Advanced Micro Devices Inc. next week will release a new processor to challenge Intel Corp. in the high-end PC market, but the chips debut comes amid an ongoing industry slump and growing concerns about AMDs eroding customer base.
In the last two months, PC makers IBM and Gateway Inc. have announced plans to phase out use of Athlon chips. And at least one market analyst thinks one of AMDs largest customers, Hewlett-Packard Co., will also move to reduce its reliance on AMD.
"I suspect HP is essentially going to put AMD on the backburner," said Ashok Kumar, a market analyst with U.S. Bancorp Piper Jaffray. "I think itll be more of a stealth move; you wont see HP come out with an announcement about AMD. But the number of platforms carrying AMD will diminish over time."
Such a move wont be a reflection on the quality of AMDs products, Kumar said, but more an indication of the attractiveness of Intels recent low-price offerings to PC makers.
AMDs recent setbacks follow what started out as a relatively strong year for the chip maker, with the company garnering more than 22 percent of the overall PC market during the first half of 2001, its largest share ever, according to industry tracker Mercury Research in Scottsdale, Ariz. As recently as early 1999, AMD captured only about 12 percent of the market.
But this summer, leading PC chip maker Intel responded aggressively after its market share fell below its 80 percent "comfort level," with the company turning to low-priced deals and the lure of millions of dollars it can offer PC makers in joint-advertising support.
"I think Intels breakaway strategy has been very effective," said Jonathan Joseph, market analyst with Salomon Smith Barney, in San Francisco. "Intels looking like the Intel of old."
Newest Athlon Built for Speed
Seeking to launch it own counteroffensive, AMD on Tuesday will release a new 1.5GHz processor, known by the code name Palomino. The processor features a new design that will offer improved performance and enable future chips to top 2GHz, AMD sources said.
But unlike previous chips, the new product will be labeled the Athlon XP 1800, reflecting the companys efforts to deter gigahertz-to-gigahertz comparisons with the Pentium 4, according to AMD sources.
Although the new chips clock speed is only slightly higher than the existing 1.4GHz Athlon, sources at AMD said the processors new design enables it to process more work than previous Athlons, or even similarly clocked Pentium 4s.
That technical difference highlights the major marketing challenge facing AMD.
With the release of Intels Pentium 4 last November, AMD claims its rival "devalued the meaning of megahertz" by designing the Pentium 4 so that it handles fewer instructions per clock cycle, making cross-comparisons less reliable than before.
As a result, AMD says, a 1.4GHz Athlon beats a 1.7GHz Pentium 4 in a number of benchmark tests, such as Business Winstone 2001.
Some system managers say they, too, have noticed a difference when comparing similar Intel and AMD chips.
"We try to go with the Athlons for the CAD machines because they perform better as far as 3-D is concerned," said Jeff Johnson, network manager for Triple S Plastics Inc., in Vicksburg, Mich. "Heck, weve compared single-AMD workstations vs. dual-Intel systems, and they still blow them away with a lot of the functions were doing with our CAD stuff."
But rather than trying to explain such differences to customers, AMD has chosen instead to rely on another marketing tool -- rebranding. Thus, the name Athlon XP 1800, with XP reportedly denoting "extra performance" and the 1800 marking an apparent attempt to classify the chip as operating at 1.8GHz.
Nevertheless, the chips arrival comes at a particularly challenging time for AMD. Late last month, AMD announced that it was laying off 2,300 workers and closing two fabs in Austin, Texas, as part of its efforts to lower operating expenses amid a continued downturn in PC sales and a continuing price war with Intel.
AMDs misfortunes of late reflect not so much on the companys performance in particular, but more on the industrys troubles as a whole, said one analyst.
"My sense is that if we see any impact on AMDs third-quarter earnings, it has nothing to do with these announcements by IBM and Gateway," said Dean McCarron, of Mercury Research. "Itll be just because of the economy in general, because were really in a down market."