by Scott Tilley

This summer has seen several interesting developments in the microprocessor arena. Compaq has dropped their Alpha chip in favor of Intel's Itanium. Both IBM and Intel have demonstrated prototype transistors whose physical size has fallen to the single-atom nanoscale level. Transmeta announced new Crusoe chips with power consumptions that have been cut in half. AMD has released their impressive Mobile Athlon 4. Yet the share prices of almost all of these companies continue to fall. What's up?

Alpha

On July 12, 2001, Sun Microsystems ran a full-page advertisement in the Wall Street Journal with the tag line "guinea pig", picturing a squirming rodent in a person's hand. The reason for the ad was the announcement from Compaq that they were dropping support for their Alpha chip in favor of Intel's new Itanium. The message from Sun was that Compaq was abandoning both the Alpha and their customers for an untried chipset, and that Compaq customers should consider switching to Sun's 3rd-generation 64-bit SPARC platform, one that is perceived as proven and mature.

The fact that Compaq dropped the Alpha processor should come as no surprise to anyone. The Alpha's days were numbered since Compaq bought Digital Equipment a few years ago. Although Compaq says it will continue to invest in Alpha until the chip is phased out in 2004, you have to wonder why anyone would go with the Alpha now, given it's fall from grace.

Since it's introduction in 1992, the Alpha has garnered many engineering accolades. But it failed to garner market share, peaking at less than 10%, putting it's commercial viability at risk. The hundreds of Compaq engineers who worked on the Alpha will move to Intel to work on the Itanium. This leaves just two serious competitors to Intel in the commercial chip arena: the aforementioned Sun with their SPARC, and IBM with their PowerPC.

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IBM

Speaking of IBM, they have been much in the news of late with what seems to be a continuous stream of engineering breakthroughs related to microprocessor design and fabrication. On June 25, 2001, the company reported that they had developed the world's fastest silicon transistor, capable of running at 240GHz. This is twice as fast as current communications chips, and more than 100 times faster than the quickest Pentium 4 processor from Intel. The new design is still based on the standard bipolar transistor, but it is created using a 200-atom thick layer of silicon germanium (SiGe) atop a basic silicon wafer.

More recently, on August 28, 2001, the New York Times reported that IBM scientists had made a computer circuit out of a single strand of carbon, known as a nanotube. In contrast to the 200-atom thick layer of SiGe described above, the nanotube is a mere 10-atoms wide. This may enable IBM to make circuits that pack 10,000 times more electronics into the same area on a substrate, which would operate much faster and consume less power than current chips. This type of nanoscale engineering is just beginning. Coupled with their copper wiring circuitry of 2000,  who knows what marvel IBM will unveil next in the way of microprocessors for the personal computer.

IBM's share price has not been hit as hard as their competitors in the chip market. Their share price closed today at $99.95, off their 52-week high of $134.88. This may be due in part to the breadth of products and services that IBM offers. Increases in service revenue can cushion falling chip prices.

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Intel

Intel is not standing still of course. As reported in The Rapidly Changing Face of Computing on June 25, 2001, Intel says that they have prototype transistors that are just 70 to 80 atoms wide, but only 3 atoms thick! These tiny transistors run at 1,500GHz -- which is about 1,000 times faster than today -- and consume half the power. Although this breakthrough is some way from commercialization, it is truly amazing how fast small chip sizes are falling. Intel is now predicting billion-transistor chips running at 20 GHz by 2007 (if not sooner).

This type of technical innovation notwithstanding, Intel's share prices continue to fall. As do their chip price, due to a bruising price war with AMD. Intel dropped the price of some of its Pentium 4 chips by up to 54% this month, in part to increase its adoption rate and move customers away from the Pentium III. This price drop was on the lower end of the Pentium 4 market segment, making way for the newer 2GHz models to be released in the fourth quarter.

Of course, Intel is also being hurt by the general slowdown in the PC industry: they closed today at $27.96, off their 52-week high of $71.38. Although Intel's second-quarter earnings dropped 94% from a year earlier, the downturn has hit other, smaller, companies even harder. For example, Transmeta and Advanced Micro Devices (AMD).

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Transmeta

On the low-power front, on June 25, 2001, Transmeta announced new Crusoe processors based on 0.13 micron technology that are up to 50% faster than their first-generation chips, but with a fall in power consumption of 20%. The new TM5800 and TM5500 chips are made for Transmeta by Taiwan Semiconductor Manufacturing Company. Previous Crusoe chips were made using a 0.18 micron fabrication process. Transmeta also claims that the gains in both power and performance came from improvements in their Code Morphing software.

Given the energy crisis here in California, one would think that the low-power Crusoe would be extremely popular. Unfortunately for Transmeta, their recent technological improvements do not seem to be stopping the fall in their stock price. They closed today at $2.54 per share, perilously close to penny stock territory, down from their 52-week high of $49.56. Like the fall of the Alpha, this is yet another instance of the value of marketing acumen over technical prowess.

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AMD

One of the more impressive microprocessors currently on the market is the Mobile AMD Athlon 4 processor. Running at a top speed of 1.1GHz, this chip has found a home in notebook computers from well-known companies such as Compaq, Hewlett-Packard, and Sony. AMD uses their PowerNow! technology to reduce power consumption. As with Transmeta, AMD continues to ship new processors that offer higher performance with lower power requirements. This has kept AMD nipping at the heels of Intel, creating a healthy competitive market.

Healthy for consumers that is; for AMD itself, the market has been anything but healthy. Today's close of $13.55 is down from their 52-week high of $37.00. On July 6, 2001, the Wall Street Journal reported that AMD's second-quarter earnings would be less than a fifth of analysts expectations. The share price of this chip manufacturer fell 16% that day in after-hours trading. AMD is at a clear disadvantage relative to Intel: it's pockets are not as deep. PC manufacturers are still reluctant to replace the "Intel Inside" logo with something like "Powered by AMD Athlon" on the outside of their boxes.

Where all the chip fallout will end is anyone's guess. While rising in performance, the chips keep falling in terms of size, power consumption, and price. This situation should be a win for the consumer, but any rumbles from giants like Intel on lowered earnings have a ripple effect in today's economy. The chips may be small, but the impact they have when they fall is large indeed.