Good Reading from WSJ: PIII and K6-III.
As Intel's Pentium III Is Unveiled,
AMD's K6-III Could Be a Threat
By DEAN TAKAHASHI
Staff Reporter of THE WALL STREET JOURNAL
Silicon Valley's longest-running marketing battle is about to get hotter. And
the outcome has never been harder to call.
Intel Corp. has big plans to bolster its lead in microprocessor chips, using a
chip dubbed the Pentium III that will be shown off Wednesday in a
marketing event in San Jose, Calif. But rival Advanced Micro Devices
Inc., the perennial underdog, has lately been a serious annoyance. And it is
announcing its own new chip this month that analysts say could match the
Pentium III's performance.
The key questions: Will Intel's manufacturing and marketing might prevail
again? Can AMD, for once, avoid shooting itself in the foot?
"The battle is going to come down to
execution," says Mark Edelstone, an analyst at
Morgan Stanley Dean Witter in San Francisco. "The execution at AMD
hasn't been as crisp as Intel's. That has been the story of the last 18
months."
Stakes are high on both sides. Intel's chips still provide the brains of most
personal computers. But its market share slid to 76% in the fourth quarter
of 1998 from 85% for all of 1997, analysts at Mercury Research estimate.
AMD, because of its gains in chips used in the booming sub-$1,000 PC
market, more than doubled its share over the same period to 16% from
7%
Ambitious Plans
Intel has responded by slashing prices, causing AMD to warn two weeks
ago that it will report a first-quarter operating loss. But plans for the
Pentium III are much more ambitious, and could play a more pivotal role in
the struggle.
Battle for Chip Sales
Market share of Intel-based microprocessors:
4th Qtr.
1997
1st Qtr.
1998
2nd Qtr.
1998
3rd Qtr.
1998
4th Qtr.
1998
Intel
86.2%
85.3%
82.6%
79.0%
76.1%
AMD
6.7
6.8
10.7
12.4
16.1
Cyrix
3.5
3.8
3.6
3.6
5.8
Others
3.6
4.1
3.1
5.0
2.0
Source: Mercury Research
The key to the new chip is a series of special instructions that are designed
to offer more-sophisticated graphics, video and communications. Intel
hopes to get software developers to exploit the new instructions, allowing
the chip maker to say that high-end PCs with Intel chips do the coolest
things. The Intel event Wednesday will demonstrate hundreds of programs
that exploit the features, offering speech recognition, video recording and
other feats.
Intel, which will being shipping the new chip to PC makers on Feb. 26,
plans to promote Pentium III with about $300 million in advertising, more
than double what Intel has ever spent on a chip launch, and send an army
of employees to promote the chip in hundreds of stores.
But consumers have lately been hooked on low-priced PCs that won't
have Pentium IIIs for some time. AMD already has some multimedia
technology in the market that is supported by Microsoft Corp. and other
software companies. If AMD succeeds in catching up to Intel in ordinary
number-crunching capability, some analysts doubt that the Pentium III's
unique features will be enough to greatly increase Intel's market share.
Bag of Tricks
"As rivals caught up in the past, Intel pulled out a new technology that left
them behind," said Linley Gwennap, a senior analyst at Micro Design
Resources Inc. in Sunnyvale, Calif. "Their technology bag of tricks seems
to be empty this time."
But AMD has problems of its own. Its next big chip, the K6-III, will be
unveiled Monday. The company claims some key design advantages: One
version of the new chip can outperform Intel's fastest Pentium III, AMD
says.
But AMD, which is also based in Sunnyvale, has only one big factory with
cutting-edge production technology, compared with a half-dozen for Intel.
So the K6-III won't be available in the kind of mass quantities that Intel
can supply. And, since AMD's brand isn't as strong, AMD will have to
offer the chip at a discount to comparable Intel chips.
AMD, moreover, has repeatedly come up with chip designs that
theoretically match Intel's performance, only to stumble in the transition
from the engineering lab to the factory. The pattern, which has caused a
string of earnings disappointments, was repeated again last quarter.
AMD had a chance to close the gap with Intel by producing chips that
operate at 400 megahertz, just a notch short of Intel's 450-megahertz
Pentium II. But a design flaw prevented AMD from making enough of the
chips, and its average microprocessor prices disappointingly dropped from
the previous quarter. The cost: tens of millions of dollars in lost profits.
Grain of Salt
"Most investors and analysts are taking AMD's claims with a grain of salt,"
said Drew Peck, an analyst at Cowen & Co. "The investors and analysts
worry about execution. Then, in the corporate world, they have a
credibility problem with information technology managers who wonder if it
will cost them their job if they buy AMD and something goes wrong."
AMD, long led by marketeer W.J. "Jerry" Sanders III, also is behind Intel
in cultivating a new generation of managers. It recently named Atiq Raza,
who joined the company when it bought Nexgen Inc. in 1996, as co-chief
operating officer and will appoint him president this spring. But Mr.
Sanders remains chairman and chief executive officer.
In a recent interview, Mr. Raza conceded that the company must
continually scramble to match Intel, particularly in the production processes
that help make chips faster. "The bar is set by Intel on chip speeds," he
said. "There is no low hanging fruit in this market."
Still, Intel has hassles that leave some hope for AMD. Privacy advocates
are urging a boycott of the Pentium III because Intel built identification
features into the chip as a security measure. Intel will face the Federal
Trade Commission in a broadbased antitrust trial starting March 9. And
Intel's belated next-generation chip, known as Merced, won't be out until
mid-2000, while another AMD chip called K7 could add even more
weight to AMD's performance claims.
Psychological Breakthrough
Most significant, perhaps, is AMD's success in breaking Intel's
psychological hold over the largest PC makers. AMD has received orders
from nine of the 10 largest PC makers. Also, a survey of 1,600 corporate
users by ZD Market Intelligence in La Jolla, Calif., showed that 68% were
loyal to Intel, a high number but not as high as might be expected in view of
Intel's 95% share of corporate sales. While only 6% of users favored
AMD by name, more than 25% said they preferred non-Intel chips.
Carlos Williams, a computer engineer at the Arizona Public Service's Palo
Verde nuclear power plant, said it been upgrading 600 to 700 PCs a year
with machines that use AMD's K6, and has had no reliability problems.
"On average, we're staying at $500 per upgrade, and at that price, AMD
was the choice for us," he said.
Intel has acknowledged it has to work harder to win back such customers.
At a briefing in early January, it vowed to rebuild its market share at the
low end, imposing price cuts while exploiting production technology to
boost chip speeds.
"The outcome is going to be great for consumers," said Paul Otellini, an
Intel executive vice president. |
