AMD Struggles With Business Market
techweb.com
AMD Struggles With Business
Market
(03/26/99, 8:03 p.m. ET)
By Kristen Kenedy and Aaron Ricadela, Computer Retail
Week
Advanced Micro Devices is savoring its first
taste of victory in the low-cost PC market,
but industry observers said the company's
planned foray into corporate accounts will
be even harder to win.
The chip maker surprised the industry when it captured
a preponderance of consumer CPU sales at retail --
and held onto it. AMD processors powered 51.4
percent of all desktop PCs sold at retail in February,
the first time AMD's share has exceeded 50 percent,
market-researcher PC Data, in Reston, Va., reported
this week.
Intel's unit share was 38.3 percent. In January, AMD
overtook Intel's retail-desktop share for the first time,
capturing 43.9 percent of unit sales.
This triumph, however, was acquired at an extravagant
price. AMD, in Sunnyvale, Calif., has been plagued by
financial losses and manufacturing glitches as it strives to
stay in step with Intel's product road map and satisfy a
growing demand for its low-cost CPUs. A price war
with Intel reportedly has led to AMD yielding average
CPU selling prices of less than $70--about $30 less
than the company would like.
And continuing manufacturing problems have hindered
supply, particularly to those AMD would now like to
reach: computer resellers that serve the business
market. The most recent crisis, problems with the
manufacturing of K6-2 CPUs, meant AMD had to
focus on fulfilling its volume partners at the expense of
companies that buy in smaller quantities.
"Unfortunately, we had to make some tough decisions"
and ship first for PCs aimed atretail and direct
marketers, said Robert Fuller, AMD director of field
marketing for the Americas. "We haven't been able to
satisfy demand in the reseller channel."
In addition, PC makers said AMD has been unable to
deliver a reliable supply of its new K6III CPUs after a
high-profile launch announcement early this month.
AMD officials said to expect volume shipments in the
second quarter.
AMD has said it will supply 20 million to 25 million
CPUs by year's end. With demand for its current K6
family exceeding 5 million per quarter, it could be
difficult to produce enough to satisfy business plus retail.
AMD plans to open a new fab in Germany late this year
and at the same time move to a smaller die size to
increase production--but those steps do not guarantee
increased yields.
Yet these difficulties have not swayed many retailers
and second-tier PC manufacturers that cater to small
business. Executives who work in this market said price
and performance of AMD's chips are appealing to
companies that have fewer than five employees.
"We are recommending AMD processors to our
small-business customers now," said Gilbert Fiorentino,
CEO of TigerDirect, a division of Global DirectMail,
Miami. These types of buyers already are
cost-conscious since they are using a second-tier brand,
he said, though convincing larger, more conservative
businesses to try out AMD is a harder sell.
Fiorentino said AMD's jump in retail market share can
be attributed to deals with top-tier vendors, such as
Compaq, Hewlett-Packard and IBM. To achieve
success with corporate buyers, the microprocessor
maker will need to repeat that success with business
desktops and notebooks.
To date, only Toshiba has picked up AMD for a line of
notebooks aimed at business customers. Recently, HP
starting using Intel's Celeron in its corporate Vectra and
Brio PCs but has been mum on AMD in that space.
AMD's next step toward its goal in the business market
is a more focused push through suppliers such as
TigerDirect, Gateway and Compaq to reach business
customers, Fuller said. He added direct marketers,
including Insight Direct, Micro Warehouse, Creative
Computers, Value America, and Shopping4Sure, are
also on the radar.
Online retailers said AMD's challenge is gaining the trust
of corporate IT purchasers, who are more conservative
and less price-conscious than consumers. And until the
K7 arrives, AMD cannot compete head-to-head with
Pentium III.
"We're doing better with AMD now in the entry-level
[corporate] market," said Rob Brinkman, senior vice
president of product management at Insight, in Tempe,
Ariz.
AMD is a viable alternative for companies buying
workstations priced at less than $1,500, he said. At
higher price points, Intel's momentum takes hold.
"What we still hear from IT departments is, 'We'll stick
with Intel,' " Brinkman said. "When people start
spending $1,500 to $2,000 on a system, they start
getting more specific about what's inside the box."
Performance Will Impress Corporate Market
AMD clearly is beginning to position the new K6III and
forthcoming K7 as processors that can effectively
handle the needs of Windows NT. Fuller added AMD
expects more business software makers to support is
3D Now multimedia extensions going forward.
With the K6III, AMD hopes to attract business users
with the ability to add up to 2 MBs of Level 3 cache,
on top of the 256-KB Level 2 cache already integrated
into the processor at a price less than Intel's Pentium III
processor. Then with the K7, AMD will move to a
DEC-licensed 200-MHz system bus and redesigned
integer and floating point units for increased
performance over the K6 architecture.
Those who have seen the K7 have praised its
processing capabilities, but they also said AMD is going
out on a limb with its bus design. Unlike K6 processors
now, which use the popular Socket 7 platform, moving
to a new CPU architecture means new motherboard
designs and chip sets. Analysts have said AMD's
success with the K7 will first depend on its ability to
deliver an adequate supply, and second on its ability to
persuade third-party manufacturers to make chip sets
and motherboard to work with the new CPU.
An AMD spokeswoman said ALi and VIA have
announced plans to support the K7 with chip sets.
Fuller said AMD initially will supply chip sets at the K7
launch, expected in the second quarter, and third-party
suppliers will be ready by the end of the year.
Keith Diefendoff, editor in chief of the Microprocessor
Report, an industry newsletter in Sunnyvale, said AMD
is taking a risk by deviating from an accepted platform.
But he said, "AMD has shown the ability to get the
Super Socket 7 [a motherboard with a 100-MHz
system bus and AGP] in place."
An executive at a PC original equipment manufacturer,
who asked not to be named, said AMD also is going to
have to prove that it can deliver the higher clock speeds
to keep up with Intel. So far, AMD has not been able
to produce a 500-MHz CPU. This executive said
AMD is tentatively considering a 475-MHz K6-2.
"They don't want to be embarrassed because everyone
will know they can't build a 500-MHz part," he said.
But like the retail market, where many doubted the
company could impact Intel's strong brand awareness,
entering the mainstream corporate market is a slow
processes.
"They will be able to do it," said Tiger's Fiorentino. "But
it will happen slowly." |
