Sony deal boosts AMD

Sony has adopted the K6-2 processor from Advanced Micro Devices for a new line of consumer PCs for the Japanese market, a design win on the eve of the company's quarterly report that could presage AMD-based Sony machines in the United States.

AMD reported record sales of $685.9 million for the third quarter and posted a net income of $1 million, or 1 cent per share. Although the profit was small, it soundly beat expectations on Wall Street.

Still, the rise could become only a temporary blip, said Ashok Kumar, analyst with Piper Jaffray. Kumar expects a loss of around 5 cents a share on revenues of $685 million for the quarter, a total near AMD's stated break even point of $700 million.

Average selling prices for AMD chips will also be up to $110. Soon, however, AMD will be trying to release its K7 and K6-3 chips and the company does not have a strong history for product releases.

Further, Intel will continue to put pressure on. "Intel is not going to let these guys pick up a million units a quarter," Kumar said.

Sony will incorporate the 350-MHz K6-2 in its new line of "Vaio Compo" PCs to be released October 31, the company said. The Vaio Compo computers are essentially budget-conscious PCs with enhanced audio capabilities. Equipped with 64MB of memory and a 6.4GB hard drive, the Compos come with a high quality sound generation chip for recording from or to CD-ROMs, the company said. Sony announced the PCs at PC Expo in Japan.

For AMD, the deal with Sony is the latest in a series of design wins for the processor vendor in 1998. Last year, manufacturing problems with the K6 led to financial losses and prevented the company from cutting deals with major PC makers.

Earlier this year, the company was able to iron out most of the manufacturing problems and produce chips in greater volumes. Greater supplies, combined with relatively low prices, have in turn led to design wins and market share gains. This year, Compaq, IBM, and Hewlett-Packard have adopted versions of the chip for consumer PCs. AMD-based computers accounted for three of the top six selling computers in retail outlets for the month of September.

AMD is still expected to post a loss for the third quarter, its fifth quarter loss in a row, today. Nonetheless, analysts say that the losses are narrowing. In addition, market share also continues to climb, according to most estimates.

Whether the increases in market share can translate into sustained profitability, however, remains an open question. Increasing revenues point to a positive future, but AMD will have to maintain margins and avoid manufacturing problems.

Sony has not stated any plans to release the Vaio Compo in the United States, but sources close to Sony said that the company is considering adopting the K6-2 for the U.S. market.