Young Firm to Unveil Powerful Microprocessor : Technology: Mips Computer Systems takes on the industry’s high-powered companies with its new product.
It’s hard to know whether to envy or pity Mips Computer Systems. On the one hand, the young Sunnyvale, Calif.-based company today will introduce one of the world’s most powerful microprocessors, the latest version of a computer-on-a-chip that forms the brain inside powerful desktop computers and engineering workstations.
On the other hand, competition in the relatively small though fast-growing market for these systems and the microprocessors that drive them is ferocious. Mips sells its own computer systems and licenses its microprocessor design and software to other companies. With revenue of $109 million for the nine months ended in September, Mips is facing off against such rivals as International Business Machines, Hewlett-Packard and Sun Microsystems--the smallest of which is 20 times its size.
And Mips is also taking aim at Intel Corp., the reigning master of the microprocessor world. Mips hopes to persuade personal computer vendors such as Compaq Computer to use its technology. That could generate a huge amount of licensing revenue, but to pull it off, Mips must demonstrate that its business acumen can match its technical might.
“They are clearly pushing the technology as hard, if not harder, than the competition,” said Peter Rogers, an analyst with Robertson, Stephens & Co., a San Francisco investment bank. “But there’s only so much market share that’s available. It’s not just technology that wins purchase orders.”
For the moment, at least, the Mips technology looks pretty good. Like the other competitors in the workstation market, Mips has based its designs on so-called reduced instruction set computing (RISC), a method of streamlining the way a microprocessor handles information. IBM and Hewlett-Packard have proprietary RISC designs, while Sun sells both computer systems and technology licenses to all comers.
Mips says the new microprocessor to be announced today--which, like the other Mips chips, will be manufactured and sold under license by five different semiconductor companies--is the first in the world that handles all its data in chunks of 64 bits of information rather than 32 bits.
The company says that should significantly enhance current performance and future potential. “This is still compatible with 32 bit, but it looks to the future,” said Stratton Sclavos, Mips vice president of sales. “Sixty-four bit will be a requirement for applications in 1992-93.”
Mips is counting on the product, which is several months late, to give it new momentum after a somewhat disappointing year in 1990, when revenue and profit didn’t grow as quickly as some expected. Despite the high marks it has received for its technology, and despite its success in getting important computer companies such as Tandem, Silicon Graphics and Digital Equipment to license its design, the company is reliant on second-rank companies such as Prime Computer and Wang Laboratories to sell full Mips systems. Those companies sell Mips systems under their own names.
“They’ve been struggling with the business model,” said Robert Herwick, an analyst with Hambrecht & Quist. “Too much of their revenue and profitability depends on nonrecurring licensing revenue,” meaning that the company receives one-time flat payments for some licenses rather than an ongoing royalty stream.
As a result, the stock has been extremely volatile, as demonstrated by the sharp 23% jump it took on Thursday in anticipation of the long-expected product announcement. The stock rose $2.50 a share to $13.375 on the over-the-counter market.
Ultimately, the company’s success may depend on moving beyond the narrow technical workstation market into the broad world of personal computers--a difficult but potentially hugely rewarding task. For months, rumors have been flying that Compaq--eager to reduce its total reliance on Intel for the most important part of its computers--would agree to incorporate the Mips microprocessor into some of its high-end systems.
But for a PC company, it’s not simply a question of what kind of microprocessor hardware it uses. There’s also the critical question of software. Currently, Mips machines run the company’s own flavor of the Unix operating system, which is very popular among engineers but has gained only limited acceptance in the mainstream office market.
The office is dominated by Microsoft’s DOS operating system, and in the future most expect the new operating system that Microsoft is developing around its highly popular Windows program to be a major force. So Mips’ efforts to get into the PC business may also depend on Microsoft agreeing to make a version of its operating system that will work with the Mips chip.
Herwick calls the rationale behind a Mips-Compaq-Microsoft alliance “compelling.”
