Chipmaker IDT also looking for help

IDT, which manufactures the WinChip family of low-cost PC processors, is currently looking for a "partner" that will provide the company with financial backing and marketing clout so that it can continue in the PC processor market, said Dave Cote, vice president of marketing. In exchange, IDT will potentially give its partners anything from a cross-licensing of intellectual property to an equity stake in the company.

"We are looking at a number of different scenarios," he said. "We can't do this alone."

And, while Cote said that IDT is not looking to sell the WinChip division, some sources have said that the some of the proposals that have been floated by IDT would effectively amount to a sale. Cote also did not rule out the possibility of a sale, he said. But the company wants to avoid that.

IDT's efforts, combined with Wednesday's announcement from National that it will sell off most of its Cyrix processor division, highlight the competitive pressures that have emerged in the processor market.

"You need multiple development teams so you have multiple projects going on simultaneously," said Nathan Brookwood, an analyst at Insight 64. "The danger for IDT and Cyrix/National was that they didn't have the resources to do the current generation of products and future generation of products?It's a tough battle."

Like National, IDT's exit strategy is prompted by declining processor prices and increased competition in the consumer space. In 1997, both companies operated under the assumption that Intel would not try to play a significant role in the sub-$1,000 computer market, thereby leaving a sales opportunity for these smaller players.

The assumption proved incorrect. Both Intel and AMD attacked this segment with vigor, causing an acceleration in price cuts an processor performance. Currently, IDT's chips sell for between $26 and $42 at retail, close to an estimated manufacturing cost of $25 or less. At the same time, the performance gap has widened. IDT's fastest chip provides performance that is equivalent of 300 MHz, which is toward the low end of the spectrum.

"It's not as much the pricing, but Intel's acceleration of performance," said Cote. Most of IDT's customers so far have come from emerging markets such as India. The number of chips it ships per quarter ranges from about 250,000 up to less than 500,000.

IDT's moves to prop up WinChip fit with the current market trends.

"I don't think it's been doing that well," said Fred Zieber, an analyst at Pathfinder Research. "If you have to compete in the X86 market at the low end, it's really tough."

Both Cyrix and IDT have recently become active in the "free PC" channel because of their low prices, said Kelly Spang, semiconductor analyst at Technology Business Research.

Who will step forward?
One of the main questions now is who, or whether, a white knight exists for either company.

IBM is currently touted as one of the lead candidates to buy the Cyrix operation, although some sources indicated that Big Blue cut off negotiations to purchase the unit before National's announcement. AMD has also been identified as a potential suitor, but the company's recent financial traumas make that less likely.

In any event, whoever enters the processor market will have its work cut out, said Brookwood. To seriously compete against Intel, a competitor will have to have two design teams, some decent factories, and an ability to execute on a strategy without stumbling. Purchasing Cyrix would give a company one group, but a suitor would have to take it and "cross pollinate another group."

Time is also of the essence. In making a bid, the buyer is essentially looking to get the engineering team as well as the intellectual property underlying the chip designs. "The intellectual property without the engineering team is of marginal utility."

With the prospect of a sale, however, resumes are already likely hitting the streets.