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Chromatic eludes Intel's grip

The multimedia chipmaker heaves a sigh of relief after signing up Gateway for its Mpact chip, but Intel is not far behind.

Gateway 2000 (GTW) announced today that it will use Chromatic Research's Mpact media processor, much to the relief of Chromatic executives.

Chromatic executives say Gateway will be only the first in a series of major computer makers to sign up for the Mpact chip, announced to great fanfare last year. (See related story)

But observers say the Gateway deal couldn't have come at a better time for a company locked into a taxing race against chip behemoth Intel (INTC).

Chromatic's Mpact media processor consists of hardware and software and works in conjunction with the CPU to provide crisper video, audio, and 3D and 2D graphics.

Intel didn't use to be that interested in multimedia, leaving it to specialty chipmakers like Chromatic. But now that it has nearly cornered the market for PC processors, the chip giant has decided to also make multimedia its own.

The company is developing its own multimedia processor, according to several industry sources, as well as refining its MMX multimedia technology to eliminate the need for low-end graphics boards and sound cards.

Earlier today at the E3 trade show in Atlanta, Intel also pledged to reduce the cost of running DVD on PCs by developing new decoding software to replace the specialty processors now in use. (See related story)

With Intel bearing down on their market, multimedia chipmakers like Chromatic are under pressure to develop more complex technologies while maintaining low costs.

"The development that you're going to do for a multimedia processor will be at the complexity of developing a 486 chip or a Pentium that you sell for $40," said Elias Moosa, semiconductor analyst at Robertson, Stephens. "The treadmill has been on a stiff pace."

Today's deal with Gateway is the best news Chromatic has had in a while. Gateway will use the Mpact 3600 for its Destination PC-TV. Another major PC vendor is expected this month to announce a DVD add-on board with the Mpact chip. A third is likely to make a similar announcement in August, said John Monti, Chromatic director of product marketing.

In the third quarter, Chromatic will also introduce a new version of the Mpact chip, called Mpact 2, that the company says can be used for a combination 3D, DVD, and 2D graphics accelerator card.

The new chip is Chromatic's attempt to stay ahead of Intel. But it's not clear if the company can do it. (Intel is an investor in CNET: The Computer Network.)

"None of the commercially available Intel processors are fast enough to do DVD coding in software," said Peter Glaskowsky, senior analyst at the industry newsletter Microprocessor Report. "But I'm pretty sure a 300-MMz MMX Pentium can."

Chromatic doesn't have a lot of cash to throw at the problem. The company lives off roughly $25 in software licensing fees for each Mpact chip sold. Chromatic doesn't even manufacture the processor itself: it licenses the chip design and the required software to chip manufacturers such as Toshiba, which subsequently sell the chip to a board manufacturer. The board maker pays about $40 per chip, but only part of that gets back to Chromatic.

It would look pretty dire for the company except for the seemingly insatiable appetite of PC users for more speed.

"The question is when will we get to the point where there are enough multimedia MOPS [millions of operations per second]. We are betting never," Monti said. "It's an application of Moore's law."

If Chromatic can stay on the cutting edge of this curve, than it will likely keep ahead of Intel.