Computer Industry Races To Clone Popular Chips

THE race is on to build the computer industry's most popular microprocessor: the 486. Industry-giant Intel Corporation has had the 486 market to itself since introducing the chip in 1989. But yesterday, rival Advanced Micro Devices (AMD) began shipping a cloned version of the product.

The Sunnyvale, Calif., chipmaker expects to sell hundreds of thousands of its Am486s this year. That is a modest amount, less than 5 percent of the total estimated market. Next year, "we have a shot at between $400 million and $800 million in revenues from the 486," says AMD chairman W. J. Sanders. The company's first-quarter revenues were $407.4 million.

AMD's sooner-than-expected entry into the market bodes well for computer buyers long term. Prices for the 486's predecessor, the 386 chip, fell precipitously after AMD entered the market.

"By the end of '94, the prices of 486s will be a lot lower than they are today," says Michael Slater, editor of Microprocessor Report, an industry newsletter in Sebastopol, Calif. The high-end chip could sell for half what it does today, he adds.

But chip prices will likely remain stable for months, analysts say. For one thing, demand for 486s has outstripped supply for many months, Mr. Slater says. Both companies - AMD and Intel - will probably sell all the chips they have without cutting prices. For another thing, AMD is severely limited in how many chips it can produce.

Until 1995, when it completes a new $700-million plant in Austin, Texas, the company will have to use its research-and-development center for full-scale 486 production. The company is also said to be looking for existing foundries to make Am486s. But there are few idle chip foundries with the sub-micron fabricating technology to make the Am486, analysts say.

Microprocessors are the powerful semiconductors that lie at the heart of personal computers. Companies that first come out with new generations of these chips can reap monopoly sized profits. Intel has held that premier position since it ended a technology-sharing pact with AMD in the mid-1980s.

For example, Intel introduced the 386 microprocessor in 1985. Because of a long-running legal battle over the technology-sharing pact, AMD did not win the right to produce a 386 clone until 1991. The company planned to start selling a 486 clone last December, Mr. Sanders says. But a federal jury ruled that the company could not use Intel's 486 microcode. Microcode is complex software embedded within the microprocessor.

But last week, a federal judge reversed the jury's decision. Judge William Ingram ruled AMD deserved a retrial because of new evidence.

Sanders has not wasted a minute. He immediately began planning to sell the Am486s he had prepared last December.

Meanwhile, AMD continues working on its own microcode created from scratch. The company says it will start shipping 486 chips with that microcode beginning in July.

AS it did with the 386, AMD intends to market low-power-consumption versions of 486s, which will appeal to portable computer users, and concentrate on value pricing.

"Our market-entry strategy is not a low-pricing strategy," says AMD spokesman John Greenagel. By aiming chips at specific niches, AMD was able to charge what Intel did and wrest away more than half of the 386 market that Intel pioneered.

"We made a very serious mistake on the 386," says Dave House, Intel's senior vice president of corporate strategy. "That mistake was to assume that the legal system would work. We did not continue to enhance the 386. We had a sitting duck."

Intel is not likely to make that mistake again. It has dropped prices on its 486 chips to entice users to move up from 386-based machines. And it has introduced a whole slew of 486 versions - 30 last year and 30 more planned this year. These versions run the gamut from low-power chips geared toward notebooks to speedy clock-doubled versions, the so-called DX2s.

AMD also plans to introduce a clock-doubled 486 - clumsily known as the Am486DX2-50 - in June. In July, the company will offer a low-power-consumption 486 that will sell for the same price as the standard five-volt chips.

Intel still has an ace in the hole. It has just announced the successor to the 486 microprocessor - the Pentium. Mr. House says the company expects to sell hundreds of thousands of Pentium chips this year.

So far there's no competitor with that offering. But Cyrix Corporation has said it would have a Pentium clone available by the end of the year. Currently, the company markets a chip it calls a 486, even though its performance ranks somewhere between a 386 and 486.

Thus the race to clone the world's most popular chips may just be under way. It is looking more and more like a marathon rather than a sprint.