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Via Aims to Undercut Intel and AMD in Low-End Market

While showing potential as a low-cost chipmaker, the Taiwanese firm may be behind in the technology race.

SAN FRANCISCO -- The competition between PC chipmakers Advanced Micro Devices (AMD) - Get Advanced Micro Devices Inc. Report and Intel (INTC) - Get Intel Corporation Report is already brutal. But now Via Technologies of Taiwan is jumping back into the game, hoping to eat a big piece of the low-end market.

Via bought the money-losing chipmaking divisions of

National Semiconductor



Integrated Device Technology

(IDTI) - Get Integrated Device Technology, Inc. Report

last summer for next to nothing and was expected to charge quickly into the market.

But it lost about half of the National/IDT workforce and sales fell. IDT's market share was negligible to begin with. And the influence of National's Cyrix processor fell last year. By December, the chip's market share in computers selling for $1,000 or less had dropped from 15% in April to less than 1%, the result of Via concentrating efforts on the Feb. 22 launch of its new low-end chip, the Joshua.

The low end is a nasty sector. National and IDT fled from the market last spring because Intel dropped prices. AMD just

barely hung on.

Funny thing, though: IDT and National's Cyrix dropped out just as demand for PCs surged. As a result, both Intel and AMD have sold record numbers of chips since Christmas. At the

Goldman Sachs Technology Investment Symposium

last week, AMD CEO Jerry Sanders said the market for low-end chips has been so good that the company would actually see revenue rise or at least stay flat for the first quarter, a time when sales usually decline. Both Intel and AMD have scored big on the Street as well: Since Oct. 19, Intel shares have risen 66%, closing at 108 Friday, while AMD shares have risen 161% to close at 42 15/16.

Via investors are betting that the Taiwanese company will be a fierce competitor. On the

Taiwan Stock Exchange

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Via shares have risen more than 250% since July. "Via is definitely a high-risk company," says one San Francisco portfolio manager who holds Via in an international fund, and asked that his name not be used. "They are putting it all on the line. But they have the potential to undercut Intel. Obviously we think they have a significant chance of coming on the upside."

But financial analysts are skeptical of the Joshua's potential, since it is based on Cyrix technology they say is outdated. "If you look at the Cyrix core, it's 2 years old," says

U.S. Bancorp Piper Jaffray

analyst Ashok Kumar. "I'm sure Via can push it down some rat holes."

Both AMD and Intel have redefined the low end of the computer market, he says, by selling chips that run at speeds of over 500 megahertz at prices low enough to go inside computers that sell at less than $600 retail. A year ago, computers powered by chips that fast would sell for $1,200 and up. Soon, the speeds for budget computers will top 700 MHz, Kumar says, and Via will not be able to compete. (Piper Jaffray is not an underwriter of Intel, AMD or Via.)

Linley Gwinnep, an analyst with semiconductor research firm

The Linley Group

, says that in regrouping to introduce the Joshua, Via has lost such Cyrix and IDT customers as


(IBM) - Get International Business Machines Corporation Report



. "In the meantime, all these guys have switched to Celerons and

AMD K6-2s," he says.

Via spokesman Dean Hays says the Joshua will be available at prices lower than competitors', while affording equal performance. Brand-name machines are the target, he says.

But it won't be easy to edge AMD and Intel out of the boxes. Intel, for instance, is so determined to keep Via at bay that it asked the

International Trade Commission

in January to investigate whether VIA is infringing on Intel's patents, a finding that could prevent VIA's chipsets and/or microprocessors from being sold in the U.S.

"It is an area we still intend to play aggressively in," says Intel spokesman Adam Grossberg. By June, he says, Intel will have the budget Celeron running at 600 MHz, and that's a speed even the fastest Intel-based desktop hadn't reached until last August. And by then it will be producing low-end chips using the latest manufacturing processes, lowering the cost and the price. Toward the end of the year, it will release a chip called Timna, which integrates graphics and logic functions on one chip, to be sold at an even lower cost.

Via's Hays says the company can undercut Intel and still generate profits. Unlike Intel and AMD, he says, Via contracts out manufacturing and so doesn't have to spend to operate expensive plants.

Investors say Via has yet to prove itself on the bottom line. "The question is whether Via's processors can be viable in

the microprocessor marketplace," says the San Francisco fund manager who asked not to be named. "That's the thrust. And the risk."