By many accounts, Advanced Micro Devices' (AMD) new Athlon processor is going to knock Intel off its regal perch atop the PC processor market. The chip is testing faster than Intel's top-of-the-line Pentium III, no mean feat considering the technological resources which Intel can bring to bear on a new processor.
AMD has also lined up some high-profile customers. IBM is basing all of its new consumer and small business Aptiva PCs on the chips, and Compaq has signed up the chip for its popular Presario line. Importantly, both companies are touting the chip at the very high end of their computer lines, a first for AMD.
"This is a major change to the landscape. AMD has actually eclipsed Intel," said Mark Del Tufo, an executive in IBM's Aptiva group. At the same time he understands the challenge for AMD. "They understand the whole world is watching."
Analysts at Merrill Lynch and marketing research houses are also watching--and wondering. Specifically, they're mulling whether AMD's history might get in the way of this assault on a market fiercely guarded by Intel because of the profits it generates.
To achieve this, during the last 15 years Intel has staked no less than the fortunes of its company on constructing a prodigious arsenal of chip plants which crank out difficult-to-produce high-performance chips in the huge volumes required by PC makers worldwide. That's no mean feat either.
"We are not convinced that AMD can pull it off," Merrill Lynch's Joseph Osha said in a recent report stating that AMD faces "substantial challenges." AMD has been plagued by losses over the years, even when it managed to take the lion's share of the retail consumer PC segment.
"[The] question now is whether AMD can ramp [quickly increase production of] Athlon," Merrill Lynch said in its report. The question rests on the company's ability to make chips with the advanced manufacturing processes and at the high speeds required. Even large quantities of chips at the 550-MHz speed "is something Intel has yet to manage."
Also, "convincing [PC makers] to buy AMD in the non-value segment, where reliability and deliverability are just as important as price [is a challenge,]" the report said.
This puts Intel in a strong position. "The Intel competitive position now looks as good as it has been for some time. The low end of market, which is where the threat lay, has cleared out. AMD is reduced to a Hail Mary strategy which, despite impressive specs for Athlon on paper, has little chance of success," according to the Merril Lynch report.
Others are also cautious. "AMD has made a series of questionable decisions recently that are difficult to rationalize reviewing...their performance at retail. Pulling out of the low-end chip market, while unprofitable, gives them no legs to stand on," Alison Boswell wrote in the Boswell Report.
"While AMD shows improvement in sales and market share...they seem less of a threat than ever in light of recent announcements," said Boswell.
Ominously she added, "Their image is based on price, and as our research has shown over the last six months, consumers have little interest in the brand otherwise. Time and again they have tried to compete with Intel's high-end products and failed, as the K6-3 is a prime example." She concludes that "chronic problems" along with resignation of Atiq Raza, president and COO, spell "disaster for the company."
Danny Lam, a director at Fisher-Holstein, a consultancy, has similar views. "In one word, grim."
Lam believes that, based on their history, the AMD will have trouble effectively competing. "It's not Intel tripping up AMD. It's AMD tripping up itself."
AMD believes it is on track for success
AMD--and some analysts--of course, thinks otherwise, believing that the Athlon strategy is a natural progression and simply part of its long march to capture more and more of Intel's market.
"In 1997 when we came out with the K6 we had effectively 0 percent [of the retail consumer PC market.], Now we have more than 50 percent," said AMD spokesperson Scott Allen, pointing to a market it wrested from Intel and Cyrix.
This is a strategy that IBM has participated in and believes in more than ever now. "For our customer base, Athlon delivers better value, better performance [than Intel]," said Del Tufo of IBM, which is targeting small business customers also with its AMD systems.
AMD's intention now is to "establish a modest beachhead" in the corporate market, the exclusive domain of Intel, and slowly take market share. "Athlon is the platform which that will allow us to make the [corporate] enterprise an important, more profitable segment," Allen said.
Some analysts agree. "With Athlon, AMD moves performance from a liability to an asset. For the first time, AMD will gain legitimate access to the performance-PC segment, where prices and profits are higher," said Microprocessor Report editor-in-chief Keith Diefendorff. "The ability to deploy competitive products in this segment, as well as the low-end segments, will provide AMD with price protection, as Intel can no longer outflank it by slashing prices at the low end only to make up for it at the high end," he added, though he was cautious about other elements of AMD's strategy.
AMD will continue to deliver its low-end chips, the K6-2 and K6-3, to the value segments of the market too. The company will take the chips to a more advanced manufacturing process, according to Steve Lapinski, director of product marketing at AMD. The shift will allow AMD to get beyond the 500-MHz ceiling the K6-2 chip now faces.
But AMD maintains that its "future is Athlon." Many consumers and corporations will be watching and waiting.