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Intel gives in to chip integration

The thriving low-cost PC market will drive the company to combine more features on the main processor, a move it had previously resisted.

LAS VEGAS--The low-cost PC phenomenon will drive Intel to put more of the PC inside its chips.

Integrated processors--a move that Intel has criticized and avoided in the past--will be coming out of the company in 2000, said a company executive here at Comdex, escalating a push to make its chips more competitive.

The integrated chips will be for low-end computers, said Paul Otellini, vice president of server architecture at the company, a segment where Intel has recently lost market share.

The company is now facing unsettling market share incursions as AMD and National Semiconductor's Cyrix arm capture more and more this crucial turf. For instance, more than half of the sub-$1,000 desktop retail PC market has gone to AMD in recent months, according to market research houses.

More evidence of this was provided yesterday when Compaq rolled out new consumer PCs with high-speed Internet connection technologies such as DSL (digital subscriber line) modems. Three of the four new models came with AMD processors. The one high-end system used an Intel processor.

Intel's plan is to take features typically found in other chips in a PC and combine them with the main processor, said Otellini.

"In 1999 you well see integration of a lot of functions on the chipset, and in 2000 you will see integration between the processor and the chipset to take advantage of the transistor budget," Otellini said.

"We are not willing to live with the [market] share we have," he said. "We will win the business back [model] by [model], company by company."

The move is interesting in the fact that Intel has said several times in the past that it was not interested in integrating additional functions onto the processor itself, a concept that has been touted by National Semiconductor for the past few years.

Intel has hesitated to do this in the past because different chip technologies move at different speeds. Graphics chips, for instance, have been increasing in performance faster than microprocessors in recent years. So, integration of a graphics chip into the more slowly evolving main processor, for example, could hamstring computer vendors seeking the best in available technology, although integrated chips as a whole are cheaper.

But in the low-end PC market this is a realistic option because consumers buying these machines tend to be less fussy about having the absolutely latest and greatest technologies in their systems.

"The K6-2 is the highest price-performance processor for the consumer," said Rod Schrock, a senior vice president in charge of the consumer products group at Compaq, who spoke glowingly of the performance of this low-cost chip. Intel also has a new low-cost Celeron chip on the market which Compaq has used on other systems in the past.

So far, the Media GX processor from National's subsidiary Cyrix is the only integrated microprocessor on the market. The Media GX, among other functions, combines graphics and communications functions onto the processor.

Intel sources in the past have said the company will integrate functions, such as 3D graphics, into companion chips--called chipsets--but have generally stood against integrating functions into the main processor itself. Otellini's statements, however, indicate that Intel has decided to go down the integration path with processors as well.

Part of the move to integrated chips comes from the fact that Intel will be using the more advanced 0.18-micron manufacturing process by then, which can squeeze more transistors onto each chip.

Integration will likely help shave costs for PC makers because they will no longer have to include a separate graphics or modem chip. And, in this market, every dollar counts. The difference in cost between a complete motherboard and chip solution based around AMD technology and a solution based around Intel is around $2 in AMD's favor. If cache memory is counted, Intel is cheaper by around $7 to $10, he said.

Despite losing market share, Otellini said that sales of Celeron processors are doing well. Sales quadrupled from the second quarter to the third quarter, and will double again in the fourth quarter.

Intel is an investor in CNET: The Computer Network, publisher of News.com.