NatSemi admits defeat on Cyrix

Not everybody can play the low-cost game. A minor miscalculation -- and you can burn a big hole in your company's coffers. That's what happened to National Semiconductor, the American chip maker that tried to take Intel head-on in the personal computer chip business with its Cyrix chip. Now the company has decided to exit the PC microprocessor business.

The exit will take the form of the sale of the Cyrix chip design unit in Richardson, Texas, and a newly built chip factory in South Portland, Maine. It will also mean laying off some 550 employees, less than 5 per cent of National Semiconductor's workforce.
 
National Semiconductor had acquired Cyrix in 1997 for $ 550 million. This was part of NatSemi chief executive officer Brian Halla's strategy to grab market share from Intel in the personal computer market with the help of a low-price attack.

The company did, in fact, take away some low-end market share away from Intel, but it was not able to make improvements in the chip, the way Intel has been doing, every quarter. With low price realisation, the company began losing large sums of money. According to Mr Halla, in the third quarter ended 28 February, the company lost $ 35 million on sales of $ 50 million. In the last quarter of the year ending 31 May, the company expected to lose $ 40 - 50 million. In the last quarter of the previous year, NatSemi had lost $ 212 million on account of Cyrix.
 
To make matters worse, sales were not picking up, and the large manufacturing capacity in South Portland was largely unutilised.

National Semiconductor will retain the part of the Cyrix operations that relates to microprocessors used in "information appliances", or stripped-down computers and TV set-top boxes used for Internet access. The company has units in Longmont, Colorado, and in Israel working on information appliance design. NatSemi faces competition from Intel and other chip makers in this market too. But Mr Halla believes that his company is better placed to take on rivals in this market.

But its analog chip business is likely to remain National Semiconductor's main strength in the near future. Analog chips, which convert real-world signals into digital ones, are used in various products like mobile phones and computer networking systems.

Since National Semiconductor has had a collaboration with Taiwan Semiconductor Manufacturing Company, which runs a foundry to produce chips for other companies, there has been speculation that Nat Semi would sell its Cyrix plant to TSMC. There were also rumours of talks with International Business Machines. Mr Halla, who has not identified any company to the press, expects to finalise a deal in a few months.