Packard Bell to Use Cyrix’s Low-Cost Chips
In a move that could help drive computer prices toward the $600 mark, Packard Bell NEC announced Thursday that it would use low-cost microprocessors from Cyrix Corp., a subsidiary of National Semiconductor Corp., for a range of consumer PCs.
Packard Bell NEC also became the first major company to announce plans to build products around National’s PC-on-a-chip concept. That technology, announced in April and due in products next year, could reduce PC prices even further by consolidating most PC microprocessor functions on a single, relatively inexpensive chip.
The move could strengthen both companies in their respective markets, analysts say--and challenge chip giant Intel Corp.
Privately held Packard Bell NEC, which once enjoyed a commanding lead in the U.S. consumer PC market, has seen its share slide from a combined 25.8% in the fourth quarter of 1995 to only 13.2% at the end of last year, according to San Diego-based ZD Market Intelligence. Packard Bell and NEC merged in 1996.
Packard Bell NEC hopes to use Cyrix chips to regain momentum. The company declined to specify the prices of the low-cost models, which will be introduced next week.
“For quite some time, Packard Bell was the value leader for the marketplace,” said Mark Nelson, an analyst with ZD Market Intelligence. “That went away with the introduction of the sub-$1,000 PC and all the other vendors rushing into what was traditionally Packard Bell’s market space.”
After losing momentum to Compaq Computer Corp. and other vendors, said Mike Feibus, a chip analyst with Mercury Research in Scottsdale, Ariz., “I wouldn’t be surprised if Packard Bell NEC was the first to crack the next price point, the $599-to-$699 range.”
The agreement could also pressure Intel, whose shares fell $2.88 to $74.13 on Thursday on Nasdaq.
“This is significant because it’s the first of the major die-hard Intel loyalists switching over to an alternative processor vendor,” Feibus said.
Intel has maintained a commanding 80% of industry-wide revenues for microprocessors, according to research house Dataquest in San Jose. But the chip giant has been slow to capitalize on the fast-growing sub-$1,000 PC market. Its initial offering designed for low-cost PCs, the Celeron processor, was released only last month. And computer manufacturers were unimpressed because Celeron costs more than far faster competing processors.
This rare lapse by Intel created a prime opportunity for Cyrix, as well as for the other major chip producer, Advanced Micro Devices Inc., analysts say. Plummeting PC prices have put the squeeze on computer vendors to cut costs anywhere they can. And Cyrix and AMD offer strong performance for the price, according to testing by various trade publications.
PC manufacturers also saw that Compaq and IBM used Cyrix or AMD chips in successful products, demonstrating the feasibility of moving away from Intel as sole supplier.
Unlike Compaq and IBM--which used non-Intel processors in a few selected models--Packard Bell NEC will use Cyrix chips in a large portion of its product line, said Mal Ransom, senior vice president of marketing for Packard Bell NEC.
“In the true definition of a strategic alliance, we are looking forward to using PC-on-a-chip and beyond,” said Ransom, who predicted that Cyrix chips may ultimately power more than half of Packard Bell NEC’s computers. The agreement also includes cooperation in the design of future Cyrix processors, according to the companies.
“Packard Bell can retain its relationship with Intel” for processors in its more expensive machines, said Stan Swearingen, senior director of desktop products for Cyrix, which wants to compete only in the low-cost market. “We believe that the only way we can win is if a [computer maker] uses us in a complementary way with Intel.”
The deal helps compensate for a major stumble by Cyrix earlier this year, when the company lost a key contract with Compaq because of manufacturing problems.
“Intel had gained a lot of share when AMD and Cyrix were having problems executing and delivering products that the market wanted,” said Linley Gwennap, an analyst with MicroDesign Resources in Sebastopol, Calif. “What we’re seeing now is the pendulum swinging the other way.
“Moving into next year, if the competitors are still doing well, Intel will strike back with more aggressive pricing,” he predicted.
Shares of Sunnyvale-based National Semiconductor gained 25 cents Thursday to close at $16.50 on the New York Stock Exchange.
