From IBD:
DEC 'Partners' Fair Game For HP, Sun
Date: 2/11/98
Author: Norm Alster
The best defense is a good offense.
So goes the thinking at Hewlett-Packard Co. and Sun Microsystems Inc. Both companies are reacting to rival Compaq Computer Corp.'s planned $9 billion buyout of Digital Equipment Corp.
DEC, Sun and HP compete in Unix systems. This standard operating system dominates the market for high-end networks. Compaq has focused on lower- end systems running Microsoft Corp.'s Windows NT operating software.
Alert to the new challenge from Compaq, HP and Sun are eyeing DEC's customers, distributors and employees. Most vulnerable are DEC's customers who use Unix software. Some observers question whether Compaq will continue to support DEC's Unix base.
Unix is Sun's core business. And the company will actively recruit Digital engineers. ''There's some really great Unix development people at DEC. We're going to see if we can lure a few,'' said John Shoemaker, vice president and general manager of Sun's Enterprise Server and Storage Group.
HP is concerned about the threat of Compaq as a rival soup-to-nuts computer systems house. ''This does present a serious challenge to HP . . . . Of course, it's a concern to us,'' said Nick Earle, worldwide marketing manager for HP's Enterprise Systems Group.
As such, HP has begun a number of poaching initiatives. The company has posted on its Web site the following message addressed to Digital's Unix customers:
''As a Unix professional, news of Compaq Computer's proposed buyout of Digital may have first brought a sigh of relief. A financially sound PC manufacturer has stepped in to rescue your chosen vendor for Unix platforms. But, upon further reflection, you may become a bit nervous about the potential ramifications of the merger . . . ''
That's just the first volley from Palo Alto, Calif.- based HP. HP also has targeted Digital's customers with a new print media advertising campaign. One ad reads: ''Digital. Totally committed to Unix. Until last week.''
And HP has bought a list of DEC customers, who soon will receive direct mailings from HP, Earle said.
The HP pitch will be to offer Digital computer users attractive trade-in terms. ''We're offering buybacks. We'll buy back (Digital Vax and Alpha servers) as trade-ins for HP systems,'' said Earle. HP will pay ''extremely generous'' prices, he said.
Many Unix systems are marketed through resellers. And HP has Digital's resellers in its cross hairs. ''We are definitely looking at Digital resellers, Unix resellers,'' said Earle.
Unix resellers provide more value in the form of technical expertise and software than, say, PC or NT systems resellers. Hence, HP's interest in luring away Digital's Unix channel partners.
Compaq likely will support Digital's high-end Unix customers, says Chris Christiansen, an analyst with Framingham, Mass.-based International Data Corp. These, after all, are some of the large commercial accounts that interested Compaq in the first place. But Compaq likely will try to steer smaller Unix customers toward its NT systems, says Christiansen.
Will HP and Sun be able to siphon off business from Compaq? ''I think it's going to be real tough,'' said Christiansen. ''A lot of customers are fairly happy with the acquisition.''
HP's Earle says there have been no big defections yet. But he hopes to have at least one major Digital trophy customer by the end of the month. ''We're hoping for an early win,'' said Earle.
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(C) Copyright 1998 Investors Business Daily, Inc.
Metadata: HWP SUNW CPQ DEC MSFT I/3572 I/3270 E/IBD E/SN1 E/TECH
Can AMD Ante Up K6s, Remain In Chip Contest?
Date: 2/11/98
Author: Nick Turner
It's do-or-die time for Advanced Micro Devices Inc.'s microprocessor business.
Sunnyvale, Calif.-based AMD is racing to adopt a new manufacturing process so it can churn out its K6 processor cheaply and in high volume - a feat that eluded it in '97. Accomplishing the task is essential if it is to keep pace with chip behemoth Intel Corp.
AMD has a huge opportunity as long as it executes successfully, analysts say. But if it stumbles - as it has in the past - it may never recover.
''It's very clear: Either they can get the manufacturing situation in order or they can't,'' said Mark Edelstone, an analyst at Morgan Stanley, Dean Witter, Discover & Co. in San Francisco. ''If they can't, they're pretty much out of the microprocessor business.''
Manufacturing problems on the K6 are AMD's only impediment to success, industry watchers say. Everything else is in place. The PC world believes the K6 chip design is sound, and the company has lined up big customers, including Compaq Computer Corp. and IBM Corp.
AMD introduced the K6 chip in April '97. The company touted it as a low- cost alternative to Intel's Pentium microprocessors. A microprocessor is the brains of a PC and is usually its most expensive component.
PC makers were excited by the K6 introduction, and both Armonk, N.Y.- based IBM and Taiwan's Acer Group agreed last summer to use the chip in some consumer PCs. The K6 was designed to offer performance comparable to that of Intel chips at a 25% discount.
The chip received its biggest boost last month when Houston-based Compaq, the world's No. 1 PC maker, said it would use the K6 in its new $799 PCs.
Conditions in the PC market now are changing in AMD's favor. Sub-$1,000 PCs are now the rage, and that has computer makers scrambling for cheap chips like AMD's.
But first, the company must pass the manufacturing test. Now that there's plenty of demand for the K6, AMD needs to fill the supply part of the equation.
By its own admission, AMD hasn't been up to the challenge. The company predicted it would produce more than two million K6 chips in '97's fourth quarter. It fell short, with 1.5 million.
AMD had bumped up production, but too many chips that didn't pass inspection came off the lines.
These problems aren't new to AMD. In '95, production issues on the K6 predecessor, the K5, helped end an agreement between AMD and Compaq.
Now AMD is upgrading to a new manufacturing process, creating even greater challenges. The company had been making chips with circuits that were 0.35 micron wide. It now hopes to produce chips with 0.25-micron technology.
The new process will allow AMD to cut costs by squeezing more chips on each silicon wafer. But the task is formidable - 0.25 micron is about 1/400 the thickness of a hair.
Some observers think AMD was too quick to make the transition.
''Their best strategy would have been to mature the 0.35-micron process before going to 0.25 micron,'' said Jon Joseph, an analyst at NationsBanc Montgomery Securities Inc. in San Francisco.
Now there's no turning back. AMD has produced small volumes of the K6 with 0.25-micron technology in its Sunnyvale facilities. Most of the chips will be produced at AMD's giant Austin, Texas, plant, dubbed Fab 25.
AMD is mum about its progress at Fab 25. The company's top officials refuse to comment until next month. A spokesman for the company did concede that this was a ''make or break'' period for AMD.
''We've got it all lined up. We (just) need to execute,'' said Scott Allen, director of AMD corporate public relations.
Already there are difficulties. AMD is letting Compaq and IBM have dibs on Fab 25 chips, but seems to be giving smaller customers short shrift. CyberMax Computer Inc. , a PC manufacturer in Allentown, Pa., announced last month that AMD's production problems would delay its new line of notebook computers.
AMD's troubles continue to hurt the bottom line. Last year, the company lost $21.1 million, or 15 cents a share, on sales of $2.36 billion. Lehman Brothers Inc. in New York forecasts that AMD will lose 35 cents in the first quarter of '98 and 10 cents in the second. Profits in the second half, though, could lead to a break-even year, Lehman says.
Caroline Gangi, a Lehman analyst, says a lot hinges on how well AMD produces chips.
''If they're not successful, it could be disastrous,'' she said.
Meanwhile, Santa Clara, Calif.-based Intel is not standing still. The chip titan is implementing the 0.25-micron process.
''That seems to be going extremely well,'' said Morgan Stanley's Edelstone.
Intel also is cutting prices aggressively and making inroads in the low-cost PC market. Hewlett-Packard Co. last month announced a $799 PC with a 200-megahertz Pentium MMX chip. Palo Alto, Calif.-based HP says it chose the chip over the K6 because Intel's production is more dependable.
And a PC outfitted with a Pentium II -Intel's hot new chip - should cost less than $1,000 by the second half. That could leave K6-powered PCs looking like less of a bargain.
Other competitors, such as Santa Clara-based National Semiconductor Corp.'s Cyrix unit, also are gunning for the low-cost processor market. There's also a chance giant Asian chipmakers will enter the fray.
So AMD will have to move fast. If it manages to get in shape, the microprocessor market can offer huge rewards, says Nathan Brookwood, an analyst at Dataquest Inc. in San Jose, Calif.
''If you can get into that league, it's like a license to print money,'' Brookwood said.
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(C) Copyright 1998 Investors Business Daily, Inc.
Metadata: AMD INTC CPQ IBM ACEFF HWP NSM I/3675 I/3572 I/3573 E/IBD E/SN1 E/TECH
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