Bad Things Can Happen To Good Chips: A Cautionary Tale

As IBM begins commercial chip sales, it might heed the words of an alumnus, Curt Crawford, now the vice-president of AT&T Microelectronics: "There's a great deal to be learned. Don't underestimate the difficulty of the job you're embarking on."

Crawford knows whereof he speaks. In the mid-1980s, predictions were rife that American Telephone & Telegraph Co. would soon become one of the world's biggest chip sellers. In 1985, AT&T announced memory chips and its own microprocessor, the WE32000. Both products were excellent--and both flopped. The memory chips were felled by price wars; the WE32000 was done in by Intel Corp. and Motorola Inc., which had mainstream microprocessor customers sewn up.

HOBBIT FORMING. Nor did it help that AT&T lacked any concept of chip marketing. Says Jack Beedle, president of In-Stat Inc., a chip research firm in Scottsdale, Ariz.: "They built the finest chips in the world, then had telephone salesmen try to sell them."

Since then, AT&T has turned itself around by focusing on markets where it has an edge, such as communications. An example is the Hobbit chip that's going into the forthcoming Eo, a blend of cellular phone and pen-based computer. The Hobbit, whose speedy features were invented by AT&T Bell Laboratories engineers for phone switches as big as walk-in freezers, gets more speed per watt of power consumed than more complex microprocessors such as Intel's Pentium. AT&T has also zoomed in on chips for modems, cellular phones, and miniature hard-disk drives, where plucking signals from noise comes in handy.

AT&T has learned to sell as well. William J. Warwick, president of AT&T Microelectronics since 1987, replaced nearly half the senior executives with outsiders. The newcomers built a 600-member sales force and a network of manufacturers' reps and distributors. Boldly, AT&T Microelectronics rebuffed chip orders from other parts of AT&T if the business didn't seem attractive. Crawford expects the unit to record its first-ever annual profit this year.

Even rivals are impressed. "It appeared in the past that they felt the best technical solution was good enough," says David French, a vice-president at chipmaker Analog Devices Inc. Now, he adds, "they're pretty aggressive about solving [customer] problems." Hey, IBM--listen up.

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