confusion.

The battle is likely to heat up in the months ahead. At the Comdex computer trade show here this week, Richardson, Tex.-based Cyrix introduced a chip that it says will allow owners of 386 machines to upgrade to the speedier 486 for just $400. IBM, which only recently began to sell its own 386 and 486 chips to other companies, vowed at Comdex to make a broad assault on that market. IBM will also be peddling a chip that allows owners of older-generation 286 machines to convert them to 386s.

Advanced Micro, for its part, has already captured about half the 386 market with strong products and aggressive pricing. It is poised to launch its own 486 if it wins its latest legal battle with Intel.

Intel is fighting back on all fronts, demanding that PC suppliers that use competing 386 and 486 chips pay royalties on patented Intel technology that’s used in any 386 or 486 machine.

Not everyone is sure the sudden outbreak of competition is good for PC customers or suppliers. “Customers are going to have a very difficult time differentiating,” says John Roach, chairman of Tandy Corp., citing the confusing welter of products from various vendors. “It’s going to be more difficult for them to buy what they think they’re buying.”

But others say the industry will benefit from a greater variety of products and lower prices.

“The PC industry is not healthy, and the reason it’s not healthy is because there’s only been one designer,” says Jerry Rogers, the feisty former Texas Instruments executive who now runs Cyrix. “We think we know how to do microprocessor design.”

Cyrix, however, has been unable to persuade leading PC makers such as Compaq, Dell and AST Research to use its chips.

But it has signed up a number of smaller companies, including Compuadd, Gateway and Zeos, which are eager for a source of lower-cost chips that provide performance comparable to Intel.

And analysts say many owners of 386-based PCs will be attracted by the option of upgrading their machines at a relatively low cost.

Cyrix has cut a deal with Xerox Corp.’s computer maintenance division under which Xerox technicians will install the 486 upgrade, and it may soon be available in computer retail stores as well.

But Cyrix, with revenue of about $100 million a year, will have its hands full holding off Intel.

The Santa Clara company’s “Intel Inside” marketing campaign is designed to build brand loyalty among customers. The company has successfully encouraged many customers to convert from the 386 to the 486 chip, where competition is less stiff.

Intel has also sued Cyrix for patent infringement and asserted that Cyrix’s chip won’t perform the same functions as Intel’s 486 processor.