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Advanced Micro Looks for Victory Against Intel With New K7 Chip
Bloomberg News
June 10, 1999, 7:58 a.m. PT
Advanced Micro Looks for Victory Against Intel With New K7 Chip
Sunnyvale, California, June 10 (Bloomberg) -- Advanced Micro
Devices Inc. is aiming its new chip right at the heart of Intel
Corp., even as rivals bail out of the processor market to avoid
the No. 1 chipmaker's aggressive price cutting.
AMD this month will start shipping its new K7 chip for high-
powered personal computers. For the first time, AMD is trying a
more complex design before Intel does. The first K7s also are
expected to run faster than Intel's flagship Pentium.
The challenge for AMD is producing enough of its chips at
low cost. The company has bungled new products before, incurring
large losses, and the K7 is by far the most complex AMD has ever
made. If the money-losing company stumbles, analysts said, it may
follow rival National Semiconductor Corp. out of the business of
making microprocessors, the brains of PCs.
''If they don't do well with this, we'll end up with just
one microprocessor maker,'' said Dan Hutcheson, president of
consulting firm VLSI Research in San Jose, California. National
announced its exit from the market last month.
AMD's pursuit of the K7 shows that Chief Executive Jerry
Sanders is undaunted after a 30-year fight with Intel, which has
10 times the sales and whose chips power 76 percent of new PCs.
The 62-year-old Sanders has his eyes on a bigger prize this
time. Though the K7 will go into home PCs first, AMD hopes
eventually to break into the business market, putting later
versions of the K7 in powerful computers that serve up data to
the Internet and other computer networks.
Intel moved into that market recently with its new Pentium
III Xeon processor, seeking a haven from the price cutting on PC
chips that's hammering AMD. Some Xeons sell for more than $3,000,
compared with $744 for Intel's best PC chip.
Brutal Competition
Long an also-ran, AMD ambushed Intel last year when it
rolled out new versions of its K6 chip and lured big PC makers
like International Business Machines Corp. and Compaq Computer
Corp. with prices well below Intel's. The company returned to
profitability in the second half of last year as K6 sales surged.
Santa Clara, California-based Intel fought back this year
with better versions of Celeron, a low-cost chip aimed at the K6.
To stem AMD's gains, Intel rolled out faster versions of the chip
and slashed prices, compelling AMD to match them.
''The competition is brutal,'' said Scott Allen, a spokesman
for Sunnyvale, California-based AMD, whose shares have fallen 40
percent this year. They slipped 1/4 to 17 3/16 at late morning.
To recover, AMD needs a processor that sells for higher
prices, and Sanders is betting millions on K7. If AMD can't sell
enough of them before Intel improves the performance of the
Pentium, or if Intel slashes prices the way it did on Celerons,
AMD could get trounced by its rival yet again.
''If the K7 doesn't make it, AMD will be gone,'' said Ashok
Kumar, an analyst at U.S. Bancorp Piper Jaffray in Minneapolis,
who rates AMD shares ''neutral'' and Intel ''strong buy.''
So far, So Good
Analysts say the K7 looks good on paper. The first versions
are expected to run as fast as 600 megahertz, compared with
550MHz for Intel's fastest Pentium III. Megahertz is a measure of
how fast a microprocessor can perform its computations.
AMD won't say how much it will charge for the K7. Some
analysts expect it to sell for as much as $700 when it rolls out,
compared with $220 for its highest-powered K6. More powerful K7s
for corporate computers could cost much more.
The K7 ''has every appearance of being a part that can
radically change their position in the marketplace,'' said
Michael Slater, principal analyst at Cahners MicroDesign
Resources, a consulting firm based in Sebastopol, California.
The question, according to Slater and others, is whether AMD
can overcome its track record and make the ''part,'' as
semiconductors are known in the industry.
The company was a year late with the K5 processor in 1996,
and it struggled to get its successor, the K6, to market as well.
Design problems and production glitches with the K6 left AMD with
losses totaling $125 million in 1997 and 1998.
Losses, Again
The latest blow came early this year, when AMD started
losing money again, disappointing investors, because a design
glitch slashed production of its fastest K6 chips. Though demand
for the processors was there, AMD couldn't deliver.
AMD reported a loss from operations of $118.8 million, or
81 cents a share, in the first quarter, compared with a loss of
$62.7 million, or 44 cents, in the year-earlier period.
Some analysts say AMD may surprise the industry and produce
lots of high-powered K7s. If that's the case, they say, AMD could
start making money again soon and its shares could take off.
''If they don't produce the K7 in volume, no one will be
surprised,'' said Tad LaFountain, an analyst at Needham & Co. in
New York. ''If they do, people will be astounded.''
LaFountain, who rates AMD shares ''strong buy,'' said the
shares could reach 42 if AMD makes and sells enough K7s. |
