AMD: A tough road ahead

Advanced Micro Devices has signed up its most significant customer yet to help it win a place in the server market, but the chipmaker faces numerous obstacles competing with Intel in the new area.

Advanced Micro Devices has signed up its most significant customer yet to help it win a place in the server market, but the chipmaker faces numerous obstacles competing with Intel in the new area

NEC, the second-largest Japanese server seller after Fujitsu, said Monday it's using AMD's 1.33GHz Athlon chips--its fastest CPU so far--to power a special-purpose server "appliance" that will be able to send streams of video over the Internet. The rack-mountable system uses one server to encode video and audio information and two more servers to send the information out over the network.

AMD has embarked on an ambitious effort to sell CPUs for use in servers, the comparatively powerful computers that run network services such as sending out Web pages, running voice mail systems or keeping track of company inventory. In the server market, profit margins are plumper but customers are more demanding.

AMD has no choice but to enter the server market to compete with Intel, said Technology Business Research analyst Humberto Andrade. Currently, Intel can subsidize aggressive price cuts on the products that compete with AMD by charging more for products where AMD doesn't compete, Andrade said.

"You've got to have a full line," he said. "It's like automobile manufacturers with a small car, medium-sized car, a full-sized car, an SUV and a pickup. If you have all those segments, you're a strong competitor.

"Intel can drop prices to compete as much as they want if they still have profit on the other segments."

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