VLSI, Intel to dissolve Polar chipset ties; Compaq's mobile market turn widens split between the two

Electronic News, August 8, 1994 by Jim DeTar

SANTA CLARA, CALIF.--VLSI Technology and Intel are dissolving their technology-sharing agreement set up to develop the 386-based Polar chipset for portable computing applications as Intel plans to sell its 5.36-million-share, or 16.4 percent, stake in VLSI.

In what VLSI characterized as a modification of its July 1992 agreement with Intel, the split between the two was attributed to disenchantment with the current lackluster portable computer market. Nevertheless, it is believed that since the main initial buyer of the 386-based Polar--Compaq Computer--has put on hold its Mobile Companion product with that chipset in favor of a 486-based or other solutions, a growing chipset rivalry between VLSI and Intel has been significantly exacerbated.

In a statement last week which sources claimed took Intel by surprise, VLSI unilaterally disclosed the development, saying: "While Intel and VLSI will support current Polar customers, the two companies have determined that an extension of the original agreement no longer serves their respective business interests due to a number of changes in the marketplace."

L. Donald Maulsby, VLSI's new VP and GM of the Personal Computer division, told Electronic News VLSI will continue to support Polar customers as long as there is customer demand; he estimated the life cycle of the product would extend through 1995. "In terms of the handheld market, we are reassessing our position. The market hasn't materialized as quickly as we had thought, so we are still evaluating the products we have in-house. Until the market becomes more defined, we will continue to keep the pulse of what the market is doing."

In general, the portable market exemplified by personal digital assistants (PDAs) and personal communicators has been disappointing to date. Apple Computer says it remains committed to the Newton tablet/handheld computer offering concept but unit sales have been relatively weak (VLSI also supplies an ARM RISC-based processor for the Newton). Motorola's Wireless Data Group recently said it will delay shipping its Envoy personal wireless communicator until year-end due to extended testing (EN, July 25) and most recently AT&T disclosed plans to cut off investment and close down its 52-percent-owned pioneering EO, Inc. personal communicator activity (EN, Aug. 1).

Specific to Compaq, however, was VLSI's 10-Q report (for the period ended April 1) which revealed that in 1Q94 Compaq reduced its development efforts with VLSI on the 386-based handheld computer products ostensibly in preference, like other OEMs, for 486-based systems. "This, along with the limited success of certain other handheld computer devices, leads the company to believe that significant uncertainty exists as to the timing and revenue potential of handheld products in general."

VLSI and Intel also have been quietly co-developing a handheld device based on 486 technology called Draco (with original expectations that no volume production on such a chipset would begin before 1995).

Industry sources close to both companies said Draco never involved a formal agreement between Intel and VLSI--as was the Polar project. Although the original intent was for the two firms to develop a 486 chipset for portable applications, the lack of any technology agreement for use of the 486 core frees VLSI to pursue working with other microprocessor companies if it chooses to continue the Draco project.

An Intel spokesman said the firm expects there will be Polar-based systems on the market later this year or early 1995, and it is moving forward to develop a 486-based product, however. "We are not looking for any additional design wins for Polar. We are putting our efforts in a standalone 486 processor for the handheld market. It will not be part of an integrated chipset, which is the way Polar was designed. We will have the stand-alone processor and work with VLSI and other chipset companies."

Meanwhile, as a result of the slow development of the handheld computer market, VLSI has reduced its current R&D investment effort, Mr. Maulsby said. "VLSI has reduced its current R&D investment effort in the handheld market, but will be examining the development of successor products as the market size and product feature set is better defined."

When asked if VLSI will continue with the Draco, 486-class work, Mr. Maulsby said current plans are to follow through with that project but, at the same time, it also is being re-evaluated. "Yes, we will continue to pursue that. We are reassessing it but we have silicon and we are validating currently in our labs."

Polar is a two-chip chipset that resulted from an agreement the companies signed in mid-1992 (EN, July 13, 1992). Under terms of that agreement, Intel paid $50 million to acquire nearly 5.36 million shares of VLSI common stock and a three-year warrant to purchase an additional 2.677 million shares; that warrant was never exercised.

With that $50 million investment, Intel gained a 16.4 percent ownership stake in VLSI. Under terms of the agreement, Intel licensed its 386SL MPU core to VLSI, which integrated the core with its own library of Functional Systems Blocks. A year later, VLSI announced the Polar mobile companion chipset (EN, July 26, 1993).