Intel Introduces A Faster Chip For PC Software

Analysts Warn, However; High Cost of New Part Is Drawback in Market

By Peter Waldman and Paul Duke Jr.
The Wall Street Journal

June 17, 1988

Intel Corp., trying to bridge the technology gap between generations of personal computers, introduced a new microprocessor chip that runs existing software at state-of-the-art speeds.

But even though PC-powerhouse Compaq Computer Corp. is expected to roll out a new computer with the Intel chip as soon as Monday, analysts cautioned that Intel's new part is probably too highly priced to compete in the crowded market for lower-end microprocessors.

"Intel has already missed its window of opportunity in the low-end market," said Drew Peck, chip analyst with Donaldson, Lufkin & Jenrette.

Microprocessors are the central chips that act as the "brains" of computers.

Intel, a Santa Clara, Calif.-based chip maker, priced the new microprocessor, called the 386SX, at $219 a chip for orders of 100 units or more. In contrast, arch-rival Advanced Micro Devices Inc., Sunnyvale, Calif., sells a comparable microprocessor for roughly $100 a chip. The Advanced Micro chip is a so-called 286-type part, meaning that it is meant for an earlier generation of computer technology than Intel's new 386SX. However, the Advanced Micro chip is a souped-up 286 version and runs at the same clock speed -- 16 megahertz, a measure of computer speed -- as the new Intel part.

That means Intel, to justify the higher price, must distinguish its new chip on the basis of other performance characteristics such as software applications. Yet, so far, software writers have published very few programs to run on the new 386-generation of personal computers, giving Intel little to stand on for its new part.

"Come back and see us when you've got some software for the 386," said John East, senior vice president, logic group, for Advanced Micro.

Intel sells its 386 chips, the most advanced microprocessor it makes, for roughly $300 a chip.

Intel's strategy, then, is to entice computer makers into using its 386SX by holding out the promise of superior software in the future, analysts said. Mr. Peck, for one, said this promise might appeal to higher-end, corporate customers -- who tend to be less concerned about price -- but probably won't have much allure to the bulk of computer users today who use less expensive, so-called clones of International Business Machines Corp.'s PCs. Current 286-based machines are priced about half as much as 386-based computers.

Compaq, which has a track record of quickly incorporating new advances in microchips and other areas of the computer, is expected to unveil its model using a 386SX chip Monday at a New York news conference. Compaq is also expected to offer new versions of its current 386-based computers with a new 386 chip that operates 25% faster than previous chips. (IBM announced a computer using the faster chip earlier this month, but the model won't be available until the third quarter.)

Observers expect the initial price of computers using the 386SX to straddle the gap between 286 and 386 computers, but eventually that price should drop to compete with 286 machines. Depending on accessories, 286 systems start at about $1,500, and 386 systems at about $3400. The 386SX models, observers think, may start at about $3,000, but it couldn't be determined what Compaq's pricing will be on its machines.

Stewart Alsop, publisher of PC Letter, an industry newsletter, said the advanced-software and technical advantages of the 386SX machines would ultimately make 286 computers, such as the IBM PC AT and the Model 50 in IBM's new PS/2 line, "pretty much obsolete."

"People are going to be faced with a choice between the SX and a 286, and, if the price is close enough, the obvious choice is the SX," said Mr. Alsop.

Despite the difference in chip prices, Claude Leglise, Intel's marketing manager for its microcomputer division, said manufacturing efficiencies facilitated by the 386SX-technology will allow computer makers to price 386SX-based products competitively with 286-based machines. Specifically, he said the new chips can run with slower memory chips than required by the 286 chip, making the computers easier to engineer.

"The 286 is five-year-old technology originally targeted to run" at half the speed of today's chips, said Mr. Leglise.

Separately, Intel said International CMOS Technology Inc., one of several companies Intel sued last summer for alleged patent violations, agreed to stop making, importing or selling 64-kilobit erasable programmable read-only memory chips in the U.S.

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