Advanced Micro Devices Bets All The Chips On K6
Date: 11/27/96
Author: Russ Britt
It's do-or-die time for chipmaker Advanced Micro Devices Inc.
Just about everything is riding on the Sunnyvale, Calif.-based company's new K6 microprocessor, scheduled to ship in early '97. AMD
has fallen well back in processor generations from industry leader Intel Corp.
But if PC makers like it, K6 will enable AMD to give Intel of Santa Clara, Calif., a little more than just token competition.
If K6 fails, AMD, which has had two quarters of losses this year, is likely to get out of making microprocessors altogether, say analysts.
That means it will be a much smaller company, relegated to making auxiliary chips used in specific features of computers, such as
memory.
''They're basically betting the farm on the next generation of microprocessors in order to compete with Intel,'' said Drew Peck, analyst for
Cowen & Co. in Boston, Mass. ''It looks like it's going to be extremely successful or extremely disastrous. There isn't much middle
ground.''
AMD has put a lot into the K6. It acquired NexGen Inc. at the beginning of this year for $800 million in a stock swap. It also has finished a
new $1.4 billion chip factory in Austin, Texas, to make the K6 and future processors.
The risk AMD Chairman and Chief Executive W.J. Sanders III is taking on this project is enormous. But analysts agree he must take the
gamble if AMD is to get back in the microprocessor game.
Sanders declined to be interviewed for this article.
''If they drop out and move out of the product line, they lose (their) sense of identity,'' said Gene Lee, an analyst for International Data
Corp. in Framingham, Mass. ''I think AMD's at a point where they don't get to make a lot of mistakes.''
Advanced Micro officials believe the K6 makes the quantum leap needed to get the company back in the chip game. AMD has
struggled to keep pace with Intel, which holds more than 86% of the worldwide desktop microprocessor market, says market researcher
Dataquest Inc., San Jose, Calif.
AMD's most recent offering, the K5, was intended to be a Pentium competitor. But it took too long for AMD to bring it to market. The K5
started shipping earlier this year, after nearly a year of delays.
''I think people had written AMD off,'' admitted Vinod Dham, AMD's microprocessor products group vice president and a former Intel
engineer.
Dham helped develop the Pentium chip for Intel as part of his 20-year tenure at the company.
Dham came to AMD with this year's purchase of NexGen. He was NexGen's chief operating officer. Atiq Raza, now AMD's vice
chairman and chief technology officer, was NexGen's chief executive.
Company officials say the K6 jumps all the way from the Pentium class and leaps past current versions of the newer Pentium Pro.
The K6 is expected to compete with Intel's next generation of chips, code-named Klamath. If it lives up to that billing, the company will
have scored a coup because its chips often are released long after their Intel counterparts.
AMD has been demonstrating the K6 for potential customers but appears to be receiving a lukewarm response. Some of that stems
from the company's past weak performances.
One company that AMD hopes to court, Hewlett-Packard Co. in Palo Alto, Calif., says it will consider the new chips. But some HP
officials express concern over AMD's performance.
''The problem AMD has had in the past is in execution,'' said Boris Elisman, worldwide marketing manager for HP's desktop group.
''Intel is our choice.''
Elisman oversees sales of higher-end desktop computers. But even at the low end, PC makers are loath to leave the Intel fold.
While AST Research Inc. of Irvine, Calif., has used AMD chips in the past - and will look at the K6 - they aren't exactly doing cartwheels
over it.
''Our top source of chips is Intel. That is our platform of choice,'' said an AST spokeswoman.
But AMD executives are confident the new chip will capture interest. Computer makers crave an alternative to Intel, Dham says.
''They don't necessarily want to be dictated to by their only source,'' Dham noted.
Dham adds that the K6 also will be cheaper than Intel chips, but he is unclear on by how much. AMD processors generally run 25%
below those of Intel, he says.
AMD officials demonstrated the chip at the recent Comdex computer show in Las Vegas. Side-by-side comparisons of the K6 and
Pentium Pro show the K6 runs some software faster.
Newer chips should be even more fleet-footed, company officials say, because the demonstration used an early model of the K6.
''The (demonstration) says so much that words won't capture it,'' AMD's Raza said.
Naturally, AMD's competitors take a more cynical view. Steve Tobak, marketing manager for competing chipmaker Cyrix Corp. of
Richardson, Texas, says AMD's comparison means little. More meaningful tests will take place in a few weeks by independent
organizations, Tobak says.
Still, AMD's product shows signs of promise, Tobak admits.
Cyrix also is coming out with a next-generation chip called the M2. It's scheduled to arrive in the second quarter of '97.
Developing the K6 has taken its toll on AMD's bottom line. K6 development costs are blamed for two consecutive quarters of losses.
The company lost $38 million, or 28 cents a share, on sales of $456.9 million in the third quarter ended Sept. 30. For the same period a
year ago, AMD reported profits of $42 million, or 30 cents, on sales of $607 million.
But Raza and Dham say the money spent to acquire NexGen and develop the K6 will be worth it.
''We are in the process of re-establishing AMD as a credible supplier,'' Raza said.
ANDREA ELECTRONICS
INTEL CORP.
HEWLETT-PACKARD COMPANY
CYRIX CORP.
(C) Copyright 1996 Investors Business Daily, Inc.
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