Cyrix production problems hurt National

Problems producing the next generation of multimedia PC processors from its subsidiary Cyrix Corp. has led National Semiconductor Corp. (NSM) to downgrade its earning estimates for its third quarter ending March 31.

"National expects sales from its recently acquired Cyrix business unit to decline in the third quarter," said a statement released on Monday by the Santa Clara, Calif., company. "This is due to the company's difficulty in ramping up adequate volumes to meet demand during the quarter."

The statement also blamed the bad economic conditions in Asia for the decline.

Still, the Santa Clara, Calif., company seems to have been surprised by the problems cropping up with its Cyrix subsidiary. "We did not expect to have these (sorts of) results this quarter," said Alan Bernheimer, spokesman for National. The production difficulties originate with a new version of the company's integrated MediaGX processor that it hoped to be shipping in volume by now. Cyrix, and now National, have an arrangement with IBM Corp. for production of the chip.

According to Bernheimer, National predicted that integrating Cyrix into the firm would take until the end of the fiscal year-May 31. "We have done a bad job jumping to the next generation (of MediaGX chip)," said Bernheimer.

The difficulties have already lead to lost business. "Cyrix ran into a delay that ultimately led them to lose the (Compaq) Presario 2000 design win to (Advanced Micro Devices Inc.)," said Mike Feibus, principal analyst with Mercury Research Inc. In January, Compaq announced that it would use AMD in its newest line of price-conscious computers.

Yet, it was not due to AMD's salesmanship. "It was Cyrix losing the contract, more than AMD winning it," said Feibus.

Bill Milton, an analyst with Brown Brothers Harriman, has doubts about National's ability to recover from the Cyrix merger this fiscal year. The analyst remarked that, while uncertainties in some Asia-Pacific markets were a factor, about half of the company's expected earnings shortfall is due to problems in getting to adequate volume production at the recently acquired Cyrix.

"The problem is production, not demand (of Cyrix products)," he said. Milton slashed his earnings estimates on National for its May 1998 year. The analyst cut both third- and fourth-quarter estimates, resulting in a total earnings-per-share estimate for fiscal 1998 of $1.13, from $1.57 previously.

He added that National's demand shortfall in the wireless markets in Asia may be seen by other chip makers whose customers sell to the Asia Pacific area.

PC processor maker Cyrix became a National subsidiary on in late November of last year. The company produces a rival to Intel Corp.'s Pentium MMX processor, called the 6x86, and an integrated multimedia PC processor called the MediaGX.