Intel, National Semi Present Separate Deals and Visions
In a tumultuous day in the semiconductor industry, Intel Corp. and National Semiconductor Corp. announced separate deals Monday that reflect vastly different notions about the future of computers.
Intel started the hectic day by announcing that it would spend $420 million in cash to purchase Chips & Technologies Inc., a San Jose company that is a leader in chips that improve the ability of portable computers to process graphics.
Later, venerable National Semiconductor disclosed its agreement to buy Cyrix Corp., a Richardson, Texas-based company that is one of Intel’s most persistent rivals, in a stock swap valued at $550 million.
Intel’s acquisition fits neatly into the Santa Clara, Calif.-based company’s strategy to continue to drive demand for computers by cramming so much technology into each machine that consumers and businesses crave each new generation of products. It is a strategy that sees the powerful personal computer as the central appliance in people’s lives, whether at work or at play.
National and Cyrix, however, described their deal as an alliance bent on knocking the traditional PC from its perch. Executives from both companies talked of pushing computer prices below the $500 mark and building versatile processors on a single, inexpensive chip that could be used in an array of products--hand-held computers, set-top Internet boxes and other devices--that many believe could someday be far more pervasive than traditional PCs.
Nathan Brookwood, an analyst at Dataquest in San Jose, said both deals strengthen the respective companies involved, even though the philosophies behind them are so different.
“One of them is gearing up to make a single box more powerful,” Brookwood said. “The other is saying they’re going to chip it into a lot of little boxes and sprinkle them over the countryside.”
Chips & Technologies shares jumped $3.06 to $17.01 on Nasdaq, and Cyrix shares gained $1.81 to $23.06, also on Nasdaq. National Semiconductor fell 56 cents to $33 on the New York Stock Exchange. Intel eased 63 cents to $88.56 on Nasdaq.
Founded in 1988, Cyrix has had mixed success trying to undercut Intel with microprocessors that run the same software but cost less. But while Intel boasts an ever-growing array of fabrication plants, Cyrix makes none of its own chips and depends entirely on a long-standing manufacturing contract with IBM.
Santa Clara-based National Semiconductor has production facilities that could help Cyrix compete with Intel. But the relationship with IBM will continue, executives said.
“If we’re successful, we’re going to need all that capacity,” said Brian Halla, chief executive of National Semiconductor.
National makes other processors that link computers to networks, cable modems and other devices and systems. It has struggled in recent years, and its 12,500 employees now represent about a third of its work force at the start of the decade.
For the fiscal year ended May 26, National reported net income of $27.5 million on sales of $2.57 billion. In the year ended Dec. 31, Cyrix reported a loss of $25.8 million on sales of $183 million.
Executives said there are no layoffs planned.
Intel’s acquisition of Chips & Technologies stemmed from work the companies had teamed on for the last 18 months as part of a project to develop better graphics for desktop PCs. Chips & Technologies is best-known for making processors that speed up the graphics capabilities of portable computers.
Intel has for years been enamored of the graphics capabilities of computers and sees videoconferencing and other visual technologies as key to the future of the PC.
Ironically, Intel had sued Chips & Technologies in 1992 in a patent dispute centering on a different technology. The suit was settled in 1993.
“That was then, this is now,” Intel spokesman Tom Waldrop quipped.
Chips & Technologies will become a subsidiary of Intel, Waldrop said, and for the time being will continue to sell its products under its own name. He said no layoffs are planned.
Meanwhile, Intel on Monday cut prices on its line of best-selling microprocessors, which, according to analysts estimates, are the electronic brains inside about 85% of the world’s personal computers.
The company typically cuts prices every quarter as manufacturing efficiencies emerge and aging products need a boost to keep sales flowing. But some of Monday’s price cuts were more dramatic than usual. Intel dropped the price of its top-flight Pentium II by 57%, for instance, from $1,981 to $851 apiece.
The cuts prompted an immediate response from Advanced Micro Devices, as the company said it would keep its pledge to maintain prices 25% below Intel’s.
Sunnyvale-based AMD and Cyrix have been chasing Intel for years and have only a fraction of the giant company’s manufacturing capacity. But the two companies have impressed analysts in recent months by introducing chips that rival Intel’s top performing microprocessors at much lower prices.
