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HP adopts AMD chips

The PC maker will use AMD's K6-2 in a new product line, becoming the third top-tier vendor to adopt a processor made by one of Intel's closest rivals.

Hewlett-Packard launched a line of home PCs using processors from Advanced Micro Devices, becoming the third top-tier vendor to adopt chips made by one of Intel's closest rivals.

Some of HP's newest Pavilion models will use AMD?s K6-2, which is designed to handle multimedia applications such as 3D graphics better than the standard K6 processor. The new models will come with 300- and 333-MHz versions of the K6-2.

The deal clearly represents a victory for AMD and a change of course for HP.

In 1997, AMD was saddled with severe manufacturing problems, which hampered adoption of the K6 and led to successive financial losses. The company fixed the problem earlier this year and its fortunes have begun to turn.

Both Compaq Computer and IBM previously elected to adopt K6 and K6-2 in their home PC lines. Compaq has been especially aggressive in adopting the K6 family, using it in a number of consumer desktops. The Houston computer maker also is deploying it widely in new Windows 98 notebook PC models.

While IBM currently does not have as many K6 systems, the company typically has been first to market with machines using the latest K6 or K6-2 systems. Big Blue will also start to manufacture processors for AMD in the third quarter.

"The manufacturing has seriously improved. There is no other way to look at it," said Dean McCarron, principal analyst at Mercury Research.

HP initially will not use K6 processors as extensively as either Compaq or IBM, but the deal is noteworthy in its own right because of HP's usual reluctance to bolt from the Intel fold. HP has conducted serious negotiations with both AMD and National Semiconductor?s Cyrix arm about adopting their respective chips for HP consumer computers over the past year, said sources.

The deals, however, always unraveled at the last moment. One of HP's Pentium MMX-based Pavilion computers currently on the market, for instance, was originally designed to be a Cyrix-based computer, according to sources close to Cyrix. HP shifted back to Intel at the last minute. The last non-Intel processor HP used was the AMD K-5.

On the other hand, AMD chips are mostly being used in sub-$1,000 PCs, which generally bring less profit to chipmakers, according to McCarron. The price of the HP computers indicates that AMD is selling the chips to computer manufacturers at less than $100, said Ashok Kumar, semiconductor analyst at Piper Jaffray, far below the posted price of $229.

Further, the company will begin to face stiffer competition in this segment when Intel releases its first version of the Celeron chip with integrated high-speed memory in the fourth quarter, added Kumar. Code named "Mendocino," the integrated versions of the Celeron chip are expected to perform far better than current versions of Celeron, according to most analysts, and will run at 300 MHz and 333 MHz.

And, if history is any guide, the price of these chips will begin to approach $100 not long after launch. (Intel is an investor in CNET: The Computer Network).

The price and performance of these chips will make it difficult for AMD to expand its design wins. "The volume opportunity for AMD is limited," Kumar concluded. "Once Intel rolls out Mendocino, they [AMD] will go after the $799 market."