It takes just a little hubris to pull off what Gerald D. Rogers has. In six years, his startup, Cyrix Corp., has become a burr under the saddle of microprocessor king Intel Corp. Even so, eyebrows arch when Rogers boasts that a new Cyrix design will outperform Intel's latest Pentium chip. Is it bluster or not? Linley Gwennap, who tracks the microprocessor business for market researcher MicroDesign Resources Inc., believes that the Cyrix chip, dubbed M1, "is on the leading edge of just about everything."
One-upping Intel would be the capstone to one of the more audacious strategies in chip industry history. After lining up just $4 million in venture funding, Rogers left Texas Instruments Inc. in 1988 to do the impossible: crack Intel's monopoly in microprocessors for IBM-compatible personal computers. The quest looked quixotic because, unlike Advanced Micro Devices Inc. (AMD), Rogers didn't have a license from Intel to make these silicon brains. He had to create a "workalike" chip from scratch, something that no one had accomplished.
FAB FOUL-UP. Cyrix started out selling so-called math coprocessors until it finished its first microprocessors, then grew quickly, went public last July--and last winter ended up in deep trouble: It ran short on product just as it was battling Intel in court. A deal under which Dallas neighbor TI fabricated chips for Cyrix fell apart--and its other manufacturing partner, SGS-Thomson Microelectronics Inc., in Carrollton, Tex., suffered production glitches. "It was down to survival," Rogers recalls.
Funny how fast things change. Cyrix won the Intel suit--along with two earlier ones, while a fourth was settled at no cost. In April, Rogers signed a manufacturing alliance with IBM Microelectronics. And with supplies assured, Cyrix in July landed its biggest customer yet: AST Research Inc., a top-five PC maker. "They just keep knocking down roadblocks," says Thomas A. Thornhill, an analyst at Montgomery Securities. Declares Rogers: "We couldn't be in a better position."
In September, Cyrix plans to uncork a computer simulation of its M1, giving AST and others a peek at what IBM and SGS-Thomson should deliver by yearend. Rogers is banking on this chip and customized spin-offs of it to help multiply Cyrix' 3% share of the microprocessor market: By 1997 he wants 20%, double that now held by AMD, Intel's closest competitor. Overly ambitious? Maybe. Mark L. Edelstone, an analyst with Prudential Securities Inc., points out that Intel will be determined to maintain market share "at all costs."
Rogers thinks he has a shot, however, if he can avoid getting mauled by Intel's plans to slash prices by up to 40% (BW--Aug. 22). Cyrix launched more sophisticated versions of its 486 family this year, and sales are taking off. Second-quarter revenues jumped 83%, to $58.7 million, lifting profits 28%, to $9.2 million. Thanks to IBM, there's plenty more capacity--more than $1 billion worth of chips over the next five years, says marketing director Stephen L. Domenik. "Now we just have to figure out how to sell them all."
There's the rub. Given Intel's price cutting and massive marketing muscle, big accounts could be tough to come by. Even before Intel's new aggressiveness, Cyrix had to grant 30% discounts to stay below Intel's volume-pricing programs--and even that isn't always enough. "Cyrix has a good design capability," says Eric Harslem, vice-president for engineering at Dell Computer Corp. "But for now, we're a 100% Intel customer."
RAPID PULSE. To break the logjam, Cyrix is counting on the M1 to snatch the performance lead from Intel. The first version should run at 100 megahertz or more--at least matching the "heartbeat" of Intel's fleetest Pentium. But Cyrix engineering head Kevin C. McDonough says the M1 will romp through programs more than 30% faster--enough of an edge, he hopes, that customers will line up even though M1 won't fit the same socket as a Pentium. The trick behind the processing boost, borrowed from reduced instruction-set computing chips, is called out-of-order execution. While both the Pentium and the M1 will chew on two software instructions simultaneously, the Pentium must handle them in the correct order; any mix-up, and processing stops until the device sorts things out. The M1 should process instructions in almost any order.
Assuming the chip is shipped by yearend, Rogers hopes to sell as many as a million M1s in 1995. That's a pittance compared with the 25 million to 30 million Pentiums that Robertson, Stephens & Co. analyst Daniel L. Klesken expects Intel to ship. Still, if the M1 lives up to its superstar advance billing, says Michael Feibus, an analyst with Mercury Research, "I wouldn't be surprised if Cyrix is No.2 in fairly short order," moving ahead of AMD in "X86" microprocessors. That could happen by late next year, adds chip-watcher Ken Lowe at market researcher Dataquest Inc.
Nonsense, says Edelstone of Prudential Securities. AMD also is racing to polish off a simulation of its Pentium clone, called K5, in September. Unless it stumbles, it will continue as Intel's "most lethal competitor," he says. AMD has two advantages. After also winning in court, it can now legally use Intel technology in its chips--and AMD makes its own.
ROOM TO RUN. That's why IBM's backing looms large. A strong marketing push by IBM Microelectronics could be the stamp of approval that will convince skeptics such as Dell Computer--especially if Cyrix chips pop up in IBM's own PCs. Although the deal pits IBM and Cyrix against each other in the marketplace, it's a big improvement over past alliances.
In those, Cyrix handed over the rights to its designs--and created major competitors. For instance, Cyrix claims that TI was selling most of the chips it made and not delivering a fair share to Cyrix. The partnership dissolved in December in an exchange of lawsuits. So, this time, Rogers put up cash: He agreed to pay $150 million over five years to reserve a portion of IBM's chipmaking capacity, and IBM agreed not to sell any more than the number it delivers to Cyrix.
With room to run, Rogers has turned his designers loose. Their new job is to create souped-up versions of 486 and M1 chips that can command margins closer to Intel's 58%. For example, one design will combine a microprocessor with a modem and an interface for a CD-ROM drive--a ready-made brain for multimedia PCs. "By 1996, 50% of our chips had better be not totally compatible with Intel products," Rogers says. "That way, we can give our customers a better advantage."
"They've got a pretty good road map, and I think they have the engineering to pull it off," says David F. O'Connor, executive vice-president of Zenith Data Systems. Talk like that just goads Rogers into thinking bigger. He has already bought 20 acres across the street from his office for the day when Cyrix decides it needs its own factory to keep up with demand.