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AMD gains ground

Buoyed by better-than-expected financial results, AMD may be making a comeback.

Advanced Micro Devices (AMD), a maker of Intel-compatible chips, is slowly climbing back into a position where it can compete with Intel after wrestling with a series of strategic and technological blunders.

The clearest evidence is a smaller-than-expected loss announced today for its fourth quarter, results brought about by accelerated shipments of AMD's K5 microprocessors. AMD posted a $21.2 million net loss, or 15 cents a share, on sales of $496.9 million for the fourth quarter that ended December 29.

That's 4 cents per share less than analysts had estimated. But the relatively good news pushed AMD shares up to close at 32-3/4, up 3-3/4 from yesterday. During the day, the stock traded as high as 33-1/4 a share.

AMD stock had already risen two points yesterday after the company announced a new version of its AMD-K5 processor, a chip designed to compete with the fastest chips in Intel's Pentium line.

AMD's decline started when it tried to bring the K5 to market a few years ago but suffered long delays. Compaq Computer had been slated to use the K5--a significant coup for AMD-- but the PC giant abandoned its plans because of problems with the processor, leaving AMD alone in its fight against Intel.

The company didn't start to recover until this quarter when it saw K5 chip sales double to 1.1 million units. AMD says the red ink on its balance sheet is not entirely its fault: It was hurt by the worldwide slowdown in chip sales and it had to take a hit for investing $1.5 billion in a chip factory in Texas. But its financial results and technological reputation had already been damaged.

AMD hopes the new K5 and the even faster K6 due later this year will repair all that. When it starts shipping later this quarter, the new processor--the AMD-K5-PR166--will be the fastest chip in the K5 line, providing critical evidence that AMD can offer Pentium-class processors that compete with Intel at higher performance levels.

To date, AMD has been stuck at the bottom of the Pentium performance curve, where there is relatively little interest from PC vendors and users alike. Moreover, when AMD does sell some of these lower-speed chips, profits are meager. But the new K5 chip announced equals or surpasses Intel's 166-MHz Pentium, one of Intel's fastest, according to AMD.

Acer America will be one of the first manufacturers to use the new K5 processor, putting it in two new systems for its AcerEntra line of midrange desktops.

AMD's turnaround--if that is what it turns out to be--was begun back in November when the company indicated it had started limited shipments of its next-generation K6 processor, the company's first MMX-capable chip. Intel's multimedia MMX technology speeds the performance of audio, graphics, and video.

Intel didn't actually roll out its first MMX Pentium until last week but is expected to raise the stakes next quarter with the Klamath P6. The K6 will compete with Intel's current Pentium Pro processors and the future Klamath processors.

AMD is challenging Intel not only by delivering newer and faster processors but also by trying to change the rules regarding how processor speed is rated.

AMD rates its processors not in megahertz--which is typically how users rate processor performance--but with a standard called P-rating. The P-rating, based on the Ziff-Davis Winstone 97 benchmark suite, is an attempt to provide a better standard for measuring processor performance.

"The MHz rating is not a good measure of processor performance," said Nathan Brookwood, an analyst at market research firm Dataquest. "Clock frequency is only one part of the equation."

Brookwood says that the Winstone benchmark is good if you use your computer for typical desktop operations if not everything a computer could be used for. "I think it's a reasonable approach," Brookwood said.

But the real test of AMD's new-found mettle is whether it can deliver the K6 processor in volume, something it hopes to achieve before midyear.

Compared to the K5, the K6 offers advancements such as a large 64K integrated cache memory and a more sophisticated internal architecture for speeding up execution of instructions.

The K6 won't be able to plug into the new Klamath motherboard--the main circuit board in a PC--nor existing Pentium-Pro-processor boards. The latter is a critical distinction since the Pentium Pro is built from the ground up as a chip for multiprocessing and not being able to use these boards means that AMD is excluded from this market. But the K6 will plug into Intel Pentium motherboards, making upgrades to this chip relatively easy for PC vendors who now use Pentium chips.

Caution about AMD's future is probably still warranted, however.

Financially, AMD appears to be improving but slowly. AMD sales for the fourth quarter just ended were still down 17 percent from the same period, when AMD reported $595 million in sales. For the end of its fiscal year, the chip maker today reported $1.95 billion in revenues and a net loss of $68.95 million, or 51 cents per share, compared with $2.47 billion in revenues and a net income of $216.3 million, or $1.57 a share, for the year previous.

Tom Karlo contributed to this report.