Via Technologies Inc., the No.2 core-logic chipset design house after Intel Corp., said net income slid 23% from 2000 to $151.1 million. Silicon Integrated Systems Inc. lost $13.6 million, widening from $6.5 million during the same period.

"Last year was pretty bad for the industry as consumer and corporate confidence stayed low," said Chen Wen-chi, president of Via, Taipei, Taiwan.

But while profit fell last year, "Via believes the industry has hit the bottom because things can't get any worse" following the September 11 terrorist attacks, added Chen. He predicted sales over the next few years will grow 20% annually, compared with $974.3 million achieved in 2001. SiS's president Samuel Liu also sees company sales to climbing more than 30% this year from $285.1 million in 2000.

With increased rivalry from Hsinchu-based SiS and an ongoing lawsuit with Intel, Via cut its chipset prices to lure motherboard customers such as Elitegroup Computer System Inc., a tier-one board maker that has manufacturing facilities in Taiwan and China. Shipment of Via's chipset featuring the Pentium 4 processor fell short of the 3-million-piece target expected by Via for the fourth quarter, helping drag down the company's gross margins to 37% last year, compared with 42% a year ago.

Intel and Via have been in legal disputes for nearly half a year on the processor and supporting chipset technologies, making tier-one motherboard companies like Asustek Computer Inc. and Microstar International Inc. unwilling to use Via's P4x 266 chipsets. On the other hand, Intel has granted SiS a license on P4, allowing it to win orders from Taiwan's Asustek and MSI.

Diversification

To reduce its dependence on chipsets -- which now represent 80% of Via's sales -- Via is planning to diversify into products such as optical disk drive ICs. "We're expecting chipsets to account for 50% of company sales in less than two years with more new product offering," Chen said.

Some of the most significant products Via has introduced are single chip IC used in CD-ROM, CD-RW, DVD-ROM and DVD-RW. That puts Via in a position to challenge MediaTek, the world's biggest CD-ROM IC design house and a unit of silicon foundry giant United Microelectronics Corp.

Via is specifically targeting some Japanese OEMs and Taiwan's Aopen Inc. by offering prices 20%-25% lower than MediaTek's, according to Salomon Smith Barney in Taipei.

Even though Via said that it wants to replace Mediatek in 2003 as the biggest player, it might not go as smooth as Via is hoping, some analysts said.

"Unlike MediaTek, which uses a mixed mode design, Via employs a 0.22 micron CMOS digital process, which is stronger in fast products introduction but weaker in cost structure," said Andrew Lu, SSB's head of regional research. He forecast Via to have a 25% gross margin on the CD-ROM IC, less than the 45%-50% margin that MediaTek, Hsinchu, Taiwan, now has.