The deal indicates that graphics and chipset companies intend to invade en masse territory held by Intel which has dominated the chipset business for more than five years. The upshot: AMD's strength in the consumer PC market is changing the market dynamics and breathing new life into chipset companies and possibly creating a large market opportunity. Intel's newfound urgency to push hard into this segment with its Celeron processor will also allow a variety of chipmakers to feed PC manufacturers hungry for any chipset that competes on price--Intel or not.
Integrating graphics into the PC's chipset--which already controls a number of critical functions in a PC--is a burgeoning trend among chipmakers. SiS released integrated chipsets for low-end PCs last year, which both Compaq and HP incorporated into low-end computers using AMD processors last year.
Via also released its first integrated chipset, the Apollo MVP4, last August for AMD computers. It proved popular with second-tier manufacturers and sold well overseas, said sources. Via used graphics technology from Trident Microsystems.
Intel is also slated to announce a chipset with integrated graphics later this month called Whitney. In most cases, the technology combines the graphics chip with a major part of the chipset. Integrated solutions started to grow in popularity last year and has become an issue of economics, according to Nathan Brookwood, an independent analyst in Saratoga, California. Integrated chips are cheaper and will become an attractive option for the sub-$1,000 PC market. Also, Peter Glaskowsky, an analyst with the Microprocessor Report, said that integration can lop about $10 or more off manufacturer's cost and up to $100 on the retail price of a system.
"We're targeting [everything] from $500 to $1,500," said Andrew Wolfe, chief technology officer at S3. "This means much higher performance at much lower cost," he said.
Also, analysts believe that AMD has excelled at driving the low-cost PC market where these technologies will prevail. "We think AMD has done a credible--and incredible--job of establishing the way-under-$1,000 PC market," said Dr. Jon Peddie of Jon Peddie & Associates, a marketing research firm which covers the graphics chip market.
AMD's share of the chip market rose to 15.5 percent in the fourth quarter of 1998 from 6.6 percent in the year-earlier quarter, according to a recent report from International Data Corporation (IDC). In the sub-$1,000 PC market, AMD dominates certain segments, according to reports from market researchers such as PC Data.
In this market, AMD has made ample use of non-Intel chipsets, mostly from Via in the past.
But S3 is not snubbing Intel by any means said Wolfe. The company will target its new chips for the growing base of low-cost PCs built around Celeron systems as well as Pentium II and Pentium III systems.
S3 and VIA said today that the two companies expect to introduce the first product, which will be "targeted at the mainstream and growing value PC market," in the second half of 1999.
The companies will jointly market the product, according to Wolfe.
"This product will be designed to provide substantial performance improvements and cost savings over existing solutions," the companies said in a statement. "The parties expect that the first S3/VIA product, code-named SavageNB, will combine the best of S3's Savage4 graphics engine with Via's Apollo Pro [chipset] design."
In some systems, this can reduce chip count by as many as 9 chips and reduce space required on PC motherboards by more than 50 percent, the companies said.
Further details on the new chip will be released in the second half of 1999, when the two companies formally launch the new product.
The agreement also illustrates the tangled web of relationships that are forming in the chipset and graphics industry. In an agreement announced in December of last year, S3 and Intel entered into a ten-year technology cross license pact, which allows S3 to use certain Intel semiconductor patents and intellectual property rights.
At that time, S3--which was reeling from devastating losses--said it would use the patents to incorporate additional functionality into its current graphics processor line, as well as come out with a new series of chips for set-top boxes, Windows CE machines, consumer appliances, industrial point-of-sale systems, and automotive GPS systems.
Via, for its part, made a splash in November of last year by being one of the first to offer chipsets compatible with Intel's Pentium II processor.