Breaking News: Gateway -- AMD deal possible per News.com
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Gateway eyes AMD deal
By Michael Kanellos
Staff Writer, CNET News.com
October 8, 1998, 12:15 p.m. PT
Advanced Micro Devices is inching toward a deal
with Gateway that, if consummated, would lead to
the first AMD-based Gateway desktop computer,
according to sources, while IBM is considering
using a K6-2 processor in a consumer notebook.
While neither deal has
yet to be finalized, the
existence of close
negotiations between
Gateway and AMD
reflect the changing
nature of the computer
market. Gateway has
long been one of the
staunchest allies of Intel.
Gateway, however, has
seen some of its
strongest growth this
year in the consumer
market. And the
consumer market is
increasingly becoming a
sub-$1,000 market, a
segment where cheaper
AMD chips provide
advantage.
A K6-2-based Gateway
PC would allow the
company to expand its presence in the budget PC
market that is increasingly being absorbed by
K6-based computers from Hewlett-Packard and
Compaq. Also, Sony, just last week, indicated it
would come out with a K6 system. A K6-2 based
notebook from IBM, which already uses the K6-2
in its Aptiva desktops, would likely end up
competing against low-cost notebooks from
Compaq that use the K6-2 and National's
MediaGX.
AMD, Gateway, and IBM declined to comment on
any negotiations. Sources inside and close to the
companies, though, confirmed the existence of
negotiations.
Adding fuel to the speculative fire, Jerry Sanders,
AMD's CEO, said in a conference call with
analysts that AMD would probably announce a
new alliance with a major PC vendor as well as a
new notebook design win.
"We're involved with the top guys--IBM, Compaq,
HP, Acer. We're getting another. We expect to
add another top tier guy in the current quarter.
We're expanding our customer base generally. I
mentioned Sony. There are others," he said. "We're
expanding our customer base and gaining market
share."
In another segment of the call, Sanders said, "We
do expect to have a major announcement in the
current quarter of a K6-2 mobile product."
Of course, observers also point out that history
says the deal won't go through. Gateway has talked
to AMD before with no results. Last year,
purported negotiations between the two never
came through.
Intel, according to many observers, also does not
take incursions into its customer base lightly and is
known to marshal company representatives at the
hint of encroachment. Additionally, Intel has
aggressively cut prices on its processors this year
and most expect pricing pressure to continue.
Although AMD reported its first profit in a five
quarters earlier this week, the stock has declined
since then.
If the Gateway deal goes through, Gateway would
likely incorporate a K6-2 processor, or the
upcoming K6-3, in systems selling for under
$1,200, said Ashok Kumar, semiconductor analyst
at Piper Jaffray.
"Gateway will probably roll it out in November," he
said, assuming the deal can be signed. With the K6,
Gateway could hit the $799 price band. "Their core
customer, the consumer, is going to $1,000 and
under."
Intel, however, won't likely sit back. "Intel is not
going to let them pick up a million units a quarter,"
he said.
These two deals would cap off a heady year for the
scrappy processor vendor. A year ago, AMD was
suffering from production problems that stumped
the supply of K6 chips. The company now has K6
and K6-2 design wins with Compaq, IBM and
Hewlett-Packard. Accordingly, market share has
increased. While AMD so far primarily sells its
chips into retail computers, the company will try to
make a push into the corporate space with the
upcoming K6-3 next year, said Sanders.
Last week, Sony announced three new consumer
computers for the Japanese market based around
the K6-2.
No Sony PCs based around the chip were
announced for the U.S. market, but the Japanese
models could be a prelude to that, speculated
Mark Edelstone, processor analyst for Morgan
Stanley Dean Witter. Edelstone earlier this year
predicted that AMD could expand its market share
to 16 percent or more, based primarily around the
strength of growth in the PC market.
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