TAIWAN-BASED Via Technologies is going where bigger companies like IBM, Motorola, Texas Instruments and, more recently, National Semiconductor have failed. Via will compete in the CPU business against Intel. The Taiwan chipset maker in late June reached an agreement with National Semiconductor to acquire its Cyrix CPU unit. The deal came just days after Intel revoked a chipset license with Via and filed suit against the company alleging breach of contract, patent infringement and other claims.

Days after the Cyrix acquisition, Via and National Semiconductor announced an agreement in which National will serve as the manufacturing foundry for Via's chipsets in PCs running Pentium II-class processors. The expectation is that Via will be able to continue to develop and market its chipset supporting PC 133 synchronous DRAMs and AGP4X compatibility. National will manufacture the chipset for sale and distribution by Via.

"Through this agreement with National, Via can continue to deliver compelling chipset solutions for our customers," says Wen-chi Chen, president and CEO of Via. "The chipset solutions will be particularly attractive for PC manufacturers competing in the low end market space, where the cost-efficiency of these high-performance parts will be the most apparent."

Still unclear is how Via will use the CPU assets from Cyrix. Via will take on the Cyrix division as a fabless, independent subsidiary. When the deal is finalized, the Taiwanese company will control intellectual property associated with the Cyrix processor and presumably press ahead on the Cyrix roadmap. The new Cyrix "Gobi" processor that will fit into the same motherboards as Intel's Celeron is expected to start showing up in consumer PCs in time for the holiday buying season.

A National CPU cross-licensing deal with Intel will not be transferred to Via, leaving open the question of how the company plans to manufacture Cyrix chips. Analysts might assume that Via acquired Cyrix in order to make CPUs available alongside its PC 133 chips.

But Via worldwide sales manager Sean Davidson says this is a shortsighted view of the acquisition. He points rather to Via's system integrator license from Microsoft, enabling Via to design products that support the Windows CE operating system, with the emphasis on driver design. According to Davidson, "Cyrix plus CE is a combination that will be targeted at the set-top box market."

In addition, by the fourth quarter of 2000, Intel is scheduled to launch Timna, a system chip including logic and graphics functions with the processor. The Cyrix acquisition would enable Via to compete in this market segment -- one that would otherwise eventually become a threat to the company.

To build the Cyrix chips, Via will have to turn to a manufacturing partner, possibly National, or another company with a licensing agreement with Intel. And in the face of Intel's dispute with Via, the final details of the deal will be critical, says Dean McCarron, principal analyst at Mercury Research in Scottsdale, Arizona.

"Via's license from Intel was for system logic, not for processors, and it was a per product license, which in other words means Intel was approving each individual product that Via made," McCarron says. "Intel is not going to license Via for a processor, so Via will have to continue down the road that Cyrix was going down prior to the National acquisition, which was using protected fabs," -- those covered by licensing agreements with Intel.

But Ashok Kumar, a semiconductors analyst with USBancorpPiper-Jaffary wondered if such an arrangement might go against the cross-licensing deal National has with Intel.

"The original intent of the cross-license with Fairchild (which National later acquired) was for product development, not for patent laundering," he says.

National is looking for a buyer of its fab in South Portland, Maine, but the company has said it plans to retain a minority stake in the facility, which would allow for a manufacturing arrangement between Via and National. Other potential manufacturers of Cyrix chips include IBM and ST Microelectronics, which have similar cross-licenses with Intel.

Josephine Mong, a research analyst with International Data Corp, said that Via executives told her the company plans to manufacture a Cyrix chip with a 133MHz front side bus.

Via is owned by Taiwan's Formosa Plastics, which also has a big stake in motherboard manufacturer First International Computer (FIC) and owns DRAM maker Nanya Technology. Arun Veerapan, a semiconductors analyst with BancBoston Robertson Stevens, said that adding Cyrix to the mix makes for an interesting combination.

"They share access to a lot of the same channels and customers, so with Cyrix in that combination they can compete effectively in the low end of the PC marketplace. That is what the opportunity is and what they are looking to do. But having said that, it is a very competitive market," he says.

Arik Hesseldahl and Chris Hall

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