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Acer's IBM deal to promote XCs

By manufacturing its own "system-on-a-chip" microprocessors, Acer can further its goal for XC information appliances.

As part of its strategy to become a low-cost leader through its "XC" information devices, Acer has licensed microprocessor manufacturing technology from IBM so that it can potentially supply itself with processors.

If successful, the move could prove a trump card for Acer in its strategy to become the king of intelligent devices, which Acer calls XCs. By manufacturing its own "system-on-a-chip" microprocessors, Acer could ensure itself a steady supply of low-cost chips specifically tailored to suit the variety of XC devices Acer plans to bring to market.

At the same time, a shift to microprocessors will allow Acer to gracefully convert its DRAM manufacturing capabilities to a more profitable use.

Under the terms of the deal, Acer Semiconductor Manufacturing, the semiconductor unit of the Taiwanese electronics giant, gets access to the underlying technology and specifications behind IBM's 0.35 and 0.25-micron manufacturing processes, according to an IBM spokesman. With this technology, Acer will have the ingredients to create its own microprocessor facility.

"They will have from us the rights, some training, and the specifications to set up a fab," the spokesman said. "They will be able to retool their facilities to manufacture [microprocessors]." A "fab" is a chip fabrication facility.

Acer chairman Stan Shih said at a press conference this morning that the deal will allow Acer to develop system-on-a-chip microprocessors, which are at the core of XC-like devices. These chips integrate logic and memory.

An Acer spokesman said that the company has not definitively stated that the company has set out on course to make its own chips for its XCs, but admitted that the strategy could be inferred from Shih's announcements. XCs, the spokesman added, will be based on the Intel architecture, but "not necessarily based on Intel's processors."

XC are essentially low-cost, limited-function devices centered around standard computing technologies. The concept includes handheld computers, gaming consoles, home Internet banking units, and other products. Earlier this week, Acer introduced the first five XC prototypes. These devices will start to come to the U.S. market later this year or in early 1999 and range in price from $199 to $1,000.

By leveraging common PC standards and capitalizing on the company's production of LCD screens and other components, Acer can take out much of the economic risk inherent in introducing new form factors.

"The new products always involve a lot of risk in the market, being accepted in the market. You have to commit to [large] volumes, but if you don't hit it, you have inventory problems," Shih said. "We already have orders for PCs. With open architectures, we can share the risk."

Like other manufacturers, Acer has been hard hit by the two-year slump in memory prices. Earlier this year, Acer took over control over a manufacturing facility that was jointly owned by Texas Instruments.