The Cyrix - National Merger

Background

On July 28, 1997, the Cyrix Corporation agreed to merge with National Semiconductor in a deal that gives Cyrix shareholders 0.825 shares of National Semiconductor for each share of Cyrix stock they hold. The entire deal is valued at $529.8 million. The merger, already approved by the boards of directors of both companies, requires the approval of Cyrix's stockholders and is subject to regulatory approvals and other customary conditions. The companies expect that the transaction will be completed in November.

National Semiconductor and Cyrix told investors that they will focus on chips for sub-$500 home computers, NetPCs, and entertainment devices like TVs with new "system on a chip" processors that will meld microprocessors, audio, video, network cards, and other functions onto a single piece of silicon.

Cyrix MediaGX chip technology will now be the focus of the effort from the two companies to develop sub-$500 machines. The MediaGX is a chip that in its current manifestation fuses a microprocessor with graphics and audio functions. National is going after the low end of the microprocessor market because they don’t want to go head-to-head against Intel. "Let Intel and Advanced Micro Devices (AMD) pound the crap out of each other in the workstation market. We will go after the low end," said Brian Halla, chief executive officer at National Semiconductor. Soon, you won't be able to find Cyrix chips in PCs that cost more than $2,000.

The new bizzaro Cyrix will be a wholly owned National subsidiary and essentially have autonomy. National Semiconductor will manufacture Cyrix-designed chips while retaining the Cyrix brand. That is good news. National will produce Cyrix's MediaGX, 6x86 and 6x86MX processors even while the IBM Microelectronics wafer-manufacturing contract continues for the next 18 months.

The Good

Industry analysts thing that the merger is a good deal for Cyrix. Cyrix has been under increasing pressure in recent months as Intel has been dropping prices sharply on its microprocessors. The price wars in the microprocessor business have made it more difficult for Cyrix to remain competitive without their own manufacturing. Cyrix is known as a "fab-less" semiconductor company, which has third parties do its manufacturing. Cyrix has not been able to make big inroads in the x86 microprocessor arena in part because the company has often lacked enough capacity to manufacture its chips and has never really generated enough revenues to cover the high cost structure its business requires. By being folded into National Semiconductor, this is no longer true.

National provides pieces missing from Cyrix's resume: fabrication facilities, access to top-tier system OEMs, and a license for x86 processors. With its own fabrication facilities, National Semiconductor can manufacture the parts that Cyrix has designed. Cyrix now will better be able to keep up with AMD and Intel in processor speeds instead of continually lagging behind because of the time consumed getting designs ready for production at IBM Microelectronics foundries. As a result, Cyrix’s fate is no longer tied directly to its manufacturing partners. National can also do a better job selling the mainstream processors designed by Cyrix because they are considered a more reliable source of product.

The Bad

National Semiconductor indicated early on that it would de-emphasize Cyrix's high-end 6x86MX design. National Semiconductor and Cyrix said that though they would continue to develop the 6x86MX, the two companies talked of it almost as an R&D project rather than a commercially viable product. The M2's function, said Halla, will be to "make sure we have a high-performance core for Internet appliances" that will run the GX.

Cyrix has been doing damage control ever since these statements were made. Cyrix has tried to clarify this issue and said that they are not backing off of their 6x86MX chip or future designs for mid-range personal computers. Cyrix has stated that National is interested in Cyrix's future product plans, in addition to gaining access to the MediaGX for near-term, PC-on-a-chip designs. Only time will tell if this is true.

Cyrix says its merger with National won't change prices or plans for Cyrix-based PCs for at least the next few months. Cyrix will continue to make its Media GX and 6x86MX processors. While pursuing low-cost PC system designs, Cyrix is also developing two new powerful X86-compatible microprocessors in an attempt to remain a viable player in the desktop computer arena. There are two next-generation microprocessor cores in development today. One is a huge generation jump, the M3 and the other represents a moderate jump. I haven’t heard anything about the latter. Cyrix will introduce future mid-range processors as stand alone CPUs and then integrate them into low-cost products. The plan is to continue to generate next-generation cores and drive them down into high-volume markets

The Winners - Cyrix

Don't worry about buying existing Cyrix based PCs today. The merger solidifies Cyrix's financial state and is likely to improve industry acceptance of those chips.

The Losers – AMD & IBM

Cyrix, already a formidable competitor, now has better manufacturing and an influx of cash. In addition, unlike Intel, Cyrix wants to sell at the same price points as AMD.

IBM currently manufactures x86 processors for sale by Cyrix, keeping essentially one of every two wafers it processes. IBM has an agreement with Cyrix that extends into 1999. If the market for a low-cost processor designed by Cyrix exists, then IBM will be asked to help manufacture it. If that market does not take off, then IBM's contract likely will not be extended. IBM at that point can develop their own processor, license the technology from Cyrix, or exit the market. IBM has stated that they remain committed to the x86 marketplace and its customer base to deliver alternative microprocessors for the mainstream desktop PC market.

When asked if IBM was approached as a potential buyer for Cyrix, IBM stated that it was was not appropriate to comment.

Opinions

I asked readers through an online poll if they were more or less likely to buy a Cyrix processor if the Cyrix-National Semiconductor merger is successful. There have been 869 votes cast so far. Here are the results. I was actually quite surprised.

It seems as if the merger will not significantly impact peoples buying decisions at all. Forty-five percent of you say you are indifferent while an equal number of you (27%) think that you are more/less likely to buy a Cyrix microprocessor.

How will the Cyrix–National Semiconductor merger affect my future purchasing decisions? I buy microprocessors based on price/performance. Cyrix/IBM microprocessors currently have the best price/performance ratio in my opinion and that is why I buy and promote them. I will never own a sub-$1000 PC because they don’t provide an enough performance to meet my needs. I will also never own the fastest PC on the market because it is cost prohibitive.

I am not a Cyrix/National stockholder and as a result I don’t care about the return on any investment. I am simply a guy who likes very fast affordable microprocessors. If Cyrix/National in the future decide to focus exclusively on a sub-$1000 or sub-$500 PC then I can guarantee that my next microprocessor won’t be designed by Cyrix.

In Summary

The ramifications of this Cyrix-National deal are far reaching. Overall it is a good deal for Cyrix, but in the long run any lessening of competition with Intel in the broader PC market is bad news for consumers. Because PC vendors don't want Intel to be the only option, AMD rather than Cyrix may now get a warmer reception for its chips. AMD will continue to compete at the high end with Intel. It is unlikely now that Intel will ever feel the heat of Cyrix at the high end again.

Nobody at Intel is cheering at the announcement that National Semiconductor has agreed to buy Cyrix. It's never good news when a competitor gets an infusion of cash, marketing clout, and manufacturing expertise - especially when that competitor has built a chip that's technically superior to your own products.

National Semiconductor's recent acquisition of Cyrix marks the end of an era for x86 competition. There are no longer fabless x86 vendors. It is no coincidence that none of the fabless x86 suppliers have survived as an independent company. With Intel driving the industry relentlessly to faster processors that require the most-advanced process technology, it is very difficult for a fabless vendor to keep up.

National and Cyrix may now be able to achieve a great feat for the consumer if they are successful in creating compelling PC systems that sell for $500 or less. Although National’s vision is possible and potentially very profitable, it is a far different than the vision unveiled when Cyrix was founded in 1988.

This page has been accessed times since Sunday, August 17, 1997.

Sources:
news.com
msnbc.com
zdnet.com
techweb.com
pcweek.com