AMD betting on 650MHz Athlon chip

The California chip maker will finally outdistance its arch rival from Santa Clara, Intel Corp. At least for now.

Athlon, on paper, meets or exceeds Intel's Pentium III chip in megahertz, graphics performance and floating point performance. Althon will come out at 500MHz, 550MHz, 600MHz and 650MHz, making it the fastest available chip in the PC market. Intel currently offers 450MHz, 500MHz, 550MHz and 600MHz Pentium III chips. Athlon will sport a 200MHz front side bus, versus Intel's 100MHz bus, and an extended multimedia instruction set, which mirrors the Pentium III's Streaming SIMD Instructions, but takes it a step further with five extra extensions aimed at applications such as digital signal processors for soft modems.

"We knew as a company that we couldn't continue to just fit into the value space long term," said Steve Lapinski, director of product marketing in AMD's computational products division. Athlon is not just AMD's bid to move upstream. It's a make or break product for the company. "It doesn't take examining three years of financial statements to see that at the rate they're going they're going to run out of cash," said Mike Feibus, a principle at Mercury Research Inc., in Scottsdale, Arizona.

But it's a long, arduous journey to get from where it is now, a player in the market for consumer PCs with a 12 percent market share, to a real challenger to Intel's lock on the corporate market. AMD ended 1998 with an 11.9 percent market share, captured 13.6 percent in the first quarter of 1999 and then slipped to 12 percent in the second quarter. "For all of AMD's talk, for the next nine months Athlon is a high-end consumer product," Feibus said. However, "I think they have a decent chance of cracking the corporate market at the end of 2000. All the ducks are in a row now. They just need to deliver and keep delivering."

Delivery is just part of the plan. AMD has created a four tiered branding strategy for Athlon. Athlon will begin as a high-end chip targeted for use in PCs purchased by consumers and small businesses. AMD plans, however, to move up market with the launch of two new Athlon brands, Athlon Professional and Athlon Ultra, for the corporate market in the fourth quarter. Finally, it will also cover its traditional territory with Athlon Select, a low-cost Athlon offering for the sub-$1,000 market, due next year.

Two top-tier PC makers, IBM and Compaq Computer Corp. will use Athlon, according to AMD. They will begin shipping new PCs in their respective consumer PC lines Aug. 16. PCs based on the 500MHz Athlon chip will start as low as $1,299 and scale in price to about $1,999 for a model based on the 600MHz chip.

At least one other major PC maker, Gateway Inc., plans to support Athlon as well, sources said. But it's the intangibles that may come back to haunt AMD. "We're looking forward to [Athlon]," said a source at Gateway in North Sioux City, S.D. However, "Things have wavered a bit, because we're wondering if they have their [ducks] in a row." Despite its concern, Gateway will likely offer the Althon in its Select line of PCs for consumers and small businesses, sources said. The company currently ships AMD's K6-III processor in the Select PC line.

"What I really don't like about K7 [the code name for Athlon] is that it's not a proven technology to corporate users," said Al Peng, a top executive with Taiwanese motherboard maker AOpen. "What really amazes me is that AMD keeps talking about K7 as a mission critical platform." Corporate users, in order to buy Athlon, will need to get over a general perception that AMD chips are not fully compatible with the Windows operating system. And that's a risk, as far as PC makers are concerned. "To date, the price difference [of AMD chips] does not offset the risk," said another source at a top-tier PC maker selling to large corporations. "If they're going to make it, they need to make it compelling to the OEMs."

The risks are production capacity and performance. AMD has run into production snags with K6-2, which limited the availability of the chip. The aforementioned production snags have lead to short supply of top clock speed-rated versions of the chip. Production, "isn't going to be an issue, because of the two mega-fabs," Lapinski said. AMD will manufacture Athlon in two different fabrication plants, its Fab 25 in Austin, Texas, and its Fab 30 in Dresden, Germany. Fab 30 is equipped to move Athlon from a 0.25-micron manufacturing process to 0.18, which will help the company continue to improve its speed. This transition will happen in the fourth quarter. Around the same time, AMD will offer a 700MHz version of the chip.

He admits, however, that AMD has at times been a "step behind" with K6-2. But, "With Athlon strategy that goes away. We definitely have enough headroom on this to hit the frequency marks and execute on the schedule." The very PC makers that offer AMD chips to consumers could be holding it back on the corporate side, Feibus said. "The corporate product line managers have been really reticent to take the plunge. They want to see some kind of a track record," he said.

AMD realises "there is a lot of work to be done," Lapinski said. "We've done 16 to 17 focus groups. We're looking at their care-abouts," such as service and support. AMD is also preparing a broad reaching strategy to offer Athlon to corporations in high performance desktops, workstations and servers and later in sub-$1000 PCs.

AMD will have to do engineering work as well. The AMD Athlon chip set, Peng said, has more than 60 errata, each one requiring a workaround. Errata, when not addressed, can sometimes cause problems with the operation of a PC. Athlon also requires a relatively complex and expensive six-layer motherboard, he said. Despite those challenges, "The K7 Platform will be solid by October or November," Peng said at which point it will be a good bet for small and medium business buyer.

With the branding strategy in place and its chips powering PCs at 650MHz and faster AMD feels that it can capture 30 percent market share by 2001. "That's an aggressive goal," Feibus said. "But it's not out of the realm of possibility."

Despite its plans to debut Athlon Select for the sub-$1,000 market, AMD will continue to advance its K6-2 and K6-III chips. The K6-III, for example, will move to a 0.18-micron manufacturing process in the fourth quarter. The chip, code-named Sharptooth, will run at 500MHz and faster.

Take me to the Merced Special.

Take me to the Pentium III Special.