Competition chills the graphic chip arena

Electronic News, Dec 22, 1997 by Peter Brown

SAN JOSE, CALIF.--According to industry observers, companies that currently manufacture graphics-only devices now number more than 40. That may be too many.

One indication is not all the companies are making money. Where some are doing well and even thriving--such as ATI Technologies--others such as Tseng Labs and Cirrus Logic, are not. Proof of this came last week as Tseng Labs ended its troubles in the graphics business by selling its graphics design engineers to Canada-based ATI for approximately $3 million in cash.

The acquisition of the 40 engineers by ATI, comes after a rough year at Tseng Labs. Earlier, the company reduced its workforce by approximately 20 to 30 percent (EN, Oct. 13) and would take a one-time charge in the range of $500,000 to $1 million this quarter for outplacement and severance services. According to some observers, Tseng as a whole has been struggling but especially in its graphics development.

Tseng recently halted its development of its ET6300 3-D graphics accelerator because of recent concerns regarding multibank DRAM (MDRAM) which the ET6300 uses. The concerns from Tseng revolve around the potential of a limited supply of chips and a lack of price competitiveness from MDRAM.

Tseng had said if it decided to finish the commercialization of the ET6300 then deliveries could begin in early 1998. However, Tseng now recognizes that even with the rollout of the ET6300, the returns would not be sufficient to make the company profitable. It is unknown what will happen with the ET6300 accelerator. Tseng did not return phone calls.

Trained Engineers A `Blessing'

"Everyone is looking for engineers and trained engineers are something that are a blessing. So that is what we were going after with this acquisition," said ATI spokesman Brian Chadderton. "We are going to put them right to work on MPEG and other graphics development. This is not a product acquisition so our concern is to get these engineers in here and working on MPEG and 2-D graphics."

According to Mr. Chadderton, ATI has increased its market share in the graphics IC business to approximately 20 percent--mostly at S3's expense. ATI has also agreed to lease Tseng's Newtown, Pa. facility for at least three years to keep the Tseng engineering team together and not relocate them.

Commenting on Tseng/ATI acquisition, George Alexy, who currently shares the position of the office of the president at Cirrus Logic while being chief product and marketing officer, said "This consolidation shouldn't be a surprise to anyone. There are rumored to be more than 40 suppliers in the graphics market and whenever you have that many suppliers in any market you can expect some form of shake out or consolidation. It's a tough business and a contentious business and if you don't stay on top of things you are bound to have problems."

No Future Generations

However, Cirrus Logic, the former graphics IC leader, has had some problems of its own. The company has made the decision to no longer make any enhancements or future generations to its Laguna line of 3-D-only chips. The company made the decision to exit the graphics-only business a little more than a month ago at Fall Comdex `97. The company is now focusing on areas that will make it profitable, such as an all-in-one combination chip that features multiple functionality on a single device.

"Getting out of the graphics chip business might be a good idea for Cirrus Logic," said Will Strauss, president of Forward Concepts, a market research firm based in Tempe, Ariz. "They say now they will do some sort of all encompassing chip and that really signifies a change in direction for them. Pulling their horns out of Laguna and all. Laguna was a good chip but came a little late compared to the schedules of the other 3-D accelerators. It's really hard when you get behind the learning curve to get over that hump again. And that's what Cirrus is struggling with right now."

According to Mr. Alexy, the company was indeed late getting into the 3-D graphics business after thriving in 2-D-only products.

"Clearly we have struggled in the transition from the 2-D to the 3-D market and if you look at the history of the market, the leader in one generation has a hard transition in the other and sustaining the investment to be the leader," said Mr. Alexy. "We are in volume production of the Laguna 3-D product and major OEMs such as NEC and Intel have adopted it for some motherboards. We are going to continue to support the Laguna to our major customers."

Mr. Alexy said Cirrus is now planning to capitalize on the emerging sub-$1,000 PC market and try to capturb market share by developing families of products that will integrate not only 2-D and 3-D but video graphics and digital sound as well.

Shaking the Talisman's Curse

In other graphics news, Fujitsu Microelectronics, Inc. (FMI) unveiled more information regarding its graphics effort involving the Talisman architecture.

The Talisman effort has been revitalized by FMI that boosted its graphics chip at last Summer's Siggraph '97 (EN, Aug. 4) and now is touting it will be making a formal introduction of the chip sometime in the next three months. The Talisman project has gone through tough times this year with the disbanding of the Talisman committee and some companies altogether discontinuing their Talisman effort--such as Samsung Semiconductor. However, FMI is pushing forward with its plans for the device and has the full backing and support from Microsoft-who initialized the Talisman project.