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Paul Engel
If they don't do well with this,(k7) 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.
''If the K7 doesn't make it, AMD will be gone,'' said Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray
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Advanced Micro Looks for Win Against Intel With K7 (Update1)
Advanced Micro Looks for Win Against Intel With K7 (Update1) (Updates with closing share price.)
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 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 1/16 to 17 3/8 today.
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, a year earlier.
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.'' |
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