Jesse Berst: Why AMD's Athlon is good news for Intel

New AMD chip will spur Intel to lower prices -- but there's little hope for AMD.

In Joseph Heller's novel "Catch-22," the main character tries to get out of a war by proving he is crazy. But the mere fact he wants to get out of the war only shows he isn't crazy -- creating the original "Catch-22."

The PC industry is facing its own Catch-22 as AMD releases the new Athlon chip to compete with Intel's Pentium III. Athlon finally brings some serious competition to the PC chip market. But in doing so it will solidify Intel's stranglehold on the market. AMD has three problems hampering its long-term success:

Losses: AMD expects to have a $283m (£175m) loss for the first two quarters of this year and by its own accounts has no prospects for profitability anytime soon.

Expenses: The company is committed to opening up a $1.8bn manufacturing plant in Dresden, Germany. Worried it might have bitten off more than it can chew, and faced with returning subsidies the German government paid out, AMD is considering selling off a stake in the plant.

Personnel: On the same day the company announced a loss of $1.10 (£0.68) per share for its second quarter, AMD's President/COO/CTO S. Atiq Raza resigned. Raza was one of the key architects of the company's successful K6 processor.

AMD fought valiantly over the past years to challenge Intel's unquestioned dominance. But Intel has been vicious in its counter-attacks, slashing prices of its Celeron chip to capture the low-end market.

Despite the damage, AMD regrouped to unveil the Athlon chip this month. Initially aimed at high-end users and corporations, this straight-on attack against the Pentium III could be just the weapon AMD needs to rebuild and gain the 30 percent market share it is targeting.

PC Magazine's benchmark tests show the Athlon zips past the Pentium III in pure clock speed.

But the short-term success for AMD is a mixed bag for consumers.

The good news is that Intel, which only lowers prices when it is forced to, will cut prices on its Pentium IIIs. Meaning by this time next year, you'll get a much faster machine for the same price you are paying today.

The bad news is that Intel, not saddled with heavy debt, will be able to sustain losses longer than AMD in a price war of attrition. AMD could be forced to go the way of Cyrix and get out of the chip business altogether. Leaving Intel's market share unchallenged -- and no company big enough to take it on.

The release of the Athlon by AMD puts the PC industry in a Catch-22. By becoming the competition, AMD further strengthens the monopoly.