There is a two-way tussle going on between bulls and bears of Intel Corp, which is causing exceptional volatility in the share price – but in the medium term, even the bear case could be bullish for Intel. On Thursday, Intel shares were off a hefty $2 at $63.25 after Cowen & Co analyst Drew […]
There is a two-way tussle going on between bulls and bears of Intel Corp, which is causing exceptional volatility in the share price – but in the medium term, even the bear case could be bullish for Intel. On Thursday, Intel shares were off a hefty $2 at $63.25 after Cowen & Co analyst Drew Peck downgraded the stock to a buy from a strong buy on grounds that Intel’s legal setbacks with Cyrix Corp are causing uncertainties that should make investors more cautious. After giving the impression that it had an invincible case in its suits against the likes of Cyrix and Advanced Micro Devices Inc, Intel suddenly looks vulnerable. The $5m payout and provisional settlement with Cyrix has been followed almost immediately by another settlement – and payout of another $500,000 to Cyrix – over the maths co-processor litigation between the two that was dismissed last August. The suit was over Cyrix’s use as foundries of companies that have patent cross-licence agreements with Intel. Now Reuter quotes Intel spokesman John Thomson as saying that Cyrix is also seeking court approval to allow it to buy 80486 clones from IBM Corp – and Cyrix said it was receiving chips from an unidentified source but would not say whether the company was IBM. Thomson said Intel would be against IBM using its licensing agreement with Intel to supply chips to Cyrix. As far as we’re concerned the IBM licence is much more restrictive, he said.
That little development makes it clear that the relationship with IBM is getting decidedly strained, despite the new agreement that IBM will cede rights to make the Pentium and successors in return for the right to make 50% rather than 20% of its requirement for 80486-type chips. The problem here is that IBM interprets the concept of requirement here in a very loose manner indeed, and to get round the fact that it clearly means it cannot sell 80486-type parts on the open market, once they are on a board, they become IBM board-level products and thus part of IBM’s requirement – but what is a board? IBM has stretched the concept to cover a tiny board that is really little more than a chip carrier. Also seen as a nasty negative for Intel is the fact that the company that is probably its second biggest customer after IBM Corp, Compaq Computer Corp, is now to take a small part of its 80486-compatible requirement Advanced Micro. But if Cyrix, Advanced Micro and others do win enough of their legal battles to become a serious force in the market, in the medium term, this can only feed Intel’s interests, because it will simply increase the already daunting head of steam behind the iAPX-86 architecture, and while clonenakers argue over the 80486, Intel is well down the track with the P6 Sextium follow-on to the Pentium. IBM’s decision not to make Pentiums – the cost of moving to 8 wafers and a 0.6 micron process is too high, and without it, IBM would not be able to be cost-competitive with Intel, which is getting vastly higher per-wafer Pentium yields after embarking on the switch. The only serious rival to the iAPX-86 over the next three or four years is seen to be the PowerPC, and things here are not panning out at all the way its backers had hoped. It now appears that IBM Power Personal Systems has turned its back on putting Macintosh System up on its planned PowerPC-based PowerDesk machines, and Apple Computer Inc’s first PowerPC Macs will not conform to the PowerPC reference system. And word out of IBM Personal Computer Co is that with iAPX-86 machines representing a $7,000m to $8,000m market for the company, it is not about to jeopardise that business by pressurising its vast reseller network to take PowerPC-based machines against its will. That means Power Personal Systems will have to fight to win reseller hearts and minds, setting up an internal battle similar to the one between Rochester and Austin, which despite all the earnest and sincere protestations to the contrary has seen the RS/6000 handicapped just enough that it remains the number three also-ran in the Unix market, trailing
a long way behind Sun Microsystems Inc and Hewlett-Packard Co. Intel doesn’t have too much to worry about.