Compaq Chooses NexGen as Chip Supplier in Slap at Intel

HOUSTON —  In a slap at chip maker Intel Corp., Compaq Computer Corp. announced Thursday that it has selected NexGen Inc., a start-up company, to provide high-performance microprocessors for its personal computers, a move that will further open up the market dominated by Intel.

NexGen will become Compaq’s third supplier, joining Intel, the world’s biggest chip maker, and Advanced Micro Devices Inc.

NexGen’s 586-class microprocessors are similar to Intel’s powerful Pentium chips, which are growing in popularity.

“As the 586-class processors have become ‘mainstream’ this year, this agreement with NexGen will help Compaq to deliver high-performance PCs that represent a greater value to the PC marketplace,” Compaq said in a statement.

Details of the agreement were not disclosed.

Analysts said the addition of NexGen will open up the market to other makers of microprocessors, which has been dominated by Intel.

Consumers will be the ultimate winner of the new competition, with lower prices for personal computers, they said.

NexGen’s deal with Compaq further weakens Intel’s hegemony on the market, an erosion begun with the development of Pentium class chips by Advanced Micro Devices and Cyrix Corp.

While AMD and Cyrix have not yet shipped their competing chips, analysts said Intel has already reacted.

“It’s already spurring Intel to drop prices in anticipation of these chips coming to market,” said Linley Gwennap, a research analyst with Microprocessor Report. “And when competitors do get systems out there, we’ll see further price cuts from Intel and further price cuts on systems.”

Compaq, the world’s largest maker of personal computers, said it does not view the NexGen deal as a negative reflection on its relationship with Intel or Advanced Micro Devices.

Compaq Desktop Vice President Jim Paschal said the NexGen agreement is “mainly just to allow us to have more options in terms of providing the right technology, which will indirectly enable us to provide the right parts for our customers. I wouldn’t read a lot more into it than just that.”

But he also said the NexGen deal does not close the door to possible supply agreements with other chip makers, including Cyrix.

Compaq has sought to diversify its supplier base, but Intel is by far its main source of microprocessors.

According to published reports, Compaq has been considering using AMD’s K5 or Cyrix’s M1 chip in its high-end personal computers.

AMD supplies Am486 chips for use in Compaq’s lower-end PCs. Paschal said Compaq is “very pleased” with what it has seen of AMD’s K5 chips, which are set for shipment later this year.

Intel lost $1.69 to $85.375 on Nasdaq, and Advanced Micro Devices slipped 12.5 cents to $33.25 on the New York Stock Exchange, while Compaq was unchanged at $34.75 on the NYSE.

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