Advanced Micro Devices Inc. last week signed a letter of intent to purchase the Geode product line from National Semiconductor Corp., a move that will put the family of thin-client X86 processors and support silicon into the hands of a company that is better suited to exploit its strengths, according to analysts.
The sale also gives National a respectable exit strategy for an initiative that fell far short of the hype surrounding Geode's launch in the late 1990s.
At the time, National trumpeted Geode as a way for companies to reap the benefits of thin clients, which range from the simple, in which all software resides on the server, to more powerful and flexible systems that include Web browsers and limited applications residing on the client.
The Geode processors give AMD, Sunnyvale, Calif., a position not only in thin clients but also in a new class of Web-connected digital set-top boxes now coming to market, and in the nascent market for smart displays, which--if prices come down to a few hundred dollars--could attract home users interested in a flat panel that is wirelessly connected to a home PC.
The purchase adds another gun to AMD's embedded-processor arsenal to complement its February 2002 purchase of start-up Alchemy Semiconductor Inc. and its MIPS-based embedded processor. Alchemy now forms the heart of AMD's Personal Connectivity Systems (PCS) Division.
National Semiconductor's chief ex-
ecutive, Brian Halla, launched the Geode initiative after his company purchased Cyrix Semiconductor, the Dallas-based X86 vendor, in 1997. Last February, Halla said National, based in Santa Clara, Calif., would divest its 3G/GSM cellular phone and information-appliance (IA) IC operations to better focus on its core analog business.
Analyst Jim Turley of Jim Turley Associates, Monterey, Calif., said that he expects AMD to use its processor design and manufacturing expertise to greatly improve the performance of the Geode products.
"I'm glad Geode found a home at AMD that will be better for it than National, which made a half-hearted attempt at budget PCs," Turley said.
The agreement, which was announced last Wednesday, becomes final in two to three weeks, and the companies declined to announce terms of the deal until then, although one source said the sale price was "insignificant" compared with the size of the companies. National put revenue from its X86 IA products at roughly $85 million in recent years, or 5% of the company's total revenue.
AMD will retain 132 of National's employees, nearly all of them experienced processor engineers based in Longmont, Colo. National said another 65 will be laid off.
The addition of the Geode design team will help AMD stretch its reach from thin clients all the way up to servers, said Phil Pompa, vice president of marketing at AMD's PCS Division. Corporate IT managers, he claimed, are wearied by the support burden of full-fledged PCs, and are gradually accepting the cost-of-ownership merits of thin clients.
Connected to a server by a USB or wired connection, the clients prevent users from offloading corporate information to a disk, prohibit rogue applications from being loaded, and limit other costly sins that users of full-fledged desktops are prone to commit.
Wyse Technology Inc., San Jose, the dominant thin-client supplier with an estimated 80% market share, uses Geode silicon and, primarily, the Linux operating system. Microsoft Corp., Redmond, Wash., has improved its support of thin clients with the latest release of its CE.Net software, Pompa said.
But outside of Wyse, most companies that entered the network PC market in 2000 quickly fled the field, cowed by a brutal recession and by Wall Street demands for tighter corporate focus. A perception that declining PC prices would squeeze out networked PCs stunted support as well.
A source at National said that the thin-client market didn't take off in part because companies such as 3Com, Honeywell, and Sony didn't invest the nec- essary marketing dollars to get the product off the ground.
Flat-panel displays also cost much more several years ago than they do now, making their bill of materials too high for a tablet PC market that was intended to attract customers who couldn't afford a full-fledged notebook.
Even now, National charges $50 to $75 for the Geode processor and related support silicon, which the company source said was "a relatively high price for a National product."
Others pointed to National's own role in the thin-client disappointment, once hyped by the likes of Larry Ellison, Scott McNealy, and other Microsoft haters.
Bert McComas, principal analyst at InQuest Market Research, Higley, Ariz., argued that thin clients were "pushed into the market in a way that left a bad taste--it was sensationalized and then it underperformed" by not getting the design wins National promised.
"AMD now has to resurrect it, and my guess is they won't bet the farm on it. The long-term prospects for that business are probably better in AMD's hands," McComas said, adding that "the extreme integration approach has been tough for National to master."
Also, National was not in a good position to drive the performance of the Geode microprocessor. "AMD can inject over time more powerful processing capability by putting its own processor in there, but there are manufacturing complexities associated with that. They may have to repartition the device," McComas said.
Turley said he remains skeptical that networked thin clients will ever become a large market.
All the arguments about better cost of support for IT managers "sound good on paper," he said. But for employees expected to be adept at information processing, being handed a thin client rather than a desktop or notebook "must be hugely insulting. Companies might as well turn back the clock to 1967 and set them down in front of a green screen that is hooked up to an IBM mainframe."
The sale of the Geode product line "is the final acknowledgement that National is an analog company," said Nathan Brookwood, an analyst at Insight 64.
"It made a bet on Internet access that didn't work out," he said. "And in reality, Geode is not a good fit with an analog company. It's a much better fit at a processor company like AMD that knows how to manufacture and sell processors."
Additional reporting by Crista Souza