Manufacturing problems still haunting AMD

"The chip design is compelling and demand is good, with many PC makers looking for alternatives to Intel," said BT Alex Brown's senior analyst Erika Klauer, reflecting the view of many chip experts. So what is the problem?

Klauer believes it is down to one word. Yield. "AMD has had a lot of problems with manufacturing, with the number of good chips per wafer falling below expectations. Until it is able to fix the problem, AMD will continue to languish," she says.

It is a problem AMD must tackle head on according to Klauer. "Manufacturing is the most challenging aspect of the chip business -- something Intel is expert at. AMD will be talking to its equipment providers and reworking layout and design of its chips to make it more efficient." A quick fix is not in sight. "AMD said it had fixed the problem in November and then again in February. If it has fixed the manufacturing problem it would be in a very good position but that is a very big if," she said.

AMD's marketing manager, Richard Baker, accepts the firm has had problems with manufacturing but remains upbeat. "We have had some yield issues over the first few weeks of this year but they are fixed now," he says. Denying the problems are a recurring obstacle to profitability, Baker points to the new fabrication plant opening in Dresden. "We currently only have one fab and any problems we have are screamingly obvious to the market. With the second fab in operation at the turn of the year we will have higher production and the issues of yield will be ameliorated," he said.

In the meantime, AMD is pinning its profit hopes on the release of K6-3 and K7. "When K6-3 and K7 come out, that is when AMD starts to make money," says marketing manager Richard Baker. But Klauer remains sceptical. "They have been saying that for some time," she says.