Editor's note: This column is part of a two-day series on handheld devices, running May 6 and May 7. An overview details
SAN FRANCISCO -- For four years now, ever since he joined
, Chairman and CEO Brian Halla has been
predicting that the future would be rosy once information appliances -- personal, portable gadgets such as handheld organizers -- became widespread. It's a future in which computing would become "so advanced it is simple, so 'everywhere' it is invisible," Halla has said.
That future is here. Research firm
International Data Corp.
estimates that 5.9 million information appliances will be shipped in 1999 and that number will grow to 55.7 million in 2002. This new market has already benefited such diverse companies as
, with its
, with its
handheld PC, and
, which has an Internet phone on the market. Even
has gotten into the act with a portable Internet device set to debut within a few months.
But don't look too hard for National Semiconductor. The processors driving these machines are not National's chips but those made by competitors such as
Over the past four years, National has stagnated while, in comparison, Intel has boomed. From 1995 to 1998, National's revenues rose from $2.4 billion to $2.5 billion while Intel's revenues grew from $16 billion to $26 billion. And National recorded a net loss of $98.6 million in 1998, down from a net profit of $264 million in 1995. Intel meanwhile, reported a $6 billion net profit in 1998, up from $3.6 billion four years ago.
In Halla's vision, National Semiconductor was supposed to be the leader of this revolution, with its "system-on-a-chip" technology. This technology would put the microprocessor, memory, graphics, video compression and networking capability all on one piece of silicon to enable machines to get smaller and cheaper -- all while reducing power consumption.
But competition seems to have already beaten National to market, says
analyst Joseph Osha, who has a neutral rating on the stock.
"I don't have an issue with Halla's vision, but the question is whether they can take advantage of it," Osha says. Already, communications chipmaker
dominates the market in set-top boxes, devices that allow Internet access through TV and are considered part of the information appliance market. Companies like
are close behind. Merrill has acted as an underwriter only for Broadcom.
To make his vision a reality, Halla purchased two key expensive components: microprocessor maker
in 1997 for $500 million and network chipmaker
last year for $120 million. Six months ago, National divided Cyrix into two divisions -- one to continue to develop chips for its core market of budget PCs, and the other to focus exclusively on information appliances. As of a month ago, National was hedging its bets with an equal focus on both PC chips and information appliances. "I wouldn't say we are moving from PCs to information appliances," National spokesman Steve Tobak told
less than a month ago. "Both are critical."
But after losing market share to PC chipmakers Intel and
Advanced Micro Devices
Halla suddenly announced he would abandon PC chips to focus exclusively on the new appliances.
Tobak now says that Cyrix will storm the information appliance market later this year with an array of products. They will include a cordless handheld Internet machine called the
, which looks like an Etch-a-Sketch tablet and allows people to access the Internet via wireless up to 300 meters away from a server.
the Web-Pager will become a hot product over the Christmas season," says Tobak. It will be perfect for schools, where students can carry them from class to class, he says.
But Osha is not impressed. He points out that there is no proven consumer demand out there for products such as the Web-Pager, especially since the convergence of TV and Internet has not taken off. "We are still grappling to figure out what people want," Osha says. "The Web-Pager is a solution in search of a problem."
To make matters worse, Halla might soon find that Intel is focusing on building its fledgling presence in the information appliance market. "As this market develops, we intend to be the premier building-block supplier," said Intel CEO Craig Barrett at the company's April 22
analysts' meeting. In February, Intel announced a new Pentium chip for
in-car computing for on-the-road navigation, communication, entertainment and information. And just last month Intel announced it is making chips for set-top boxes.
But Tobak is undaunted. National has secured unannounced design wins for set-top boxes and other appliances. "A year from now," he says, "you will be looking at this very differently."