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Price war forces Rise to rethink chip strategy

Rise Technology, a small Silicon Valley chip upstart that designs low-cost processors for PCs and notebooks, is regrouping, a move that mirrors the difficulties other chipmakers have found in the PC segment.

Upstart Rise Technology is rethinking its overall strategy for making computer chips, a move that mirrors the difficulties other chipmakers have found in the PC segment.

Rise Technology, a small Silicon Valley chip upstart that designs low-cost processors for PCs and notebooks, was expected to provide details on its "Tiger" processor--a PC-compatible chip designed to be a clone of Intel's Celeron chip--this week at the Microprocessor Forum in San Jose, California. Instead, the company pulled its presentation and says now it is rethinking its future product plans.

The root of the problem: brutal price competition. Intel began to drastically cut Celeron prices at the beginning of the year, kicking off a ripple effect that forced AMD and other chipmakers to lower prices. Rise, a newcomer to PC processors, introduced its MP6 chip architecture in the fall of last year but, as of yet, has only shipped relatively small quantities of the processor.

The chip price war has taken a drastic toll on companies. In the last six months, National Semiconductor and IDT sold off their Intel-clone PC processor units to Via Technologies of Taiwan, which also decided to not make its presentation at the processor conference.

Both Cyrix, a division of National, and IDT stated that the difficulties of making a profit in this market prompted their respective sales. Former IDT executives said recently that their average selling price for processors had descended below $30.

AMD has reported devastating financial losses in the past few quarters because of price competition in this market, although the company did beat expectations yesterday. The company has even had to grapple with a supply of surplus chips. In many instances, the wholesale price of AMD's K6-2 chips is lower than the retail price. Even with the new, expensive Athlon, the average selling price of AMD chips has descended to $65, according to AMD.

"Look at all the companies being bought and sold," said Joe Salvador, a senior executive at Rise. "We have to decide where to put our resources." Rise canceled the Microprocessor Forum presentation to do just that, Salvador said.

"AMD lost a $100 million and look at National," he quipped. AMD lost $105 million in third quarter, a little better than analysts had expected, and National Semiconductor lost $783 million in the June quarter but posted a modest profit in the quarter ended in August.

Salvador said Rise is trying to decide between two options: a successor to MP6, called the MP6 II, or another chip that is compatible with the Celeron processor. The MP6 II would be compatible with PCs that use processors from AMD.

"We're taking a hard look at what products we want to bring out...We are not pulling out of the PC market," he asserted.

But analysts wonder what is really happening at Rise. "What's going on ? I don't know," said Nathan Brookwood of Insight64, a chip research firm, echoing the sentiment of other analysts. Brookwood said that the company's processor roadmap, as stated earlier in the year, was unusual. "They were out in left field in the megahertz rating department," he said, meaning that Rise's chips were too slow.

Salvador said Rise is still committed to bringing out faster versions of the MP6 later this year. He cited a "resurgence" in the AMD-compatible market. New products based on support chips, called chipsets, from companies such as SiS are driving the market, he said.

The company's chief executive, David Lin, had said in May of this year that Rise was planning to bring out a chip that was compatible with Celeron. At that time, Lin also said that Rise was seeking additional financing. Some sources close to Rise also said the company was having trouble meeting employee payrolls, which Lin denied.

The sub-$600 PC market presents a "tremendous opportunity," with National Semiconductor out of the picture, Lin said at that time.

News.com's Michael Kanellos contributed to this report.