Good reading:
techweb.com
AMD discovers Gateway to direct-PC business
Mark Hachman
Silicon Valley- Gateway Inc. has designed K6 processors from Advanced
Micro Devices Inc. into a new desktop line, a sign that direct PC OEMs are
beginning to consider the struggling chip maker an alternative source to Intel
Corp.
Gateway, North Sioux City, S.D., is the first direct PC OEM to put AMD to
the test, last week incorporating a 400-MHz K6-2 inside its Profile PC line
for sale in Japan. Gateway said it had selected the K6 in an effort to broaden
its product portfolio.
Dell Computer Corp., meanwhile, is evaluating alternative components,
including the K6-2. And a source at direct PC vendor Micron Electronics Inc.
said samples of the AMD K6 family and National Semiconductor Corp.'s MII
processor were being tested in its labs.
AMD's processor line is creating newfound interest among direct OEMs, but
this comes at a troubling time for the com-pany's low-cost sales strategy.
Sunnyvale, Calif.-based AMD last week said it expects an unspecified
first-quarter loss, which led some analysts to believe it may try to sell its Vantis
Corp. PLD subsidiary to counter aggressive pricing from Intel. (see story on
page 64.)
While the processor wars may be gutting profits for chip makers, OEMs are
more than happy to reap the rewards.
"Our strategic relationship with Intel has benefited our customers greatly, and
we're exceedingly happy with our relationship at this time," said a spokesman
for Dell, Round Rock, Texas. "But we're constantly evaluating other
components and alternative suppliers," he added.
The growing interest of direct PC vendors in the K6 design may have been
triggered in part by Intel, which has softened its tactics in the face of an
antitrust investigation by the Federal Trade Commission, according to one
analyst.
Traditionally, the direct model "implicitly" had allowed Intel to suggest that
supplies of its Pentium chips could suffer if direct OEMs considered another
microprocessor vendor, the analyst said. But with the added scrutiny brought
on by the upcoming FTC trial, Intel may be reluctant to bring attention to itself.
The Santa Clara, Calif., chip giant disavowed the existence of such a policy.
"Intel has a good relationship with [its direct PC customers], and to do
anything to harm that relationship would be counterproductive for the
company and to the industry," said Howard High, Intel's communications
manager. "We regard the direct-sales model as a way to get our latest and
greatest products to the marketplace quickly."
Nevertheless, the FTC suit may yet boost AMD's market share by
emboldening OEMs, said analyst Dean McCarron of Mercury Research,
Scottsdale, Ariz.
"The next question you have to ask is why OEMs are less worried about
retaliation, and the FTC is my guess," McCarron said. "Look at it another
way: Intel is licensing its P6 bus right and left," after almost a year of
prolonged negotiation that went nowhere.
Whatever the enabling factors, widespread adoption of the K6 in retail PCs
has boosted AMD's visibility and provided additional incentive for direct
OEMs to consider the device, said one researcher.
Because customers buy their PCs from a direct OEM sight unseen, they may
have been reluctant to invest in AMD processors until they became a known
quantity, said Eric Johnson, an associate professor who teaches supply-chain
management at Vanderbilt University's Owen Graduate School of
Management, Nashville, Tenn.
"Intel is a brand," Johnson said. "But if [consumers] can walk into a retail store
and see a Hewlett-Packard or Compaq machine running a K6, they can fiddle
with it and see that Windows runs fine."
Another reason behind AMD's growing popularity among direct PC suppliers
could be the beginning of a cultural shift at some companies, according to
industry sources. Where purchasing decisions were once the province of
corporate marketing departments, product managers and engineers now often
exercise greater influence over technology choices.
Its inclusion in the Gateway platform is also a sign that AMD may be
overcoming its reputation as a spotty supplier. Observers noted that the
direct-sales model is predicated upon low inventory levels. If a manufacturer is
unable to deliver on time, half-finished PCs can be stalled on the production
line.
During 1997 and early 1998, AMD's well-publicized yield problems
eliminated the company from contention in the direct OEM channel, analysts
said. Even though AMD recently reported a manufacturing glitch that affected
the clock speed of its K6-2 microprocessors, OEMs now say they are getting
an adequate supply of the chips.
Still, there are increasing signs that AMD's ability to fill demand may be
coming at the expense of profitability. With earnings consistently falling below
expectations, it will be difficult for the company to continue its assault on Intel,
which has carried the fight to its traditional strength: manufacturing.
Sources close to Intel last week confirmed that a 433-MHz Celeron would be
released March 15, selling to OEMs for $120 to $130. In the second quarter,
Intel will launch a 466-MHz Celeron chip. By contrast, K6-2 upgrades slated
for release on Feb. 22 will run at speeds of only 400 and 450 MHz,
according to sources. |
