IBM leans on AMD's K7 for new PCs

Big Blue's move could present a challenge to Intel's high-end PC dominance and the key to AMD's survival.

IBM will bring out the high-end Aptiva S series computer with AMD's coming K7 processor and a novel industrial design, according to industry sources familiar with the announcement. The K7/Athlon, meanwhile, may officially be announced later this afternoon in a conference call.

Behind closed doors, IBM is demonstrating the computer at PC Expo here, according to sources. IBM would not comment.

The S series is IBM's flashiest, most-feature-packed consumer PC line and is usually reserved for the swiftest chips from Intel, such as the fastest Pentium III processors.

Entry into the S series would be a big boost for AMD, which has seen most of its chips confined to machines costing less than $1,200. The K7, which sources say will likely be marketed as the "Athlon" processor, represents a potential break with the past for AMD.

The chip's innovative design has received rave reviews from analysts, who say it should equal or surpass Pentium III in performance. A 600-MHz Athlon, one source said, will equal a 700-MHz Pentium III. Test drivers of beta models say the chip "smokes." Along with IBM, Compaq Computer is expected to release Athlon systems later this summer.

A recently announced delay in Intel's 600-MHz "Coppermine" chip, a souped-up Pentium III, has given AMD a historic chance to wear the performance processor crown for PCs for potentially the rest of the year. Athlon-based PCs are expected to start hitting store shelves when the chip goes into volume production toward August, said sources, and run at 500 MHz, 550 MHz, and 600 MHz, with faster speeds following.

A press conference today at 2:30 p.m. PT may provide details on the K7/Athlon release.

Euphoria, however, must be tempered by history. AMD has a history of fumbling product launches and not being able to manufacture high-end chips when they can command premium prices. Foiled manufacturing strategies have led to severe quarterly financial losses in the past two years despite market share gains. The company has said it expects losses for the current quarter and is in the midst of layoffs.

Still, the opportunity exists.

"If they can get 700 MHz out of the chute, they should be able to do some real damage to Intel, " said Martin Reynolds, an analyst with GartnerGroup Dataquest. Intel's fastest processors currently run at 550 MHz, though a standard 600-MHz Pentium III is expected soon, with Coppermine to follow.

IBM, Compaq, and Hewlett-Packard, to mention only a few PC makers, already use AMD K6-2 processors in a wide range of consumer models but not in the frill-laden, top-of-the-line machines such as IBM's S series or Compaq's 5700 Presario line.

IBM's S series typically comes with rich features that any power user can brag about, including massive 25GB hard drives, advanced sound capabilities, and the fastest graphics processors, with price tags to match: usually $2,000 $2,500.

More profit for AMD?
For AMD, inclusion in high-end PC lines could mean better profits. Intel commands up to $744 for its fastest desktop chips and enjoys an average selling price around $225. By contrast, AMD has struggled, and repeatedly failed, to bring its average selling price to $100. Last quarter, the average AMD chip cost $79, a low figure mostly caused by a price war being waged by the two companies. The price war may temper, analysts have said, with a successful launch of the K7 because the chip will compete against the pricier Pentium III. Most AMD chips now compete against lower priced Celeron chips from Intel.

But there is also a trend that's working against these hot-rod computers, which does not bode well for either Intel or AMD.

"Megahertz doesn't really matter all that much anymore," said Carl Everett, a senior vice president at Dell Computer in charge of the personal systems group. He said that the faster the speeds get, the less discernable the improvement, because the percentage improvement diminishes as the number gets bigger.

Moreover, many users are now stressing Internet connection speeds and Net connection software as the real benchmark for PC performance, according to Everett.

Brooke Crothers reported from New York and Michael Kanellos from San Francisco.