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Intel desktop share to slip

Almost all of this year's revenue growth in Intel-compatible microprocessors for the desktop arena will go to the chip giant's rivals.

Almost all of this year's revenue growth in Intel and Intel-compatible microprocessors for the desktop arena will go to Intel's rivals, according to a new market research report.

The desktop market for x86 processors will grow 3 percent to $11.9 billion dollars in 1998, but Intel's revenues will remain flat, according to Nathan Brookwood, principal analyst for Dataquest. Declining industry prices are offsetting the chipmaking giant's increased unit shipments, Brookwood said.

Should the prediction prove true, it will likely mean changes for

1998 x86 chip revenue forecast
Category 1997 1998
desktop 11,650 11,994
mobile 4,438 5,031
PC servers 650 815
x86-based workstations 384 1,073
upgrades and others 2,456 3,808
Total 19,578 22,722
(figures in millions)
Source: Dataquest
Intel's business plan. Although desktop processors have been the company's bread-and-butter for years, server, mobile, and workstation products will have to take up the slack if Intel is to maintain margins.

Overall, revenues for x86 chips will grow 16 percent in 1998, down from 25 percent last year. Price erosion in the desktop segment, which made up 60 percent of all sales, will accounts for the slowdown.

Behind falling prices lies ever-increasing chip performance. "Historically 20 percent [of desktop PC customers] would buy the fastest thing and 20 percent the slowest and everybody else would be in the middle. Now even the slowest thing is fast enough," Brookwood said, "and that is affecting prices."

In a PC market enthralled by sub-$1,000 machines, low-cost competitors Advanced Micro Devices and National Semiconductor subsidiary Cyrix gain an advantage over the giant Intel because AMD's K6 and Cyrix's MediaGX chips cost as much as 25 percent less than Intel products. Sub-$1,000 machines have notoriously low margins, making a cheaper chip more attractive.

The price of processors is further affected by a lag in the software development world. Software developers have come out with few applications, let alone big sellers, that take advantage of cutting-edge processors. As a result, consumers are gravitating toward less-expensive computers.


CNET Radio talks to Dataquest analyst Nathan Brookwood
 
"In a nutshell, there's a lot more performance out there than most people need. Consequently, they're willing to trade off price to buy a lower-cost system that performs fast enough," Brookwood added.

To take advantage of the opening, however, both AMD and Cyrix must prove themselves reliable suppliers and also make sure there are enough circuit boards to accommodate their chips. Both companies have been plagued by production problems. A circuit board houses the main processor and other chips inside the PC.

Intel maintains roughly 90 percent of the market for x86-compatible processors; x86 is in fact the chip giant's processor architecture. (Intel is an investor in CNET: The Computer Network.)

Notwithstanding the clouded desktop market, the Santa Clara, California-based company will post revenue gains in workstations and servers, Brookwood predicted. In the workstation market, faster Pentium II clock speeds and also inroads made by the Windows NT operating system should spur sales. "The dollar growth is in workstations," he said.

Meanwhile, server prices--and therefore server chip prices--are unlikely to tumble as drastically as PC prices fell in 1997. "It's very different from the desktop market. Vendor relationships with customers and service play a much bigger role," Brookwood commented.