AMD betting its life in Dresden -- Analysis

Chip giants lock horns over short-term gains in long-standing chip feud : AMD and Intel go to their corners and prepare to come out fighting.

At the opening of its major European fabrication plant in Dresden this week, CPU developer AMD announced loudly to Intel -- and the chip giant's customer base -- that it was deadly serious about competing and winning in the lucrative desktop microprocessor market.

In fact, with an overall investment of $1.9bn (£1.2bn) in its FAB 30 plant -- created to mass produce the huge volumes of Athlon processors deemed necessary to crack the Intel-focused Windows computing sector -- you could say that AMD is betting its life on such success.

However, it continues to post quarterly losses. It lost $105.5m (£64.3m) in the third quarter of this year, compared to £1m profit a year earlier. Sales fell to $662.2m from $685.9m as the chip maker continued to feel the impact of competition with Intel. But these losses were not as bad as analysts expected. AMD has steadied the boat to an extent, and is confident that FAB 30 is a sign of good times to come.

AMD's chief executive, W.J.Sanders III, claims the Dresden plant is the most advanced semiconductor manufacturing facility in the world. At its opening he gave some indication of future plans, including the prioritisation of AMD's much-hyped foray into Gigahertz silicon. "Next year we plan to be producing AMD Athlon processors capable of running at one gigahertz, or one thousand megahertz, here in Dresden, employing industry-leading copper-interconnect technology and 180-nanometre [0.18 micron] design rules. The one gigahertz and faster AMD Athlon processor will continue AMD's leadership in PC processor performance," he said.

"Leadership in PC processor performance". This phrase, slipped quietly into any AMD press or user conference you care to attend is of massive importance to the company. Why? Because it is demonstrably NOT marketing hype. Today, AMD does have a speed lead on Intel, and this is a vital position that AMD must continue to hold onto and maintain above all other considerations. Yes, Intel has far better branding, much higher market awareness, vastly more customers, endless top-tier technology partners, a loyal and unswerving core customer base, a world of IT directors who swear they won't lose their job for buying Intel, and quarterly profit statements that any company, regardless of its business, dreams of. But AMD has faster desktop chips than Intel, it can give them to you now, and it loves this fact.

Global acclaim for the Athlon's superior floating point and integer performance has been a fantastic boost for AMD, but the worry surely remains that this is a short term gain, a temporary lead in an ever-fluctuating marathon race for market position, and Intel is, it could be argued, better equipped for such a journey. It is also hot on AMD's heels in the sprint. Intel has announced that it will begin to ship 15 new 0.18 micron Pentium III and Pentium III Xeon processors for desktop and mobile PCs on Monday 25th October, including 733MHz performance. These are the first fruits of Intel's long-awaited Coppermine project.

Of course, AMD would argue that it was able to ship 700MHz Athlon chips in Compaq and IBM configurations at the start of October, and might point to Intel's inability to sort out the mess that is its 820 motherboard -- the intended platform for its fastest desktop 133MHz side-bus Coppermine chips. A month is a long time in technology, but unfortunately for AMD, even this impressive lead-time might not be enough to win over users for life, although of course it is a start.

The conflict now moves on to the 64-bit battleground, although we won't truly know what hardware each manufacturer is throwing into the skirmish until the smoke clears from the current Athlon/Coppermine battle. Word is that hardware developers may have to choose between Intel and AMD when building 64-bit platforms, although at this very early stage, nobody truly know whether this will indeed be the case. Both companies are promising silicon by the second half of 2000. On the one hand we have AMD's Sledgehammer roadmap. AMD may use existing 32-bit development, allowing users to migrate existing systems to "64-bit" as and when they require the additional performance. Intel claims its own Itanium chips will be developed from the ground-up with a new instruction set called EPIC. It says the EPIC instruction set will be fundamentally more efficient than x86, able to execute six instructions per clock, compared to the one-and-a-half or two instructions executed by its current 32-bit Pentium III chips.

Consumers, business users, industry observers and manufacturers alike will have to wait and see whether this fork in the processor road is approaching. One thing is for certain, if such a diversion does lay ahead, it could be make or break for AMD.

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