Chipping away

The home PC explosion has indirectly pushed down the prices of machines federal agencies are buying for their desktops as many cost-cutting components developed for the cutthroat consumer segment are finding their way into business boxes. Specifically, the microprocessors that vendors designed to compete in the price-sensitive consumer market are proving useful for many business and government applications.

Processor prices are falling as the result of competition between Intel Corp. and up-and-coming competitors such as Advanced Micro Devices Inc. (AMD) and Cyrix Corp. Because these competing chip vendors have only been able to compete at the low end of Intel's PC product line, that's where the fiercest competition has been. But both competitors are poised to compete effectively with Intel's mainstream products in the near future.

There is clear evidence that this competition is making PCs less expensive. The old trickle-down theory is running in reverse: The sub-$1,000 PCs that are being sold to consumers by the millions concede little performance to the $2,000-plus boxes many federal agencies are buying. And those low-priced consumer PCs are faster than most of the PCs that are already on most federal desktops. At the same time, newer and faster processors are emerging at lower prices because the difference in performance is shrinking.

"You don't have to buy as expensive a machine as you used to for satisfactory performance," said Nathan Brookwood, Dataquest's principal analyst for microprocessors. "Today the $1,200 system and the $2,000 system perform very comparably, unless you are doing something off the beaten path. As a result, people are buying fewer high-end systems and more low-end systems. We expect that to continue."

Stan Swearingen, vice president of desktop products for Cyrix, said users do not see the difference in performance between new and old models. He said a 266 MHz chip, for example, is only 4 percent faster than a 233 MHz chip. "We are going to make sure the sub-$1,000 PCs will be equal to midrange Intel PCs," he said.

Money Isn't Everything

These inexpensive PCs are irresistible to consumers, who are spending their hard-earned pay. But federal buyers rank performance, reliability and manageability ahead of price when buying PCs, observers said. This places significant obstacles in the paths of chip vendors who would compete with Intel for federal dollars.

"If you go with AMD or Cyrix processors, it can create problems on the back end, such as incompatibility with add-in cards used on Intel machines," said Bobby Khullar, vice president of logistics and procurement for SMAC Data Systems. For example, Khullar said his company has found incompatibility with ATI Technologies Inc. video cards.

Federal buyers will not want to find out that kind of problem the hard way, and system vendors— who also lack unlimited resources for testing components— feel the same way. But even workstation vendor Intergraph Corp. has noticed the proliferation of non-Intel PCs in retail stores. "More and more of the AMD and Cyrix clone chips are appearing on the shelves," said Tom Baybrook, vice president of federal systems for Intergraph. "I think it is something to watch for the future," he said.

The government's plunge into the clone chip arena may have already begun, according to some sources. Lisa Stout, AMD's program manager for education and federal, state and local government, said AMD processor-equipped PCs account for more than half the PCs sold on the Department of Veterans Affairs' $1.5 billion Procurement of Computer Hardware and Software contract with Digital Equipment Corp.

Despite such inroads, non-Intel PCs are not attracting much federal attention because they primarily are used in PCs designed for consumers and sold through retail channels. But as higher-performing products become available, PC vendors plan to start introducing business-grade PCs using processors from vendors other than Intel. "We are working very actively with [PC vendor] accounts for commercial products," said Bob Myers, AMD's field marketing manager for government, education, state and local governments. "We plan to have a lot more commercial [models]," he said.

Intel has not ignored the low end of the market, but its products have either been too expensive or too slow to compete. The company introduced the Celeron variant of the Pentium II as its low-priced, consumer-grade product, but the Celeron lacked secondary cache storage and system performance suffered dramatically.

Now the company has a much better product, with the latest Celeron chips running at 300 MHz and 333 MHz, with a 128K secondary cache located right on the processor and running at full processor speed. These chips, code-named Mendocino, are just as fast as Pentium II chips of the same speed, Brookwood said. "The early testing is showing that the 333 MHz Mendocino and Pentium II are virtually indistinguishable," he said.

Although Khullar said federal buyers have shown "absolutely no interest in using Celeron," that attitude may simply reflect a tendency to wait for Intel to produce the cache-equipped Mendocino Celerons, said Kelly Henry, senior analyst with International Data Corp. "I think [Mendocino] will spark their interest," Henry said. "People knew that there was a better product around the corner."

Competing chip vendors would contend that better alternatives were already available, in the form of their own products. For example, AMD's K6 chip has lagged the Pentium II only slightly in performance, and it has been faster and less expensive than the Celeron. But federal customers have not rushed to accept the alternative processors. Dana Krelle, vice president of AMD's computational products group, said he understands the government's reluctance to delve into the unfamiliar realm of the K6 chip. "I don't blame these people," he said. "They are paid to be risk-averse."

But Krelle added that he believes Intel benefits more from brand recognition than brand loyalty, and AMD hopes to exploit that lack of loyalty. "Intel has near universal awareness but not necessarily a preference," he said.

Will Fitzgerald, lead hardware engineer for the Navy's Space and Naval Warfare Command System Center, acknowledged that the government is not eager to take a chance on non-Intel products. "Nobody wants to take a gamble because nobody funds them to check compatibility," he said. "It is a fear of the unknown. You don't want to get burned."

But Fitzgerald added that agencies might be likely to take the risk on clone chips for nonmission-critical applications in the interest of getting more bang for the buck. "We are always looking for better, faster, able to leap tall buildings," he said.

Mark Day, acting deputy chief information officer at the Environmental Protection Agency, said his agency has been willing to look at chip alternatives. "We are always looking to buy any competitive products," he said. "I'm not sure there is any bias built in for Intel."

Agencies such as the EPA will be able to consider alternatives at the high end as well as the low end of the market, thanks to AMD's K6-2 chip, which includes a set of floating-point instructions called 3DNow! This chip performs as well as a same-speed Pentium II when running business applications, but it is much faster running floating-point-intensive applications such as 3-D graphics, speech recognition and compression of audio and video.

Intel will introduce its own floating-point instructions, code-named Katmai, to its Pentium II and Xeon processors early next year, said Carl Larson, Intel's product line manager for Pentium II. Such upgrades ultimately will become adopted industrywide, much as Intel's MMX multimedia instructions have, he said.

But the floating-point instruction set represents only part of the story. The K6-2's performance improvement is also the result of a new 100 MHz system bus, which speeds communication between the processor and the rest of the system. In addition, AMD found a way to improve upon the old Pentium processor socket design, called Socket 7, which it has been using for its K6 processors. Because that design only runs at 66 MHz, the company has developed an extension to the design, called Super 7, which runs at 100 MHz. The Super 7 design also supports Intel's Advanced Graphics Port (AGP) specification, which speeds communication between the chip and the video adapter.

The faster bus speed permits the K6-2 to run at 333 MHz internally. Krelle said still-faster chips running at 350 MHz and 400 MHz will appear in the third and fourth quarters of the year. Even better performance will be available when AMD installs a 256K Level 2 cache onto the forthcoming K6-3 chip. That product will appear in 350 MHz and 400 MHz speeds by the end of the year.

But K6 chips will mark the end of the road for Socket 7-style chips, according to IDC's Henry. "[AMD] knows the Socket 7 can't stay around forever," she said. "They have to go to a slot-type format."

Slot Machines

Unlike the socket design, which essentially is a plastic square with holes in it that processor pins plug into, the slot format will mount processors onto cards that fit into slots on the motherboard. This design offers better performance and has proved better able to control radio frequency emissions. AMD has embraced the slot design for its K7 processor, which will use a Slot A design similar to Intel's Slot 1 but using Digital's Alpha slot specifications.

The K7 will have an all-new design and will feature increased parallel execution of instructions, a faster cache architecture and a higher-performance local bus design, Krelle said. The processor will appear in the first half of 1999 to vie with Intel's continuously upgraded Pentium II products.

Meanwhile, Cyrix will follow a similar strategy of improving Socket 7-based products while developing high-performance slot-based processors for the future. Cyrix's Socket 7-based M II chip runs at 300 MHz and 333 MHz, but 350 MHz versions will ship in the middle of the fourth quarter, and a 400 MHz is scheduled to arrive in the first quarter of next year.

Cyrix also sells the MediaGX processor, which uses a custom chipset rather than Socket 7. By using its own low-cost chipset, the company sees a cost advantage compared to Intel's Slot 1 processors. Cyrix's Swearingen noted that the Slot 1 design contains "a lot of inherent costs," such as support for multiple processors— a technology that he said was unneeded for desktop PCs.

On the downside, the Cyrix MediaGX processor is purely a consumer-oriented chip that may not be appropriate for a lot of federal desktops. Consequently, Cyrix is developing a beefier version called MXI. That chip will combine the M II core processor, a new 3-D accelerator and Pentium II-class memory controller in a low-cost, custom-interface design that will target federal customers. It will run at 333 MHz and 350 MHz in low-priced Microsoft Corp. Windows terminals and Java stations, Swearingen said. Ultimately, Cyrix's merger with National Semiconductor Corp. will enable the company to sell Slot 1-based chips, thanks to National Semiconductor's cross-licensing agreement with Intel, he added.

Because the Slot 1 design was developed to support high-end computing, Intel will not have to replace its interface design until the next major chip upgrade, the 64-bit Merced, debuts in 2000. Until then, the company will continually improve its existing Celeron, Pentium II and Xeon products.

The latest Pentium II chips rev to 450 MHz and a 500 MHz version is due early next year. Those new chips will incorporate the Katmai 3-D instructions. A new Slot 2 Xeon processor will appear in September running at 450 MHz and will have a 2M Level 2 cache that runs at full processor speed and supports eight-way multiprocessing. In the first quarter of 1999, Intel will announce a Xeon chip that includes the 3-D instruction set, code-named Tanner.

By mid-1999, Intel will have its planned .18-micron manufacturing process up to speed, building the new Coppermine Pentium II and Cascade Xeon processors. This process will reduce the width of circuits etched into chips from the current .25-micron standard, allowing greater processing power per chip while reducing heat dissipation and cutting power consumption. The chips will be able to run faster than the 500 MHz products that will already be available by that time. Intel will use a faster 133MHz version of the Slot 1 and Slot 2 designs to keep up with the faster chips.

The bottom line is that the market will become more splintered, as Intel positions products in different market segments and competitors move to gain market share.

"I think PC buyers are going to become less concerned with how the processor plugs into the motherboard and will be more concerned with what kind of performance they are getting," Brookwood said. As a result, he predicted Intel's competitors will expand their annual sales from today's $1 billion combined sales to $5 billion in five years.

-- Carney is a free-lance writer based in Herndon, Va. He can be reached at DanCarney@compuserve.com.

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AT A GLANCE

Status: Competition in the processor business is driving down the cost of PCs, especially in the consumer market.

Issues: Because federal buyers rank performance, reliability and manageability ahead of price when buying PCs, competitors must challenge Intel's domination in high-end machines.

Outlook: Expect chip technology to improve over the next year, becoming faster and more geared to multiprocessing and specific applications. Intel's competitiors are likely to expand their sales significantly.

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