Intel antagonists could try Athlon
(I apologize if this was already posted.)
Red Herring - January 22, 2000 06:01
Advanced Micro Devices's (AMD) (NYSE: AMD) charge into the high-end PC market is being helped along by frustrated hardware vendors who want a little more variety in their low-margin lives. Many of them are looking to stick it to Intel (Nasdaq: INTC) any way they can without, of course, going so far as to cause Intel to retaliate and cut off their lifelines.
In the high-end PC market, such a delicate dance wasn't possible until AMD's Athlon chip showed that AMD was something more than a perennial bottom-feeder. Athlon competes toe-to-toe with Intel's Pentium III processor. And while PC makers say Athlon is not displacing Intel's chips, AMD is working hard to make sure it's a reliable secondary supplier. Better yet for AMD: analysts think growing vendor frustration with Intel's way of doing business may open the door wider for AMD and could help newcomer Transmeta gain a foothold against the chip giant, too.
RIGHT PLACE, RIGHT TIME
This week, AMD stunned Wall Street by announcing it had a record $969 million in fourth-quarter revenue and shipments of more than 6 million units for the quarter. Thanks largely to its Athlon chip, AMD says it's on track to capture 30 percent of the PC-processor market share by the end of next year.AMD has long had to survive as a scavenger filling holes in Intel's product lines, or it has been little more than a lever PC makers use against Intel. But when the fourth quarter saw both a shortage of Intel chips and higher than expected PC demand, original equipment manufacturers (OEMs) were able to use AMD as a secondary supplier of chips without upsetting the microchip kingpin.
In the future, PC makers may worry less about what Intel thinks. For years, big PC makers have put on a good public face but groused behind closed doors about Intel. One industry veteran thinks this one-sided relationship may be hitting new lows.
Intel has stopped really listening to OEMs and started telling them what they were going to buy, says Rob Enderle, an analyst with Giga Information Group who says he's had discussions with several large hardware-vendors. ?That has caused OEMs to think seriously about looking for an alternative [chip supplier].
HEARD THROUGH THE GRIPEVINE
One PC maker who already uses AMD as a secondary source certainly isn't happy with Intel.
There's a lot of frustration [with Intel] here, says an official at one top-tier hardware vendor, who asked not to be identified. Intel continues the strategy of trying to dictate how we do business.
For this article, Intel wouldn't respond directly to the hardware vendors' gripes. What Intel likes to do is advance the technology as quickly as we can, says Intel spokesperson Michael Sullivan. To do this, we work closely with customers to communicate our roadmap of offerings months in advance.
Intel may be missing the point, Mr. Enderle says. The market is not asking for more speed, he points out. Besides being free to design their own products, OEMs want a higher degree of reliability from components suppliers, he says.
AMD INSIDE
Reliability has long been Intel's forte and a weakness of AMD. But in the fourth quarter, that seemed to change.
Gateway (NYSE: GTW) made that point earlier this month, when it blamed lower-than-expected quarterly profits in part on spotty and unreliable processor supply.
AMD took advantage of Gateway's supply woes in the fourth quarter to reclaim it as a customer, after Gateway had gone Intel-only earlier this year.
Meanwhile, Hewlett-Packard (HP) (NYSE: HWP) is expanding its use of AMD processors, adding an Athlon model to its Pavilion consumer PCs. HP has used AMD chips in its low-end PCs for close to 18 months. This comes despite HP's preference for Intel, thanks to what Tom Anderson, an HP product marketing manager, calls its reliability as a vendor. But as far as PC technology, Mr. Anderson admits users won?t see any difference between the Pentium III and the Athlon.
Indeed, of the biggest PC makers, Dell Computer (Nasdaq: DELL) is the only one not using AMD products. Dell executives did not return calls for this article.
THE RACE ISN'T OVER
While AMD makes strides with PC vendors, Intel's scrappy rival still needs to watch its step. AMD has had opportunities to aggravate Intel before, analysts say, but bungled each change to get the upper hand in any given market.
In the past, AMD has had massive executional issues, notes Dan Niles, an analyst with Bancboston Robertson Stephens.
Mr. Niles isn't the only AMD skeptic on Wall Street. Analysts there are waiting to see whether AMD will consistently chip away at Intel's PC market share or if the past quarter was just a fluke.
There's also concern that Intel will significantly drop prices on its high-end systems. Last summer, AMD weathered a second-quarter net loss of $162 million, thanks in part to a price war with Intel in the low-end PC market.
And Intel says it will continue to lower prices over the course of the year. "We always do this to make room for new technology and new products," notes Mr. Sullivan.
RAMMED BY RAMBUS?
Another roadblock for AMD is Intel's ability to sway hardware makers with its brand and all the incentives it brings to the table. Intel throws so much money behind its brand and comarketing arrangements with vendors, hardware makers say they find that the pressure's on them to convince customers that AMD is just as good.
AMD's Athlon also could come under increased pressure if the Intel chipset that supports Rambus's (Nasdaq: RMBS) memory technology takes hold in the high-end PC market. Intel chipsets using Rambus technology could make an impact on PC performance in the next 12 to 18 months, analysts say.
But Intel's promotion of Rambus's technology, which can?t be used as a direct replacement for existing PC memory, also has irritated some PC makers. At this point, the tests don't show enough [performance] improvement to justify the costs [of Rambus memory], one hardware vendor says.
AMD says its technology roadmap includes support for Rambus memory, but the company has not yet announced a chipset that supports it. AMD also lacks financial ties to Rambus, which Intel has. According to Securities and Exchange Commission filings, Intel doesn't yet own a stake in Rambus. However, Intel does have warrants, representing less than a 5 percent stake in Rambus, which are exercisable once certain milestones have been reached.
INTEL OUTSIDE
Finally, AMD also should be looking over its shoulder at Transmeta, analysts say. Even though Transmeta has said it only intends to pursue providing chips for mobile devices, its technology could make waves should it change its course and attack other markets.
AMD should be concerned because vendors may not want more than two alternatives in some chip markets, and Transmeta could take out AMD on its way to hurting Intel, analysts note. At the same time, some note that an AMD/Transmeta union might pose an interesting challenge to Intel.
However likely such an alliance may be, hardware vendors will continue to look at ways to get out from under Intel?s thumb. Whatever Transmeta's working on, whatever AMD's doing, you can bet we'll be seriously looking at it just on the merits that it's not Intel, notes the executive at the top-tier hardware maker. |
