(IDG) -- National Semiconductor CEO Brian Halla's prediction that we'll someday see a free PC was greeted with scattered giggles by the packed hall of computer engineers and designers at the Microprocessor Forum event in San Jose, California on Tuesday. But the idea is not that far-fetched.

"We're already in the era of the profitless PC," said Michael Feibus, an analyst with Mercury Research. "You see PC makers making up for lost profit margins with kickbacks from Internet service providers. It's just like giving away the razor to sell blades."

In his keynote speech, Halla compared the evolution of the PC to that of the cellular telephone, a technology whose prices have dropped dramatically. In some cases, vendors offer essentially free cell phones in exchange for long-term service agreements. Cyrix, the maker of Intel-compatible microprocessors that National bought last year, has been one of the key drivers behind PCs priced under $1000. (Recently, they've dropped as low as $499 with monitors from EMachines.)

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Halla suggested that companies like the Safeway grocery chain might give regular or high-volume customers a PC with the company's logo on it to encourage online ordering.

Making a terminal case

While touting low-cost PCs, Halla also said that the desktop computer is evolving from a general-purpose device to a range of so-called Internet appliances designed to do specific tasks. But Halla said a system with a narrower range of functions and a lower cost, such as a Windows terminal, doesn't have to sacrifice performance.

National practices what it preaches. Halla said his company now has more than 7000 desktop Windows terminals instead of PCs, and that its costs for supporting its desktops has shrunk from $60 million last year to about half that this year.

New employees at National can get a PC, but Halla said they must justify why they need one rather than a Windows terminal. He also noted the security advantages of the Windows terminals -- if a device is stolen, all that is lost is "plastic and metal," since the user's data remains stored on a server.

Everyone wants to get into the act

The Microprocessor Forum is featuring several Intel-compatible chip vendors. This diversification is good for the industry and users, said Michael Slater, principal analyst at MicroDesign Resources, which produces the show.

Slater predicted that there may be as many as eight Intel-compatible chip makers by this time next year. At the show, National/Cyrix was joined by Advanced Micro Devices, Centaur/IDT, and newcomer Rise Technology, which disclosed plans to introduce a low-cost Pentium-compatible chip for notebooks and budget computers.