Manufacturing Deal Between IBM, Cyrix May Put a Chip in Intel’s Grip
Intensifying the microprocessor industry’s assault on giant Intel Corp., IBM agreed Thursday to produce leading-edge computer chips designed by a small Texas company that has struggled for years to put a dent in Intel’s dominance.
Analysts said IBM’s deal with Cyrix Corp. of Richardson, Tex., could enable the companies to snag a significant share of the market for hot new microprocessors, which serve as the brains of personal computers. They added that consumers stand to benefit if the stepped-up rivalry with Intel continues to drive down prices.
Under the five-year contract, IBM will manufacture Cyrix-designed chips that are lower-cost versions of Intel’s popular 486 microprocessors.
In addition, Cyrix will use IBM technology in its M1, an advanced chip yet to hit the market, and successive versions. The M1, which Cyrix said is due out by year’s end, is expected to equal or surpass the speed of Intel’s Pentium, the latest generation in the x86 family, but sell for much less.
Among investment analysts giving Cyrix shares a boost after the announcement was Michael A. Gumport, a senior vice president at Lehman Bros. in New York. Although he expects Intel to do “extremely well” during the next year, he said the IBM-Cyrix alliance will undoubtedly take business from the Santa Clara, Calif., company. Industry reports put Intel’s share of the microprocessor market at 75% to 80%.
“We like companies long-term who are gaining share, not losing it,” Gumport wrote in a report Thursday. Gumport projected that Cyrix’s 1994 earnings per share will amount to $1.30, or 5 cents ahead of his previous forecast.
In 1993, its first year as a public company, Cyrix reported earnings of about $20 million, or $1.06 per share, on sales of $125 million. By contrast, Intel made $2.3 billion on sales of $8.78 billion.
In Nasdaq trading Thursday, Cyrix shares jumped $2.688 to close at $29.188. Intel tumbled $3.875 a share to $59.875. On the New York Stock Exchange, IBM gained $1.50 to $53.875.
Although Cyrix has more to gain from the alliance, IBM profits by making use of idle factory space. In a statement, IBM acknowledged something widely suspected: that it has been making Cyrix’s 486 microprocessors since September.
In addition to supplying chips to Cyrix, which has no factories of its own, IBM also now has the right to make an equal number for its own use or for selling to other computer manufacturers.
The deal follows IBM’s decision in January not to manufacture Pentium chips for Intel. Under a 13-year agreement with Intel, IBM had been making x86 chips but had been constrained from selling them on the open market.
“For us, the x86 represents an immediate market opportunity,” said Ron Soicher, an IBM Microelectronics marketing executive.
However, Intel spokesman Howard High noted Thursday that “it’s not automatic” that IBM’s personal computer manufacturing company, for example, will buy IBM-made microprocessors. Intel is the chief supplier of microprocessors for IBM PCs.
Intel has been hit from several sides lately. It faces potentially stiff competition from the PowerPC, a speedy chip developed by Apple Computer, IBM and Motorola. Last month, Advanced Micro Devices Inc. won a pivotal victory against Intel in a long-running legal battle over copyright. In February, Intel settled several issues in a complex patent-infringement dispute with Cyrix.
