In a drastic cost-cutting move, Chromatic Research, based in Sunnyvale, Calif., Friday said it plans to lay off up to half of its employees, as the graphics-chip company attempts to redefine its product line and business model.
Although the company will continue to support its existing base of Mpact
media processor design-ins, it is abandoning new applications of the architecture in favor of a new product scheduled to debut next year.
"Our restructuring does include some reductions in force, and the number will be significant," said a company spokesman. "Half is not far off from the total." Chromatic will employ 150 people when the dust finally settles, down from about 300 before the company started handing out pink slips this week.
Chromatic pioneered a unique business model, and called itself a "chipless" semiconductor company. The graphics company's Mpact line featured advanced media processors that supported 3-D graphics, DVD, and audio capabilities. It partnered with three semiconductor companies -- Toshiba, LG Semicon, and STMicroelectronics (formerly called SGS-Thomson)-- which manufactured the chips and sold them as their own products.
The media processors are unique from other fixed-function graphics chips because they are programmable. Chromatic expected to generate a revenue stream by selling the complex software algorithms necessary to activate the Mpact chips. However, analyst Geoff Ballew at Dataquest in San Jose, Calif., said the design wins have not been coming. "If the chips were selling, the revenue stream would support the company, but the problem is that the chip is not selling according to expectations," he said.
The Dataquest analyst said that some top-tier PC original equipment manufacturers have adopted Mpact devices for DVD add-in cards, but the computer companies have been reluctant to use the device to its full, multifunction capabilities. Instead, the PC industry is more accustomed to fixed-function, non-programmable chips, and in a sense, the Mpact chips are too far ahead of the pack. As a result, design wins have not been overwhelming.
"The Mpact line is a different animal, and that is part of the problem," Ballew said. "Chromatic needed two steps to market the product. First it had to teach the industry about the Mpact design, and then it had to sell it."
This came at the same time the graphics market was swept by oversupply, volatility, and steep price competition. The result was low sales of the Mpact line and low revenues for Chromatic.
The company is working on a new product that departs from its Mpact design and has a target release date in the first half of 1999, and will modify its business model. The company spokesman would not discuss details of the future plans, but he said, "We have learned a lot from this."