Although National holds a relatively small market share in processors, the effect of the decision will likely be important because of its singular personality in the marketplace. Cyrix is one of the leaders in providing processors to sub-$500 computers. Without Cyrix, whose processors cost less than those from AMD or Intel, those PC prices could rise.
"If you look at the economics of the processor market today, with less competition at the lower end of the market, you won't see products that will be able to hit the $299 price point consistently," said Mark Marlowe, director of marketing for PC maker iDot.
And, while AMD could gain market share from National's decision, the exit might also create problems. Without Cyrix, AMD will find itself largely alone in taking on Intel.
On the other hand, if a company such as IBM picks up Cyrix's engineers and designs, Intel could find itself up against a formidable foe. IBM, however, may not be in the market. Some sources said that negotiations for IBM to buy Cyrix had been going on for weeks, but broke off recently.
"The whole PC processor business is one hell of a treadmill," said Dean McCarron, principal analyst of Mercury Research "It takes a lot of running to keep up."
"I don't think it's a positive thing for the PC market," said Stephen Baker, an analyst with PC Data. "It's a lose-lose situation for everybody until someone can find a way to make money at the low end of the market."
Earlier today, National announced that it will exit the PC-processor business and instead concentrate on the MediaGX family of processors for set-top boxes and Internet appliances. Under its exit strategy, National will sell a majority stake in its South Portland, Maine, fabrication facility as well as the design team, brand name, and intellectual property for its Cyrix MII microprocessor.
National will also likely phase out the Cyrix brand name, said Steve Tobak, vice president of corporate marketing for National.
Processor price declines lead to the decision. "The [microprocessor] business has been unprofitable for the last several quarters," said Tobak.
Although Cyrix helped create the sub-$1,000 PC segment in February 1997, competitors have been dropping prices and ratcheting up the speed of chips faster than Cyrix could keep up. Cyrix's average selling price is around $45 dollars, said McCarron, with products ranging from the $30 to $60 range. AMD's average selling price is around $80 with products starting at around $45. Intel maintains an average selling price of $200, bolstered by high-end server chip profits.
Cyrix's fastest chips run at 250 MHz but provide a performance level equivalent to a 366-MHz chip, according to Cyrix. Both Intel and AMD have consumer processors above 450 MHz.
"They went back and forth a lot from being on the verge of success to catching up," said McCarron.
National has been shipping roughly 1.5 million processors per quarter. If AMD were to pick up these sales, the company would get a 20 percent boost in sales. Nonetheless, the exit may not be all beneficial. Both Cyrix and AMD depend upon the "Socket 7" architecture, although Cyrix was planning on converting to the "P6" architecture of Intel. With Cyrix gone, motherboard and chipset vendors may have to question their commitments to the architecture.
"Without Cyrix, anyone making those products is making them for AMD," McCarron said.
Smaller processor companies like Rise could be a winner as well, because their chips cost even less than Cyrix's MII. However, these companies are still in the stage where they have to prove to PC manufacturers that they can meet their volume production commitments.
Interestingly, the big winner eventually could be IBM. IBM for years has contemplated getting into the "X86" processor business. In fact, Big Blue used to manufacture Cyrix parts. By buying the Cyrix design team and factory, IBM could jump into the market immediately. IBM also has a broad cross-license with Intel, so it effectively could create a Pentium III clone.
"I still think IBM is kind of interested in the processor industry," said McCarron. Another possible purchaser could be Samsung, he added.
National's move puts PC makers using Cyrix chips in the position of scrambling to reassure customers and distributors that product plans will remain in place, while conceding that the news may put the brakes on PC price drops for the time being.
These companies say that the immediate impact of the move will be inconsequential. There are enough chips in inventory to guarantee existing PC shipments, and PC makers are optimistic that Cyrix will be acquired by another manufacturer. But if Cyrix drops out of the market altogether, the huge PC price cuts of the last two years may be over.
"In the short term, the effect will be negligible. There is ample supply available for the next few months," said iDot's Marlowe, which is set to announce a $349 Cyrix-based PC on Monday. "But any future products are probably suspect."
Marlowe learned about National's decision from news reports today. "I think everyone's surprised by this announcement. I'm sure National's sales rep's have gotten a lot of phone calls today," he said.
The company will probably switch over to AMD for future products, he said. "AMD makes superior chips," compared to processors from other companies like IDT. However, AMD processors are more expensive, and the recent trend of bargain-basement $299 computers may be over without Cyrix around to drive price cuts from Intel and AMD, he said.
"That same [Cyrix-based] system will probably go up to $399," with an AMD processor, he said. "This will probably have some impact going forward--as Cyrix processors start disappearing, prices will go up a little bit."
Other low-cost chips already in place
Although other low-cost PC makers are optimistic that Cyrix as a brand will continue under another company, they argue that the processor market is competitive even without Cyrix.
Emachines, which has come out of nowhere to lead the sub-$500 PC segment, offers Cyrix processors in several of its lowest-priced models. But even before National's announcement, the company had announced new systems with low-end Intel and AMD processors, and seemed to be moving away from Cyrix.
"We're sorry to see National exit this market segment, but it will have no effect on our business," asserted Stephen Dukker, CEO of Emachines. "Everything is in place for our Q3 products."
Other low-price PC companies echoed this sentiment. Microworkz, which sent ripples through the PC world earlier this spring when it announced the $299 Cyrix-based PC, will not change its current lineup because of National's decision, said Mark Palmer, vice president of Microworkz.
Palmer, who heard the news a few days ago, is optimistic that National will sell its Cyrix business unit to another processor manufacturer. "[National Semiconductor] has promised that Cyrix will be sold as a complete working unit, it's not going to be broken up," he said. "I've been told that their road map will continue into the future--it's not in their best interest to break Cyrix up."
Like Emachines, Microworkz also uses AMD and Intel chips. "We don't have all our eggs in one basket," he said, emphasizing that Microworkz sub-$300 strategy will not be affected by the news.