Posted at 10:47 p.m. PDT Monday, Sept. 3, 2001
In chip speed race, Intel zooms ahead with AMD on its tail
BY THERESE POLETTI
Mercury News
In the race to create ever-faster chips for personal computers, longtime underdog Advanced Micro Devices zoomed past Intel last year like a turbocharged Volkswagen Beetle passing a Porsche.
AMD beat Intel to market with a fast, relatively cheap 1-gigahertz processor for high-end PCs. When Intel tried to push its aging Pentium III designs to higher speeds, the chips sputtered, forcing Intel to pull into the pit for maintenance.
AMD's strong performance won it industry respect and lots of new business from PC makers looking for powerful chips at low prices.
But now Intel is back in the driver's seat.
Last week, the Santa Clara-company reclaimed the speed crown from AMD with the launch of a 2-gigahertz Pentium 4 chip, faster than AMD's top-of-the-line Athlon, which runs at 1.4 gigahertz. It also cut prices as much as 54 percent on its Pentium 4 family of chips, prompting AMD to follow with its own price cuts.
At Intel's forum for developers last week in San Jose, executives clearly sounded confident again -- a far cry from last year's conference, when reporters pressed officials, including Chief Executive Craig Barrett, for explanations about a string of manufacturing missteps and a product recall.
A difficult time
However, Intel's renewed assault comes at a difficult time for the PC industry, which is going through one of its worst slumps ever. Intel's $9.3 billion cash hoard and larger size make it better prepared to weather the downturn than the much smaller AMD, which has just $1 billion in reserves.
Sunnyvale-based AMD is already feeling the pain, and analysts said things are likely to only get worse for Intel's most serious competitor in the market for microprocessors, the ``brains'' of a PC.
Last week, AMD said its third-quarter revenue is likely to decline 15 percent from the second quarter, and the company reiterated that it expects an operating loss.
While AMD cited problems in its flash-memory business for its revenue shortfall, analysts said the processor price war with Intel is also taking a toll.
Still, AMD is by no means defeated.
The company stole significant market share from Intel from June 2000 to June 2001, going from 16 percent to 22.2 percent of the PC-processor market, according to Mercury Research.
And many analysts and chip reviewers say that while Intel's top Pentium 4 chips have higher raw speeds, AMD's fastest Athlon chips are equal or slightly better in terms of overall performance, including how fast software applications run.
An article for the October issue of PC World, which compared the companies' top chips, said that with the latest Pentium 4, Intel finally caught up to AMD.
``Our tests show that despite the new chip's extra megahertz, the Athlon still performs better on some applications,'' PC World wrote. The magazine noted that the Pentium 4 should perform better with applications that are optimized for it, but ``Athlon-based PCs remain less expensive than P4 systems, making them better values.''
However, consumers typically look at clock speed -- the listed speed at which a microprocessor executes instructions -- as the main measure of performance when buying computers.
``As long as buyers judge purely on clock rate, Intel has a clear advantage right now,'' said Mike Feibus, an analyst with Mercury Research in Scottsdale, Ariz. ``AMD has its work cut out for it. . . . Intel is back in the saddle.''
Intel's current clock-speed advantage represents a major marketing challenge for AMD -- one that will only get tougher once Intel launches a big advertising campaign later this fall.
Intel insists that the 2-gigahertz Pentium 4 chip is the fastest in the world. ``We have unquestionably the highest-performing benchmarks today,'' said Paul Otellini, executive vice president and head of Intel's architecture group.
AMD says it plans its own marketing campaign to educate consumers about its chips, which it says do more work per clock cycle.
Aaron Feen, a marketing manager at AMD, uses an analogy of a Ferrari with a 12-cylinder engine and a Lotus with a 4-cylinder engine.
``Both cars can do what the end user wants -- get to 200 miles per hour real fast -- but just looking at cylinders, it may not be apparent,'' Feen said.
What's in a name?
While the company is mum about the strategy it will use to fight back, analysts said they expect AMD to rename the Athlon to indicate their Pentium equivalents. For example, AMD could call its upcoming 1.5-gigahertz Athlon the Athlon 2000 to denote that it's equivalent to Intel's 2-gigahertz chip.
This type of naming scheme has been used before by AMD, Cyrix and others in competing with Intel, but analysts said it could alienate customers, who might feel misled.
AMD ``might have to go that route and hope for the best,'' said Hans Mosesmann, an analyst at Prudential Volpe, who cut his price target on AMD recently to $12 from $22 a share. ``I think it's a real problem.''
Meanwhile, the Intel machine is only just getting started. The chip giant, which is investing a combined $11.5 billion this year on research and development and new manufacturing capacity, is starting to move to two new manufacturing processes next year that will enable it to make faster-performing chips more efficiently from bigger silicon wafers.
One change in particular could differentiate the two companies. Currently, AMD and Intel use manufacturing processes with silicon wafers about 200 millimeters in diameter, the size of salad plates. By moving to 300-millimeter wafers, the size of dinner plates, Intel will get about 30 percent more chips per wafer.
With the Athlon, AMD already gets more chips per wafer than Intel does with its Pentium 4, because the Athlon itself is smaller than the Pentium 4. But AMD is looking to build a 300-millimeter plant in the 2004 or 2005 to become even more efficient, and it needs a partner to share the hefty cost and use the extra capacity that AMD won't need.
``Once Intel really gets the 300-millimeter stuff going, which is a year or two away, it will be really hard for AMD to compete on cost,'' said Linley Gwennap, an analyst with the Linley Group in Mountain View. ``AMD is in their transition period, and Intel is just hitting their stride.''
But AMD is a feisty and unpredictable opponent that has survived numerous Intel attacks.
``Intel can't afford to misstep,'' said Rick Doherty, director of the Envisioneering Group in Seaford, N.Y.
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Contact Therese Poletti at tpoletti@sjmercury.com or at (415) 477-2510. |
