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AMD may get IBM investment

Advanced Micro Devices apparently receives an investment from IBM and may get a new CEO to replace Jerry Sanders, analysts say.

Advanced Micro Devices (AMD) apparently has received an investment from IBM and has started a process under which CEO Jerry Sanders may step down in the next 12 months, according to an analyst's report.

Although the company will likely post a substantial loss for the quarter that just ended, the fortunes of the microprocessor maker are rising, according to Ashok Kumar, semiconductor analyst for investment bank Piper Jaffray, which issued the report.

Separately, in the last week of May AMD will introduce a processor that tops Intel's equivalent offering in terms of speed, according to sources close to the company.

The "K6 3D" chip will be a new version of its staple that contains a 100-MHz bus, allowing it to interact with other computer components much faster. It will compete against Intel's Celeron processor but will likely perform better than the first version of those chips.

Analysts, including Kumar, believe that this K6 processor line will help AMD gain market share.

IBM has assumed the role of a "Medici"--a famous Italian banker of the 14th century--and in all likelihood AMD has received capital from IBM to help it continue to improve its manufacturing, according to Kumar. The report said Big Blue "plans to use AMD as an instrument in its last stand against Intel."

Other semiconductor industry sources have also said that IBM is investing in AMD, though the nature of the investment is not yet clear. Some are speculating that it could also come in the form of an extension of IBM's manufacturing relationship with AMD.

AMD spokesman Scott Allen declined to comment on the purported IBM investment, stating that at this point the comments are rumors and that AMD does not comment on rumors.

A closer relationship between AMD and IBM, if true, would underscore a flurry in the microprocessor market that seems to be making it easier for smaller vendors to compete against chip giant Intel.

Earlier this year, IBM announced it would begin to manufacture K6 chips for AMD, a process that is expected to begin in the third quarter or early next year.

Also recently, IBM signed manufacturing deals with AMD and Integrated Device Technology to produce Intel-compatible chips. These deals not only give these companies much needed manufacturing capacity, but also they potentially open Intel's intellectual property portfolio, including patents surrounding the Pentium II chip. Chipset vendors and National Semiconductor have also recently said that they have access to make chipsets based around the P6 bus.

Kumar also stated that Jerry Sanders, the flamboyant AMD chief executive who has been criticized by some investors for his salary and performance, is expected to step aside during the next year in favor of chief technology officer Atiq Raza, who has been credited with some recent successes.

On the possibility of Sanders stepping down, AMD's Allen said that Sanders' current contract calls for him to remain as the CEO until the beginning of 2002 and then to give up the title of chairman by 2003.

AMD shares were trading up today, close to 6 points higher from a Friday close of 28-9/16.

Meanwhile, AMD's manufacturing continues to improve. The company has reached a yield of close to 50 percent on chips based on the advanced 0.25 production process, a vast improvement over last year's levels.

Importantly, the production is taking place at AMD's large Austin, Texas, chip plant--not its smaller production line in Sunnyvale, California. AMD is achieving nearly 100 percent yields on 266-MHz K6 chips.

Yield refers to the number of good chips that are produced out of one silicon wafer. Generally, a company has to achieve 50 percent yields to turn a profit.

AMD is making microprocessors under the new 0.25 process as well as the older 0.35 micron production mode. By the end of the summer, however, all of AMD's chips will be made under the more efficient 0.25 process.

As a result, AMD was able to ship about 1.5 million K6 chips this quarter, Kumar said. If the trend continues, AMD will manufacture 3 million K6 processors in the third quarter and 6 million in the fourth.

Despite the news, losses will still be high this quarter. AMD will likely post a lost of 31 cents a share for the quarter when it makes its financial disclosure tomorrow.

AMD's financial picture is picking up, according to a poll of 22 analysts on First Call, but the wide range of estimates indicate that there is substantial uncertainty concerning AMD's ultimate success.

The mean estimate for the quarter is that AMD will lose 28 cents a share and that the company will lose 5 cents a share for the year. However, the individual estimates are spread fairly far apart, said Chuck Hill, a First Call spokesman.

Estimates for the quarter range form a loss of 65 cents to a loss of 17 cents, while estimates for the year range from a loss of 70 cents a share to a profit of 90 cents a share. In part, the wide range of estimates is likely the result of a downturn in semiconductor sales as well as warnings AMD released on its first quarter earnings earlier this year, Hill said.