Intel's designs on the microcomputer market

Business Week

December 20, 1976

For a year or more Intel Corp. has watched its overwhelming lead in the computer-on-a-chip market slowly melt away. The Santa Clara (Calif.) semiconductor producer is locked in combat with a host of competitors that is wiping out its early lead in the explosive new technology it pioneered.

Competitors and customers alike have anxiously awaited Intel's counterattack, which is now about to hit them with an even more impressive array of new products than many of them had expected. Over the next nine months, Intel plans to introduce at least 20 largescale integrated (LSI) circuits that are designed to shrink the size and cost of microcomputer systems by a factor of two or three and to expand their new vastly.

The strategies Intel is pursuing are designed to make it the IBM of the microcomputer industry. Explains William H. Davidow, the vice-president responsible for those strategies: "Some years ago, when I worked for General Electric, I realized that IBM was spending more money on research and development than GE was deriving from its computer shipments. Now we want people to make the same statement about Intel in microcomputers." This year Intel is spending $10 million just on microprocessor research and development, more than the annual sales any of its competitors will make on the product.

Too successful

The stakes are huge. The microprocessor -- a tiny chip of silicon that is the arithmetic and logic heart of a microcomputer -- is spawning what many describe as the "second industrial revolution" as thousands of different "smart" machines hit the marketplace. Sales of the computer chip and its associated LSI circuits rushed past $100 million this year and should soar to $1 billion or more by 1980.

Until recently, Intel's 8080 microprocessor unit (MPU) dominated the market. "It was first, it was available, and it was easily adapted to many applications," explains Robert W. Ulrickson, president of Logical Services Inc., a Cupertino (Calif.) MPU consultant. As usual in the hotly competitive semiconductor business, though, the 8080's success was also its undoing. Many semiconductor producers copied Intel's best-seller, while others introduced alternative devices that only exploited its shortcomings.

As a result, "Intel's share has probably gone down to 50% to 60%," says James R. Berdell, an industry analyst at San Francisco's Robertson, Colman, Siebel & Weisel. This is down from an 80% share just two years ago. Berdell estimates that this year Intel's microprocessor and related components will generate sales of $64 million, up 80% over 1975. Still, this is not enough to maintain market share and does not prevent the rest of the industry's sales from doubling to $40 million.

Hot newcomers

Intel clearly does not intend to lose any more market share. Earlier this year the company boosted its microcomputer operation to divisional status and pulled in Leslie L. Vadasz, the engineering manager at Intel's Components Div., as assistant to Davidow. And now, guided by Davidow's aggressive strategies, the company has just kicked off its new product push by introducing three important MPU's:

The successor to the three-year-old 8080 was shown for the first time last week in Munich at the Electronika, Europe's important industry show. The new 8085 MPU does with three LSI circuits what the 8080 did with 10 or more -- and does it 50% faster. But the new version keeps the 8080 software, which is fast becoming as much an industry standard in microcomputers as IBM software is in full-scale electronic data-processing systems.
A simplified version of the 8080 has quietly been shown to a few major customers. Though it lacks some of the 8080's performance, it is far cheaper to use because it can operate as a single-chip microcomputer. By cramming two kinds of memory and other essential circuitry onto the central processor chip, Intel hopes to cut system costs enough to push the new MPU, known as the 8048, into low-cost controllers, office equipment, and other high-volume uses.
A second model of the 8048 single-chip microcomputer has most excited Intel's customers. Instead of having a conventional read-only memory (ROM) that permanently stores the computer's instructions when the chip is produced, the novel 8748 microprocessor contains an erasable ROM that can be programmed again and again by the user. Customers expect this feature to speed up product-design cycles and make it possible for them to tailor individual products to their customers' needs.

The right moves

The other new products coming could be just as important to Intel. The company expects to get five more new LSI circuits into customer hands this month and to introduce an added dozen or so by mid-1977. These products may have as dramatic an impact on computer peripheral devices as the microprocessor has had on the central-processing function. One LSI chip, for example, will take the place of the hundreds of individual integrated circuits now needed to control the so-called "floppy risk" memory.

Many customers have been waiting for such moves. "The 8080 provides more power than the early vacuum-tube computers," acknowledges John Fluke Jr., manager of computer facilities for John Fluke Mfg. Co., a Washington instrument producer. "But it's like a 50-hp. motor with a 1/8-in. shaft," he says. "What the world needs now is low-cost peripherals." Industry analyst Robert F. Wickham agrees: "Where the action is today is in the circuits that get you in and out of the central processor."

Intel's Davidow, an intense computer scientist who calls marketing "civilized warfare," is counting heavily on his new complex circuits to provide many of what he calls the "strategic positions" in his overall plan -- products that offer a lot of value to the customer and are too expensive for others to develop. "We are trying to put in place for fortresses that are hard to attack," he explains. Rival systems

Despite its lead, Intel has a real fight on its hands in the hotly competitive semiconductor industry. In just the last six months, for example, National Semiconductor Corp. developed an 8080-equivalent MPU and a set of support circuits. And by early next year, it expects to have its first LSI circuits to control computer peripherals.

Intel's current competition is toughest at the two ends of the MPU market. The 8080 is regarded as too powerful and expensive for many applications (though it now costs under $20) but not powerful enough for others. "Our strength has been in the midrange of applications, such as terminals and instrument controllers," admits Davidow. "But if you try to be everywhere at once with a product, you'll fail."

The biggest threat to Intel at the top of the line has been the 6800 system introduced by Motorola Inc. But so far that device has made only minor inroads, and analyst Wickham says, "It has lost momentum relative to the 8080."

Zilog Inc., a new challenger, also has been coming up fast. Started by two Intel MPU designers with the backing of mighty Exxon Corp., Zilog has introduced the Z-80, which uses 8080 software but adds powerful instructions to make programming faster. "We can safely say we're taking a substantial share of the new-design market," claims Federico Faggin, Zilog president. But Intel's new 8085 is aimed right at Motorola's 6800 and the Z-80, and it wipes out many of the advantages they have over the 8080.

At the low-cost end of the microprocessor market Intel faces a myriad of competitors, including Fairchild, National, Texas Instruments, and Mostek. Many of their devices are going into consumer products, such as microwave ovens, which Intel seems to find uninviting. "The average selling prices and profit margins are very low in high-volume consumer applications," says Howard A. Raphael, product manager for Intel's new 8048 and 8748 microprocessors. "We're not abdicating that market," he says, "but we are taking a different approach."

The real challenge

Intel's hope is that even where a microprocessor simply replaces mechanical relays, the extra power of its 8048 or the flexibility of its 8748 will be attractive. "People find themselves adding features and needing more power," says Raphael, "and they can't do that with a calculator chip" -- his description of competitors' low-priced, simple microprocessors.

Nevertheless, even staunch 8080 customers such as General Electric Co. are eagerly looking for low-cost devices as they plan for mass production of microprocessor-based products. "When you start talking about systems that cost $10 to $50, the 8080 is too expensive," declares Marshall C. Kidd, manager of technology analysis at GEhs special-purpose computer center in Bridgeport, Conn. GE is launching a survey of the new low-cost MPUs, but Kidd is doubtful the company can settle on one that will satisfy all its needs. He is intrigued, though, by the 8748 single-chip microcomputer and its built-in erasable memory because it would make it much easier to develop new GE products.

Making it easier for customers to design microprocessor-based products is probably the stiffest challenge facing the industry today. Intel has already laid a lot of groundwork aimed at easing the way for its new products and is continuing to do so. In 1973, for example, the company developed a special computer language that has since become the industry's standard way to reduce complicated application programs to the simple code used in microcomputers. But until recently, engineers who wanted to use this so-called PLM language had to have access to a powerful mainframe computer. This fall, though, Intel introduced an inexpensive PLM package for its $11,000 Intellec -- a microprocessor-based system for developing microcomputer programs.

"This is a step in the right direction," says Ulrickson of Logical Services, "but the software situation in microprocessors is still chaotic." The problem is a big one because many would-be customers for microprocessors still lack engineers trained to use them. And the semiconductor companies cannot afford the investment it would take to produce software tailored to every application.

Package deal

For high-volume markets, however, semiconductor makers will design and even manufacture a complete controller or timer. "The appliance people are just as happy to have you do the whole job," says James A. Bowen, manager of Fairchild's Instruments & Systems Group. "Next year most of our microprocessors will be sold on printed circuit boards."

Intel indicated its willingness to move in that direction this year when it introduced a single-board computer. Davidow agrees that this product will account for an increasing share of the market because "it gives a customer a tremendous headstart if the system is all built for him." But he hopes also that "a lot of them will eventually integrate back and become component customers."

Davidow is counting on the Intellec system and his other engineering-support devices to lock customers into Intel components. "We see these systems growing into $20,000 to $50,000 design-automation centers," he says. "They will enable an engineer to design two to three times as much as he could without them." And if engineers use Intel software on Intel design equipment, he believes, they will also buy Intel components. "Every time we provide an option that adds to engineering productivity," Davidow says, "we see the results in the market. And the world has seen only the first shot at what we can do."

GRAPHIC: Picture, Intel's Davidow and Vadasz: Their new 8085 microprocessor should wipe out many of the advantages that competing products from Motorola and Zilog have held. John McDermontt