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To: Don Green who wrote (73241)	5/19/2001 3:48:32 PM
From: Don Green	Respond to of 93625

Is AMD Shrinking Intel’s Margins? By Tom Murphy, Electronic News -- 5/18/01 12:05:00 PM Electronic News Advanced Micro Devices Inc. of Sunnyvale, Calif., has given Intel Corp., Santa Clara, Calif., something to gnash its teeth about. Over the last year competition looks like it will broaden across more market segments and result in a more favorable environment for consumers. "This competition is creating more value and secular changes in the X86 microprocessor market than ever before," said Nathan Brookwood, analyst for Insight 64, Saratoga, Calif. "AMD has a goal to pick up 30 percent market share and picked up a few points in the first quarter of this year," Brookwood said. "Whether they will continue to pick up market share remains to be seen." Brookwood noted that Intel (nasdaq:INTC) is now competing vigorously to stave off AMD’s gains. However, AMD (nyse:AMD) did increase its market share in the desktop region from 17 percent in the fourth quarter of 2000 to nearly 21 percent in the first quarter of 2001, according to a report from Mercury Research, Scottsdale, Ariz. There is already industry speculation that AMD’s rising fortunes are directly affecting Intel’s bottom line. Chip watcher Eric Ross, an analyst with brokerage house Thomas Weisel and Partners, New York, predicted that Intel would likely miss its revenue and earnings-per-share targets due in part to competition from AMD. Ross lowered second quarter earnings estimates for Intel from 12 cents per share to 8 cents per share. He also reduced Intel’s second quarter earnings expectations from $6.5 billion to $6.1 billion. An Intel spokesman said last week that the company expects to meet its earnings of 11 cents per share on revenue of $6.59 billion. The company is expected to make its mid-quarter update on June 7. Ross also pointed out that Intel is shipping far fewer of its Pentium 4 processors than it had planned. He estimated that the company shipped about 3 million units, which he said was about half the number that Intel had expected to deliver. Intel has also reduced the price of its 1.7-GHz Pentium 4 processors from a high of more than $600 at the chip’s debut to a recent price quote of $352, according to Brookwood. "Everything else has come down even more," he said. AMD has reduced its 1.33-GHz Athlons from $350 to $250 in what Brookwood has called aggressive competition. The price war affects Intel’s bottom line, according to Ross, because the P4 die is larger than that of Pentium 3 chips, and therefore costs more to make. By selling fewer P4s at lower prices, it’s possible that Intel could see smaller margins on its balance sheet. With this comes even more bad news for the PC semiconductor industry this week. Despite some rumblings that the PC market was heading for a rebound after bottoming out, Wall Street analysts issued a few reports that took the opposite tack. Both Lehman Bros. and Merrill Lynch cut their forecast for PC semiconductors this week. "Although we believe that many companies had a good start to the second quarter, unfortunately the last several weeks have seen a leveling off in billings and a fall-off in order patterns," said Lehman Brothers' analyst Dan Niles, in a statement. "This follows the pattern of the prior three quarters where the first month started off well but deteriorated as the quarter progressed. Though most can make pessimistic second quarter forecasts, they will have to lower forward guidance if orders don’t dramatically improve." AMD excited the PC community last week with its new Mobile Athlon 4 chips and its new Duron that offers power-scaling features for the value notebook segment. But it is unlikely Intel will stand still. "There’s no question that AMD is gaining market share and are making things tough for Intel," Niles said. "This is going to turn out to be a long, brutal price war." That is until Intel starts shipping product based on its 0.13-micron process technology. "When that happens, Intel can start bombing AMD on price," Niles said. And while Intel’s Pentium 3 may have run out of gas on 0.18-micron technology, it is likely that the Mobile P3s on 0.13-micron will come with compelling performance features to counter AMD’s attack on the laptop computer front. An Intel spokesman said that if you look at market share numbers over the last 10 to 15 years, Intel’s market share has remained relatively the same and the company doesn’t see that changing much in the future. Intel’s new P4 micro architecture has a longer pipeline that the competition has yet to answer, an Intel spokesman said. In addition, production has already started on 0.13-micron devices and full volume is expected in the third quarter, according to the spokesman. Intel also hopes to reach production on 300-millimeter wafers by the first half of 2001. It is widely believed those advantages should help Intel stave off AMD’s erosion of its market share. Besides that looming problem, AMD has other concerns. "Thirty percent of AMD’s revenues are dependent on flash memory, which is seeing a dramatic slowdown in demand," Niles said.