Is there life left for low-cost chips?

It's been a tough year for low-end chip vendors. Ultimately, that might be good for PC buyers.

But only if startups like Rise Technologies, which makes a low-cost X86 processor, can find a market. "When we launched a year ago and we said 'we have a $70 (£43) part'. People said 'Wow. That's cheap.'," said Joe Salvadore, director of marketing for Rise. Now, "Intel really is selling at $50 for the low end."

Rise announced its first processor in November 1998, aiming at what looked like a sweet spot in the low end of the market. But market conditions have changed drastically since then. Intel has aggressively reduced prices on its desktop Celeron processors, to the point where its low-end 333MHz chip does sell for about $50 in large quantities. Meanwhile, Advanced Micro Devices and Cyrix combined to write down nearly three million units of unsold inventory, according to the companies' financial statements. The inventory, which came on the market earlier this year, caused those chips to sell well below their average asking price, according to Rise officials.

A flood of low-priced PCs with brand-name processors has resulted, and Intel and AMD are expected to keep up the pressure, as well. "Right now, we're fighting for every space at retail for sure," Stephen Lapinski, director of product marketing at AMD. "We're going to continue to fight for that space and not lose."

AMD will update its K6 family of processors with a new manufacturing process, which will help increase clock speeds, lower power consumption and allow K6-2 chips to receive integrated Level 2 cache, a performance enhancing feature. Chips made with the new process, which shrinks "interrupts" -- or the spaces between transistors -- in the chip from 0.25 to 0.18 micron, should ship early next year. This latest development will likely put additional pressure on Rise, causing it to aim at lower price points. While AMD and Intel battle it out in the $400 to $1,000 range, Rise Technologies will take aim at the rest of the retail market, including sub-$600 PCs and information appliances. It also thinks it may have a market for mobile computing, due to the low power consumption of its MP6 processor, Salvadore said. The chip dissipates 10 watts and 12 watts at maximum, compared to about 14 watts for mobile Pentium II chip from Intel.

But the relentless pressure from the big players has Rise in turtle mode; it's pulled back from grand plans for at least two other chips, including its next-generation processor, the MP6 II. "We're taking a hard look at what it makes sense for us to do," Salvadore said.

The company does plan to forge ahead with MP6 processors that are compatible with the Socket 7 and Super Socket 7 platforms, which are used widely in low-end PCs. The latest version of the chip, a PE 366, is available in limited quantities on a 0.18 micron process. Rise will sample 400 and 433 MP6 chips later in the year.

Rise has found some customers. Several hardware makers will use its chips in low-end desktop, notebook and set-top boxes. It expects to make several of those announcements at Comdex/Fall in November, Salvadore said.

But Intel and AMD aren't Rise's only competition. VIA Technologies, which purchased the X86 assets of Cyrix from National Semiconductor and Centaur from IDT, earlier this year, will also be targeting the low end. VIA will maintain two development groups, each a scaled back version of the former Cyrix and IDT Centaur design teams. The teams will labor to develop low-cost chips. The former Centaur group is developing two new WinChip processors for next year that will target a sub-$50 price.

"If you go after the sub-$50 market with a good product, you can win against Intel," Centaur founder Glenn Henry told attendees at last week's Microprocessor Forum in California. Henry is now with VIA.

What's not clear is whether big-name OEMs like Compaq, which had used Intel, AMD and Cyrix chips, will choose Rise as a third chip vendor.

Rise may have one foothold. Among its desktop and notebook partners, Rise also counts set-top box makers, and it may have as much of a chance there as do AMD and Intel.