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IBM forced out of Intel chip market

IBM will have to discontinue its line of 6X86 MX processors as a result of the termination of its foundry agreement with National Semi.

The first casualty of the low-cost processor market is paradoxically one of the largest players in the computer industry: IBM.

IBM will have to discontinue its line of 6X86 MX processors as a result of the termination of its foundry agreement with National Semiconductor, according to sources at National. The chip has been used in Aptiva consumer computers sold in Europe and Canada as well as computers from regional domestic dealers like Tiger Direct.

The IBM line disappears because Big Blue will no longer have access to the chip designs of Cyrix, the microprocessor division of National, said National sources.

IBM's 6X86 MX line is based around the design of the Cyrix 6X86 MX chip. Earlier today, National announced that it is terminating its chip manufacturing deal with IBM. As part of the breach, National separately admitted that IBM would also no longer get access to the Cyrix designs.

"They do not get to make Cyrix (based) chips anymore," said Alan Bernheimer, a National spokesman. The termination of the deal will be complete by the end of the year.

IBM did not command a huge segment of the market, but its financial and manufacturing heft made some analysts believe that the company would begin to make a larger push into the market.

The demise of the IBM-branded chips can be attributed to current economics and processor politics. For years, IBM has served as the chip foundry for Cyrix, a major Intel clone vendor that National acquired last year. Under the arrangement, Cyrix owned specific chip manufacturing equipment inside the IBM processor foundry.

As payment, IBM kept half of certain types of chips produced, including Cyrix's X86 processors, and marketed them under their own brand name. Cyrix also gave IBM access to its chip designs.

The marriage was largely one of convenience. Although it had a license for Intel's intellectual property, IBM did not have its own chip designs. By contrast, Cyrix had chip designs, but lacked both an Intel license to insulate itself from legal claims and a factory.

While the deal allowed Cyrix to compete in the market, it wasn't cheap. In addition, IBM competed against Cyrix for design wins, said sources inside National.

That changed when National acquired Cyrix last year. National has one of the oldest and most extensive cross-license agreements with Intel in the industry. National, for example, is one of the few companies that can legitimately make a "Slot 1" Pentium II-style chip through its licenses. National also has a fairly advanced chip manufacturing facility in Maine.

National last year said that it would begin to shift more of its microprocessor manufacturing away from IBM and to its own factories to reduce its manufacturing costs.

Although IBM will phase out its X86 line, it does not mean that IBM will leave the market entirely. The company earlier in the year signed a broad cross-licensing agreement with ST Microelectronics. ST is working on an Intel clone chip with Metaflow, according to sources at Metaflow. Although the full legal nuances are not entirely clear, chip analysts have said that the deal appears to give IBM access to the chip designs of ST and Metaflow.

IBM also has manufacturing agreements with Intel clone vendor Integrated Device Technology.

IBM said that the termination of the deal means that they will exit the Intel clone market for now, but could re-emerge.

"This is our only offering in the Intel space, but this does not mean that people should count us out," said Bill O'Leary, an IBM spokesman. IBM has a cross-licensing agreement with ST, he admitted.

"I suspect that this is the end for IBM as far as the Cyrix designed cores go, but IBM still has access to intellectual property from IDT and ST," said Dean McCarron, principal analyst at Mercury Research. McCarron said that the phasing out process will mean IBM will be selling chips through the first quarter of 1999.

National has had a difficult financial year. It has reported subsequent financial losses and announced that it will lay off 1,400 employees during the year. It also mandated furloughs for all employees in an effort to save money.