Chip Deals Mark New Trend

In the larger of the two deals, National Semiconductor is buying Cyrix, a developer of microprocessors compatible with Intels Pentium chips, for $550m in stock. Separately, Intel said it would pay $420m cash for Chips and Technologies, a developer of graphics processing chips for personal computers.

Both deals will provide the acquiring companies with access to critical technologies and both involve a large chipmaker purchasing a fabless chip company - one without its own chip fabrication plants.

However, that is where the similarities end. For National Semiconductor, the acquisition of Cyrix represents a bold move to gain a headstart in the market for information appliances, which give access to the internet and perform basic personal computing tasks.

 

In contrast, Intels acquisition of chips and Technologies, which has developed graphics accelerator chips for use in notebook computers, fills a gap in its technology portfolio.

National plans to combine Cyrixs microprocessor technology with its existing products to build PC on a chip devices that incorporate all of the functions of a PC on a single chip.

Brian Halla, National chief executive, says the company will bring these system chips to market by May 1998. The devices will spur a new market for information appliances costing less than $ 200, he says.

As part of National Cyrix may also become a more potent competitor in the established PC microprocessor market. Currently, Cyrix holds only a tiny share of this market, dominated by Intel, the worlds largest chip maker with an 85 per cent market share.

Until now, Cyrix has relied on IBM, its manufacturing partner, to produce its chips. This has been a drawback as it meant the company was unable to match the low costs of Intel, with its own state-of-the-art plants. Now Cyrix will have access to Nationals manufacturing facilities, including a new chip plant in Portland, Maine, as well as Nationals foundry partners.

Louise Kehoe

Intels acquisition of Chips and Technologies is aimed at consolidating this leadership. It also reflects its strong emphasis on visual computing, or technologies that allow realistic three-dimensional graphics and full-motion video.

Andy Grove, Intel chairman and chief executive, believes enhancements of the graphics capabilities of PCs are the way to ensure that they win the battle for consumer eyeballs and become as ubiquitous as the television set.

The Chips and Technologies acquisition may help Intel towards that goal, analysts say. However, they note that the targets leadership has slipped in the market for graphics chips used in notebook computers.

For Intel, acquiring rather than developing technology in-house is an unusual move. The acquisition is its largest and may signal a new willingness to make such purchases, analysts say. If so, Intel has the resources to snap up several promising chip developers, a prospect that could add to the value of several of its Silicon Valley neighbours.