here is another nice article
Loaded with good quotes, my personal favorite "'As our business gets hotter and hotter, it's beginning to suck up more capacity,' Doran said in an interview with EBN at the Dresden plant."
ebns.com
AMD, Intel juggle capacity to meet upside PC demand
By Mark Hachman and Jack Robertson
Electronic Buyers' News
(04/21/00, 08:47:10 PM EST)
Facing an unexpected uptick in PC demand, Advanced Micro Devices Inc. and Intel Corp. are using their manufacturing capacity and component supply to maximum advantage.
AMD, for instance, may not share its new fab in Dresden, Germany, with another company, as previously planned, because it needs the capacity to meet expected demand for its Athlon microprocesssors, a company executive said.
And as some Asian OEMs warn that Intel's limited supply is restricting their production, Intel itself has delayed two versions of its Celeron microprocessor until June to bring supply more in line with demand.
Spot prices of Intel processors, meanwhile, have risen in advance of a price cut slated for this weekend, further evidence that Intel currently lacks the manufacturing capacity to satisfy OEM requirements.
?AMD has done a much smoother job than Intel in moving to 0.18-micron production,? said Jonathan Joseph, an analyst at Salomon Smith Barney Inc., in San Francisco. ?Manufacturing leverage is an awesome sword, and this quarter it's cutting sharply in AMD's favor.?
To date, AMD is delivering more top-speed MPUs than Intel, with both using the same 0.18-micron aluminum layers, according to a report from Morgan Stanley Dean Witter & Co., New York. AMD will begin shipping its top-of-the-line Athlon-core Thunderbird MPUs this quarter, using copper-interconnect layers from its new Fab 30 in Dresden.
Both AMD and Intel are forecasting increasing demand in the second quarter, driven in part by the transition to Microsoft Corp.'s Windows 2000 and Windows ME operating systems. That, in turn, is causing AMD to reassess its capacity needs, according to James Doran, an AMD vice president and general manager of Fab 30.
?As our business gets hotter and hotter, it's beginning to suck up more capacity,? Doran said in an interview with EBN at the Dresden plant. ?We had always thought we might want a partner to share production in the fab here. But already it looks as if AMD itself will need all the capacity at Dresden.?
If AMD ultimately needs additional capacity, the Dresden site has space for a second fab as large as the existing plant, the company said.
Despite AMD's inroads in the MPU business, which was spurred by Intel's Pentium shortages, the rivals have continued to hold about the same relative market position. Mercury Research Inc., Scottsdale, Ariz., estimates that Intel's share of the microprocessor market inched up to 82.1% in the first quarter, from 82% in the previous quarter. AMD's share grew to 17% from 16.6%.
The big jump in processor demand couldn't come at a better time for AMD. The Dresden fab has the capacity to pump out 5,000 wafers a week, and AMD chairman and chief executive Jerry Sanders said recently that the plant will enable the company to double its overall manufacturing capacity in both the third and fourth quarters.
AMD is forecasting production of 12.6 million Athlon-core chips this year, jumping to 31.8 million units in 2001. Dresden initially will only produce the Thunderbird version, which is also being made in Austin, Texas. Thunderbird is a high-end processor expected to be unveiled next month.
AMD's Fab 25 in Austin will be the first to make the low-end Spitfire Athlon core for mobile and value-line PCs, also slated to be introduced in May. But Doran said Dresden might make that version as well.
?For the first time, AMD has the ability to shift production of several different microprocessors among several fabs to adjust to rapidly changing market demand,? he said. ?Intel has used this strategy very successfully, and now AMD is able to play the same game.?
Doran added that the Dresden fab is a likely candidate to build AMD's next-generation Sledgehammer chip, the company's first 64-bit microprocessor.
That the microprocessor David is beating giant Intel at its own production game is surprising. But Salomon Smith Barney's Joseph says that AMD will ship ?hundreds of thousands? of 950-MHz and 1-GHz Athlons this quarter, while ?Intel's availability at the high end of the microprocessor speed scale is limited.?
Meanwhile, sources at two top-tier U.S. PC OEMs indicated that Intel is satisfying their demand forecasts, albeit barely. ?I have to give them credit; they're keeping us going, at least for now,? one said. A source at another vendor concurred, noting that Intel still seems to be satisfying demand at its top-tier partners, and then moving down the food chain to lower-volume vendors.
Asian OEMs, however, complain they are not receiving first-class treatment. An executive at a top-tier Asian PC OEM, who spoke on the condition that his company not be named, said Intel is fulfilling its orders based on demand forecasts, but won't satisfy additional requests.
Similarly, a second-tier Asian OEM reported that production is being constrained as a direct result of the dearth of Intel chips. Taiwan contract electronics manufacturers may begin recommending that their clients start sourcing AMD MPUs if the Intel supply constraints continue, sources at the CEMs said.
Another indication of the microprocessor shortage is spot-market pricing, as monitored by distributors such as NECX. Sources indicated that Intel will cut its desktop-processor prices on April 23, and that AMD will likely follow suit. Traditionally, spot prices dip in anticipation of a price reduction. However, NECX reported that spot prices of certain Pentium IIIs have risen in advance of the cuts, mirrored by hikes in some Celerons. Athlon prices, by contrast, have steadily declined.
Meanwhile, Intel's 633- and 667-MHz desktop Celeron MPUs, which were to be introduced next week, have instead been delayed, most likely until June 26, according to industry sources and OEMs. OEM sources said the two speed grades will be introduced on the same date as the 700-MHz Celeron, requiring Intel to break one shipping date, but ensuring a sufficient supply to meet OEM demand. The 815E, or ?Solano,? chipset is also due late in June.
Intel's ability to satisfy OEM demand was a central issue during the company's earnings conference call this week, when it reported net income of $2.7 billion, or 78 cents per share, for its first quarter, a 37% increase from the $2 billion reported in the year-ago quarter. Revenue dipped 2% sequentially, to $8 billion, but increased 13% from last year's $7.1 billion.
The results were bolstered by a $449 million gain on the sale of investments, but also included a $375 million charge for in-process research and goodwill related to acquisitions. Gross margin was strong, reaching 63%, and Intel executives said they expect both the second-quarter margin percentage and the gross-margin percentage for the entire year to be at least 61%.
Company executives during the conference call acknowledged the tight supply that OEMs have privately experienced for about a year. ?In the third quarter [of 1999] we under-anticipated demand; in the fourth quarter we under-anticipated demand; in the first quarter [of 2000] we saw the same thing,? said chief financial officer Andy Bryant. ?When you have four quarters with demand above normal, there's the possibility that you were wrong.?
Demand was particularly strong in the microprocessor, core-logic-chipset, and flash-memory segments, the company said.
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