Gateway to use AMD chips in Japan

On Monday, the direct vendor will launch its Gateway Profile PC, a system based around the 400-MHz K6-2 processor, according to AMD. But an AMD spokeswoman would not comment on whether Gateway has agreed to use the K6-2 or the upcoming K6-3 in other models.

The agreement represents a psychological milestone, industry observers said, even though Gateway is using an AMD chip in only one computer and selling that PC in a single market. The PC maker has toyed with the idea of coming out with an AMD-based system for a number of years, but has always backed out in the end.

Analysts have theorized that Intel has pressured Gateway to not adopt AMD chips and that Gateway has used the negotiations as a pretext to extract demands out of Intel.

A deal for the Japanese market could serve a number of Gateway objectives, Dean McCarron, an analyst with Mercury Research, said earlier this week.

Under the agreement, Gateway will be able to reduce its costs in Japan. At the same time, the AMD-Gateway relationship can be used to apply pressure to Intel, McCarron said. Negotiations surrounding a potential Japanese deal were reported earlier this week.

Despite the win, AMD appears to be dealing with other problems. The company's chip prices are in "free fall" according to Ashok Kumar, an analyst at Piper Jaffray, due to aggressive price cutting by Intel. AMD has said its goal is to maintain a $100 average selling price. Price pressure, however, is pushing that number toward $60 for the quarter, he said.

In addition, Intel is advancing its technology road map rapidly, said Charles Boucher, semiconductor analyst with Donaldson, Lufking and Jeanrette. Intel will start shipping chips based around the more advanced 0.18-micron process in the second quarter, he said, earlier than expected. A 433-MHz Celeron chip is due in March, said sources, while a 466-MHz will come out in May with a 500-MHz to follow.

AMD will have to match these performance advances. But the company has stumbled in the past with chip advances. Recently, AMD had trouble producing enough 350-MHz K6-2 chips.

AMD's next chip is the K6-3, which is expected to run at 450 MHz and 500 MHz. It comes out toward the end of the quarter. AMD will then follow with the K7 in the second half of the year. Both chips are said to outperform Intel processors in certain aspects.

The question is whether they can produce enough of these chips and whether AMD can obtain high enough prices for them to boost the company's average selling price.

Speculation is also forming that AMD may sell its Vantis division. On Tuesday, Rich Forte, Vantis CEO, abruptly resigned.

Nathan Brookwood, an analyst with Insight 64, said that the Gateway-AMD relationship could be expanded in the future to encompass the K6-3. Due toward the end of the first quarter, the K6-3 will come to market at a time where it will best the first Pentium III chips in terms of performance in certain aspects, yet cost less.

"There aren't going to be any cheap Pentium III processors for some time," he said.

Meanwhile, with the Gateway design win AMD can now claim to have signed up ever major computer vendor with the exception of Dell.