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Rival AMD wins contracts as Intel struggles

Two more computer manufacturers agree to incorporate processors from Advanced Micro Devices in their PCs, and the timing couldn't be better for the chipmaker.

Two more computer manufacturers have agreed to incorporate processors from Advanced Micro Devices in their PCs, and the timing couldn't be better for the chipmaker.

Micron Electronics has announced that it will incorporate AMD's Duron processor in computers sold at Best Buy electronics stores. AMD also said Tiny PC, a British manufacturer, will begin to use Athlon and Duron chips in consumer PCs.

The deals are being announced a day after Intel surprised the computer industry by stating that third-quarter sales would be lower than expected while gross margins--the percentage of revenue left over after costs are deducted--would also come in lower than predicted.

Although the timing of the contracts is fortuitous for AMD, they are not directly related to Intel's report. Intel said it would miss its earlier forecasts because of slower sales in Europe, a region being wracked by a currency crisis and other economic problems.

"If the European economy continues to worsen, Intel may have to get into a price war with AMD," said Nimal Vallipuram, an analyst with Dresdner Kleinwort Benson.

Moreover, AMD's new design deals are relatively small. Micron, for instance, is offering Duron in systems sold only in Best Buy stores, not in computers sold over its Web site.

Nonetheless, AMD has steadily been gaining on its main competitor. Unlike Intel, which has recalled two products this year alone, AMD has been able to pump out processors with relative ease. The company's chips have also gained brand recognition in the PC marketplace.

A push into the commercial market by AMD will begin in the fourth quarter when the company releases processors for servers. Notebook versions of the Athlon chip will also arrive at this time.

"Recently, AMD has seen their market share increase," said Dean McCarron, principal analyst at Mercury Research. "It wouldn't surprise me if they were a contributor" to Intel's recent problems, he added.

Micron and Tiny hailed their new deals, stating that their respective alliances with AMD will allow them to offer customers a wider variety of computer configurations.

One sore point for AMD, however, has been the relative dearth of Duron processors, a less expensive version of Athlon. Although announced in June, few of the chips have been produced so far. IBM introduced the first Duron-based PC from a major manufacturer in the United States; Micron now adds the second.

The shortage is important because AMD has not been able to fully participate in the budget PC category. In the end, this could mean that AMD ends the third quarter with unfulfilled demand for Duron and a slight inventory of the more expensive Athlon chips.

"They've been out of the low end of the market for a few months," said Stephen Baker, an analyst at PC Data.