US Report: IBM to stop making Cyrix chips

National Semiconductor's Cyrix subsidiary and IBM Microelectronics are dissolving their long-standing manufacturing and licensing partnership.

The companies will announce, perhaps within the next month, that Nat Semi will take over all Cyrix chip manufacturing from IBM sources said. In addition, they said, IBM will stop selling its brand of the Cyrix 6X86MX processor.

The news comes as Nat Semi ramps up manufacturing of Cyrix processors in its own fabrication facility in Portland, Maine. Sources said the company was eager to put its new state-of-the-art fabrication plant (often called a fab) to use and merge its chip design and process teams.

A new fab with new process equipment can cost up to $2bn (£1.22bn). Moreover, companies stand to lose money every day a fab sits idle or runs at low capacity. And that's money Nat Semi can ill afford to lose. Citing several problems, Nat Semi last month reported a loss of over $69m (£42m) for its fiscal fourth quarter. At the close of market Tuesday, its stock was trading below $10, a far cry from its 52-week high of $42.87.

For several years, the fabless Cyrix paid IBM to build its processors in the latter's Burlington, Vermont, facility. The deal also called for IBM to take 50 percent of the Cyrix chips and market them under its own label. In the beginning it was a good deal for IBM, which didn't own an X86 core and didn't have an entry-level desktop offering but it wasn't so great for Cyrix. IBM frequently undercut Cyrix' prices, which made it difficult for Cyrix to win deals with PC makers. Additionally, having separate design and process teams (which work for different companies in different locations) meant that advancements often could not be implemented immediately.

Other sources cited IBM's growing frustration with the arrangement because it did not have the flexibility to alter Cyrix designs or implement any of its own unique manufacturing processes to improve the performance and efficiency of IBM-branded processors. Despite the loss of the 6X86MX, IBM has big plans for the low-end X86 market, sources said. For example, it may look to "system on a chip" designs based on X86 cores from STS Microelectronics, they said.

An IBM spokesman in the US said the company's relationship with Nat Semi and Cyrix is currently unchanged and declined further comment.

Officials at National Semiconductor, in the US declined to comment.