A Year Ago: Intel and AMD step up their battle

Originally published Mon, 11 Oct 1999 14:35:08 GMT

After nibbling away at Intel's market share the last couple of years, Advanced Micro Devices Inc. thinks it's ready to put a major bite on its larger rival.

This week, AMD will announce details on two microprocessors expected to ship next year when the company revs up its attack on Intel's lucrative mobile and high-end PC market segments.

"You will definitely see us moving into the mobile market," said Dana Krelle, vice president of marketing for AMD's computational product group. "Server and workstation solutions are also possibilities."

AMD officials plan to offer a more comprehensive overview of their next-generation K7 processor at the Microprocessor Forum, which opens in California on Tuesday. The upcoming chip, due out in mid-1999, is expected to surpass the performance of Intel's Pentium II line in all areas.

But Intel is not standing still. Last week, the company briefed reporters on its advanced server and workstation processors. And in mid-September, Intel unveiled particulars on its multimedia-enhanced processor, code-named "Katmai," which some analysts say could very well put the skids on AMD's own K6-2, a processor released last May.

Intel officials like to play up the company in the unaccustomed role of underdog: It finds itself under pressure in the PC market as it fights for respect as the new kid on the block in the server market. Yet despite fighting on simultaneous flanks, the company says its segmentation strategy is working.

But AMD's strategy seems to be working, as well. Last week, AMD ended a four-quarter run of losses by beating expectations of even the most optimistic analysts with a penny profit in the third quarter.

The hero of the day was AMD's K6-2, a processor that includes features for speeding multimedia, especially 3-D graphics. More than 70 percent of the 3.8 million processors the company sold in the third quarter were K6-2 chips.

AMD hopes to maintain the offensive with its "Sharptooth" processor, due out in the first quarter of next year.

The enhanced K6 processor will add a cache onto the AMD's basic K6-2 chip that speeds performance by more than 20 percent to 40 percent, according to analysts.

The fact that the chip is small and low-power means it is also ideal for the mobile market -- one that has been dominated by Intel. Sharptooth is very compelling mobile solution," said Mike Feibus, principal analyst with semiconductor technology watcher Mercury Research Inc.

"It saves power and space, and that's something that notebook vendors really care about." Yet the major money is on the K7, a processor that could start cutting into Intel's server and workstation markets. "We will be bringing its entire product line to K7," said AMD's Krelle.

For PC makers tired of having many product lines, that's a welcome change. "A PC maker could take K7 and compete all up and down the line against Intel's products," said Linley Gwennap, senior analyst for the semiconductor watcher Microprocessor Report.

AMD's aggressive battle plan has not washed well with Wall Street. Since it posted a profit of $0.01 last Tuesday, the company's stock price has dropped 24 percent to close at $15.19 at the end of last week.

One reason: AMD plans to bump up research efforts to the tune of $25m (£15m) each quarter next year. "With Wall Street very conservative on earnings, that doesn't go down very well," said analyst Dan Niles of BancBoston Robertson Stephens.

But a large part of the drop can be blamed on general tumult roiling the technology market. The NASDAQ technology index has dropped more than 25 percent over the last three months. "If I'm selling Cisco, why shouldn't I sell AMD?" said Jonathan Joseph, analyst with financial house NationsBanc Montgomery Securities.


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