3D chip establishment on the run

Responding to sometimes-devastating changes in the industry, graphics chip stalwarts are shying away from trying to earn a living by making the fastest, hippest chips and are instead building cost-effective integrated chips for the low-cost computing market.

Several analysts say that because of both companies' eroding position in the market for 3D graphics chips, combined with the entry of Intel into the market this week, the move is a matter of survival. (See related story)

"Cirrus and S3 are both finding there are some [popular] chips out there that are outperforming them," says Will Strauss, a market analyst for Forward Concepts. "They both know that Intel is going to be moving more and more [graphics] onto [its processors]."

Of more immediate concern, Intel announced this week that it will soon begin shipping its own Intel740 3D graphics chip, bringing to this market the economies of scale and formidable manufacturing prowess that have made it such a threat to competitors.

Under the shadow of Intel, Cirrus is already looking to other markets. This week it released a new integrated processor for small computer-based appliances such as set-top boxes and screen phones. The chip incorporates a 32-bit RISC processor from Advanced RISC Machines (ARM) and other usually separate features on to one chip.

S3, by contrast, has not announced an integrated processor of this type yet, but recent moves indicate that it may be leaning this way.

Part of its strategy, apparently, is to obtain the intellectual property necessary to make more powerful processors. Recently, it was revealed that the company purchased the microprocessor patents of defunct chip maker Exponential. With those patents, S3 can make a new-fangled graphics processor with above average intelligence or possibly something beyond this, such as an all-in-one-chip which combines many multimedia-processing features into one chip.

In addition, S3 also entered into an extensive cross-licensing agreement with Cirrus for 3D graphics technology, which could bolster both companies' efforts.

Jon Peddie, president of graphics analyst firm Jon Peddie Associates, agrees that these companies have to shift gears. Recent high-flying graphics chip companies such as 3Dfx, 3dlabs and nVidia, he says, "are stealing market share and taking it just in time before Intel enters the market. It's tough times in 3D land."

Cirrus's new products are likely to wind up in computer devices priced below $500, Peddie says. Using a technology known as core logic, the product would integrate audio, video, and graphics into the computer's central processor.

Cirrus may target a wide variety of devices--such as TV set-top boxes and cellular phones--that run on chips with embedded graphics, video, and audio functions. The move would make sense, says Dean McCarron, an analyst for Mercury Research, who notes that even though newer graphics technologies are leaving Cirrus in the dust, the company's large patent portfolio, which consists of key technologies in a number of different areas, remains a major asset.

"While there may not be one single stellar component from Cirrus, a lot of the pieces have very significant value and in some instances are market-leading but don't get attached to the product," McCarron says. Cirrus may plan to integrate a number of those pieces into a single chip, he adds.

S3, for its part, is pursuing the integrated graphics chip market, with new graphics products that now come with memory integrated directly onto the processor.

But in the high-volume desktop PC segment, S3 is becoming more ingrained in low-cost models. Presently, most of the company's product volume for desktops is going into the low-end, according to Ron Yara, a senior VP and co-founder of S3.

In the notebook PC segment, S3 is targeted at the mid-range market. S3 chips are currently used in Compaq and Toshiba portable computers.

The recent S3-Cirrus pact could fuel both companies' drive for products in the integrated chip market. S3, which paid Cirrus $40 million for the cross-license, gets access to Cirrus's patents covering cutting-edge technology, including a graphics standard known as Talisman and state-of-the-art audio technology, pointed out Peter Glaskowsky, a senior analyst at MicroDesign Resources.

On the other side, the pact allows Cirrus to build much-needed cutting-edge graphics capabilities into its new, integrated chips. For the most part, Cirrus had jettisoned its own independent graphics effort.  

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