Gateway deals a blow to AMD

SAN DIEGO -- Gateway Inc. plans to phase out microprocessor purchases from Advanced Micro Devices Inc.

SAN DIEGO -- Gateway Inc. plans to phase out microprocessor purchases from Advanced Micro Devices Inc., another sign of Intel Corp.'s renewed gains in the price-competitive, consumer-PC market.

Gateway (NYSE:GTW), which in February brought out its first PCs using AMD (NYSE:AMD) chips, won't continue with purchases after its current models are replaced, according to people close to the matter. A Gateway spokesman declined comment other than to say the company continues to sell existing PCs using AMD chips and won't preclude AMD from future bids.

Analysts said the phase-out wasn't unexpected. Gateway had recently spurned the Sunnyvale, Calif., chip maker's latest high-performance Athlon chip, the device that represents the company's best hope for a return to profitability. "There was very limited intention with AMD," said David Wu, a director at brokers ABN AMRO Inc.

The loss comes as Intel has mounted a strong comeback supplying consumer-PC manufacturers with its Celeron microprocessors. In July, PCs built with Intel chips accounted for nearly 56 percent of retail-store PC sales, up from less than 38 percent in February, according to market watcher PC Data Inc. of Reston, Virginia. In contrast, AMD's share of those sales tumbled to 30 percent from 52 percent over the same time period.

People close to the matter say AMD believes it lost the Gateway business because Intel began offering Gateway more favorable terms than it had previously. Neither Gateway, Intel (Nasdaq:INTC) nor an AMD spokesman would comment.

Paring its PC roster
Gateway, the leading U.S. supplier of home PCs, is also in the midst of paring its product roster and saw the AMD-based models as requiring separate investments for the core circuit boards at the heart of the machines, those people say.

Martin Reynolds, vice president of technology at industry analyst firm Dataquest, a Gartner Group company, said Intel's newest Celeron chips also allow designers to use the same circuit boards on future, higher-performance Celeron chips. "There are big savings there," he said.

Reynolds also said AMD's decision to shift resources to the high-performance chip has given Intel the upper hand in the price-sensitive consumer-PC market. "What's happened in the last year is the infrastructure for the [Intel] Pentium IIs and IIIs have caught up" with AMD, he said.