A Year Ago: Intel's graphics chip rivals feel the FUD

Rivals are holding their breath in anticipation of Intel Corp.'s entry into the 3-D graphics market -- and for good reason.

Intel's first foray into the 3-D sector-the Intel740 -- could sell as many as 10 million units this year, or 20 to 25 percent of the roughly 50 million graphics chips that will be sold this year, according to market watcher MicroDesign Resources Inc.

"The chip is going to be very successful," said Peter Glaskowsky, industry analyst at MDR. "It is a good product and has the Intel brand name."

The 740 is an integrated graphics chip including 2-D and 3-D features as well as video functions. The chip was designed by Intel (INTC) in conjunction with Real3D, a spinoff of Lockheed Martin Corp.

"Like most 3-D chips, this is aimed at the games and entertainment market," said Glaskowsky.

Even so, mainstream chip makers could feel a pinch. Leading companies such as S3 Inc. and NVidia Corp. will absorb most of the brunt of the assault, but others will surely share the pain.

Are they scared? "Everybody should be afraid of Intel," said Mike Hara, director of strategic marketing for NVidia. "They have development dollars and huge marketing muscle." NVidia has done well in the past six months with its Riva 128 chip, winning deals with the major direct PC vendors Dell Computer Corp., Gateway 2000 Inc., and Micron Technology Inc.

Analysts believe Intel's entry will prompt a shakeout in the market.

"In the short term, I don't see any significant change in the next six to nine months," said Mark Kirstein, industry analyst with market researcher In-Stat. "In the long term, the middle of the market is going to experience competition the likes of which they've never seen."

One of those companies is S3 Inc. The struggling company-after missing one product cycle, it was forced to fire 15 percent of its employees-is nonetheless talking confidently of its ability to withstand an assault by Intel.

"We believe we will have a better part," said Ron Yara, senior vice president of strategic marketing for S3 and co-founder of the Santa Clara, Calif., company. "If we cannot deliver a more compelling product, we won't be able to compete."

Yet analysts think the company will be competing with Intel in other areas, too. "The only reason S3 has continued to keep a moderate size of the market is because of their services, drivers, and support," said MDR's Glaskowsky. "Unfortunately, Intel can do as well if not better in all these categories."

But the PC microprocessor giant downplays its advantages in the market. "We are a big company and that causes some concern," said Brian Ekiss, graphics marketing manager for Intel, "but it is a very competitive market and we are only one of the many players."