New chip would cut PC costs

SOUTH PORTLAND — National Semiconductor thinks its new generation of computer chip can drive the price of personal computers below $300 and shake up the computer industry.

The so-called “PC-on-a-chip” would have a computer brain and a powerful central processing unit to manage all the computer’s functions. Production is expected to begin in South Portland within 18 months.

The new chip would take both prices and electronic miniaturization to a new level, analysts said.

“What they are doing is mixing a bunch of different hardware together to provide a ready-mix product. Just add water,” said Jim Turley, senior editor of Microprocessor Report, an industry newsletter in Sebastopol, Calif.

The chip’s central processing unit initially would run at 220 megahertz, which is fast by the standards of home computers, said Richard Faust, an analyst who follows National Semiconductor for Kaufman Brothers in New York. Ultimately, the speed will increase to 300 megahertz.

“These are fully capable processors,” Faust said. “They are not low-end. They are simply low-cost.”

While the Israeli-designed chip has not yet been announced officially in the United States, National Semiconductor chief executive officer Brian Halla mentioned it during a visit to the South Portland facility.

A company spokeswoman said the chip could help drive personal computer prices below $300 from their current level of $800 for a low-end machine with no monitor.

The analysts say the single chip would cut computer manufacturing costs because one chip would take the place of the dozen or more chips now at the heart of a computer.

They also say National Semiconductor does not need to achieve the kind of gross profit margins that Intel shareholders expect, Faust said. Intel generates better than 60 percent margins on its processors, while National expects something in the 40 percent range.

“There’s a lot of fat in Intel’s margins,” he said.

Turley, the California analyst, sees the PC-on-a-chip as targeted more toward electronic devices than high-end personal computers.

Consumer electronics — everything from wireless phones to videocassette recorders — is a much larger market, even if its profit margins are lower, Turley said.

For example, the chip would make it a lot easier and more affordable for manufacturers to produce portable television-computer-telephone devices.