Smaller processor makers chipping away at Intel

"With Intel, you don't see twice the performance for twice the price," said Michael Slater, executive editor for semiconductor technology watcher MicroDesign Resources Inc. "That's why we are seeing a lot of interest in the low-end space."

Slater, as well as representatives from Intel (INTC) rivals Advanced Micro Devices Inc. (AMD), Cyrix Corp., and Integrated Device Technologies Inc. (IDTI), explained their visions of the role of non-Intel processors in the future of the PC industry here Tuesday at the PC Tech Forum.

Intel rivals refine their strategy
Despite Intel's repeated belittling of sub-$1,000 PCs -- or "basic" PCs, as it calls them -- Intel's rivals see potential for big profits in the low-price markets.

"We are aiming our processors at the [price] bottom and intend to move up," said Dan Swearingen, senior director of marketing for Cyrix, a subsidiary of National Semiconductor Corp. (NSM) "By Christmas, a 300MHz computer will cost less than $600."

Glenn Henry, president of Centaur Technology, a subsidiary of Integrated Device Technologies, agrees that lower is better. "We are selling to the $50 market, not the $200 market," he said.

Small price is big selling point
With the current trend in PC prices, gaining a foothold by offering cheap processors makes a lot of sense.

"Pricing has become the new key competitive factor," said Aaron Goldberg, executive director of market watcher ZD Market Intelligence (a sister company of ZDNN) in a speech given at PC Tech. "There are no new apps driving demand, so price has become the major differentiating factor."

According to ZDMI data, sub-$1,000 PCs have grown over the last year to about 40 percent of all desktop computers sold in retail stores, from less than 10 percent at the beginning of 1997.

Goldberg added that the drop in prices wasn't from any shortage in demand -- a sentiment with which Intel rivals agree. "Consumers care less about brand and more about how much the PC costs them," said Dana Krelle, vice president of marketing for AMD's computational products group.

Intel to revamp its processors
For Intel, the race to the bottom is a major problem.

"The sub-$500 market is not a place where Intel wants to compete," said Tim Bajarin, president of computer industry research firm Creative Strategies Inc.

Intel gave a somewhat schizophrenic answer to the "basic" PC question. Paul Otellini, executive vice president at Intel, downplayed the significance of the "basic" PC market in his keynote address on Tuesday morning.

Yet, at the same time, Otellini outlined a project -- code-named "Whitney" -- that will integrate many components of the PC motherboard onto the processor. This strongly resembles cost-cutting integration efforts already undertaken by rivals Cyrix and IDT.