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IDT to quit Intel chip-clone business

Plunging processor prices hit another company as the designer of Intel-compatible chips gets ready to exit the market.

Plunging processor prices struck again as another designer of Intel-compatible chips is getting ready to exit the market.

IDT, which designs and manufactures the WinChip family of low-cost PC processors and other products, today said it will stop selling clones of Intel products, so-called x86 architecture chips. By far the industry's leading design, Intel's x86 chips shipped in more than 75 percent of the world's personal computers in the fourth quarter of 1998, according to International Data Corporation.

IDT will try sell its intellectual property and its Centaur design subsidiary to another company. IDT hopes to complete the sale by September 30; it will consider completely shutting down Centaur "only if there are problems with negotiations," said a company spokesperson.

Recently, IDT had admitted it was seeking outside investors to help in its effort.

As with AMD and National Semiconductor, IDT's problems stem from trying to compete against an economic behemoth at a time when processor prices are dropping. The company simply can't sell enough processors to make the operation profitable, especially because chip price cuts have accelerated this year.

The announcement came as the company told investors its earnings reached $8.5 million, or $0.09 per diluted share, on revenues of $154 million. A year ago IDT logged a $50.9 million loss.

The company said it does not expect to incur any significant costs associated with the Centaur shutdown other than writing off inventory of remaining WinChip products.

"The company's ability to drive increased revenue and profits by participating in this highly competitive marketplace has not met our expectations," said Len Perham, chief executive of IDT, in a statement.

Laments of unmet expectations can be heard at many companies in the low-end of the PC market.

AMD today reported a net loss of $162 million and the resignation of Atiq Raza, the company's president and heir apparent to CEO Jerry Sanders. In June, National Semiconductor exited the PC processor market by selling its Cyrix subdivision to Via Technologies.

Even Intel reported lower-than-expected earnings yesterday. Nearly all of these events come as the result of the price war.

Executives at IDT had disclosed in May that the company was looking for a partner to take on the cost of selling chips compatible with Intel's basic chip architecture.

"What they [IDT] needed to do was sell millions of parts, and that just didn't happen," said Dean McCarron, principal analyst with Mercury Research.

While the company was able to offer a chip with one of the lowest production costs of any Intel-compatible chip, they weren't able to keep up with the rest of the market in terms of chip speed, he noted. IDT was offering cheap chips that ran at 266 MHz, but the rest of the market was offering chips running at 350 MHz and higher--at prices too close to IDT's offerings.

IDT said it has received "expressions of interest from multiple parties" for its technology and design team, but it declined to name those parties.