The Upstart Intel Can't Afford To Ignore

For years, NexGen Inc. was the laughingstock of the chip industry. The tiny company bragged about besting mighty Intel Corp. with a microprocessor that would outshine Intel's latest. Year after year, though, all the startup delivered was promises--earning it a derisive nickname: NeverGen.

Nobody is laughing now. Last summer, NexGen began shipping its Nx586 chip. Not only is this the world's first Pentium clone, it edges out Intel's speediest chip when running most software--and yet it's as much as 27% less expensive. So, little NexGen has vaulted more than a year ahead of much larger Intel cloners such as Advanced Micro Devices Inc., whose Pentium-class chips won't be out until fall. The Nx586 can outperform a Pentium because it has a reduced instruction-set computing (RISC) "engine" and translates complex, Intel-style instructions into simpler RISC instructions that can be processed far faster. Some 71 personal computer makers, albeit small ones, already offer NexGen PCs.

JUGGERNAUT. Now, the real struggle begins. This year alone, Intel plans to spend $2.9 billion on new chipmaking capacity, and it continues to chop Pentium prices. Unless NexGen can persuade some large PC makers to adopt its chip, it could be crushed under the Intel juggernaut. "It may be too little too late," says Silicon Valley consultant Jeffrey T. Deutsch.

NexGen Chief Executive S. Atiq Raza retorts that he needs only a little piece of the market to survive. Analysts expect NexGen to sell at least a half-million 586 chips this year, vs. 20 million Pentiums for Intel. Still, if the chips bring an average price of $400, it would mean $200 million in revenues.

And the Nx586 is just for starters. Raza vows to launch a next-generation 686 chip around the time Intel introduces its P6 later this year. And in terms of speed and price, he adds, "we'll match or beat Intel."

That's the kind of grit that kept NexGen going during its darkest days. A native of Pakistan, Raza joined NexGen as executive vice-president in 1988, after stints at several chipmakers. Then, NexGen's goal was a finished computer that would leave Intel-based machines in the dust. But plummeting PC prices destroyed that vision by 1991, and NexGen's $90 million kitty--from Compaq Computer Corp. and others--was all but exhausted. Raza took over as CEO and focused on just the microprocessor. It was touch and go, financially. "We were constantly looking over the brink," recalls Raza. But last summer, IBM began producing 586 chips for NexGen.

Unlike the Pentium, the Nx586 doesn't have built-in circuits for "floating-point" calculations. Instead, an optional coprocessor is required for heavy math jobs. This actually proved a boon once the Pentium's bug surfaced last year. Jim Geer, general manager at JB Trucking Inc. in Olympia, Wash., says he bought a NexGen machine specifically to avoid getting bitten by the Pentium bug.

Raza promises to net at least one top-tier customer this year--possibly IBM or Compaq. Says Rod W. Schrock, Compaq's director of marketing: "They do have some advantage over the Pentium." The big question: Is it enough?