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IBM PCs tout AMD chips

AMD releases a 300-MHz chip along with its earnings report--and IBM immediately announces a new consumer model featuring the company's fastest chip yet.

Advanced Micro Devices (AMD) released the fastest K6 processor yet and IBM (IBM) immediately announced a new consumer model featuring the top-of-the-line chip.

IBM's introduction came just before AMD announced its earnings report for the first quarter. IBM appears to be cooperating closely with the Sunnyvale, California, chipmaker, as reported yesterday by CNET's NEWS.COM.

IBM is aggressively promoting the K6 in its consumer line of PCs, apparently at Intel's expense. (Intel is an investor in CNET: The Computer Network.) The IBM Aptiva E84 model will be the first to use AMD's K6 running at 300 MHz. Big Blue was also the first to use AMD's 266-MHz chip back in January.

News of the new IBM systems was one of the highlights of a lengthy conference call with analysts, in which an ebullient Jerry Sanders, AMD's CEO, proclaimed that his company has cured most of its production problems and is in the process of establishing a performance and price edge over arch-rival Intel in the red-hot sub-$1,500 PC market.

AMD's Jerry Sanders on the K6's cost advantage
AMD's advantage in the low-cost computer market partially owes to the fact that its chips plug into less expensive Pentium-compatible "Socket 7" PCs, which are typically several hundred dollars less than Intel-based Pentium II boxes.

IBM is currently the only customer for the 300-MHz K6, but additional manufacturing this quarter should lead to a broader customer base. AMD will keep its processors at 25 percent below comparable Intel chips, Sanders said.

"They have more expensive parts. They have a more expensive infrastructure, and we have a superior implementation," Sanders asserted, referring to Intel.

The company's cost advantages will be complemented by a technological leap when the 300-MHz K6 3D chip, code-named Chompers, comes out during the current quarter, Sanders said.

The chip will support "Direct X" 3D technology from Microsoft and provide a richer 3D experience. Chompers, in fact, will mark a technological break with Intel and lead to a competitive environment wherein customers and computer vendors will make their processor selection based more on performance than price.

"We're back," he blurted out.

AMD's turnaround mostly stems from the company's solving its production problems at "Fab 25," a chip facility in Austin, Texas. An improved production process has also allowed the company to get back on its product roadmap, said Sanders.

A 350-MHz version of the Chompers 3D-enhanced chip will appear in the third quarter, while a 400-MHz version will appear in the final quarter. These later chips will also come with a 100-MHz system "bus," which will further boost overall system performance. AMD will also preview its next generation "Super 7" architecture at October's Microprocessor Forum.

All is not wonderful, however. Despite the design wins and favorable news about the production turnaround, the company still suffered greater than expected financial losses during the quarter.

To return to profitability, the company is going to have to continue its transition toward the advanced 0.25-micron production process technology, a complex process that AMD started to use in production only in the last quarter.

AMD will also have to increase its K6 unit shipments to at least 2 million next quarter and ship 12 million for the entire year. The company shipped just over 1.5 million K6 chips during this quarter.

At a minimum, Sanders said that the company is going to have to boost quarterly revenues to $700 million, a substantial boost from current revenues of $540 million.

Further, AMD will also likely be squeezed by the same sort of cost parameters it is trying to beat Intel with. The average selling price (ASP) of a K6 processor in the future will be $100. This is low compared to the average price of an Intel chip, which is well above $200.

"AMD's business plan is built around a $100 ASP processor," he said. The 300-MHz chip announced today, Sanders said, sells for $246 while the 266-MHz version sells for $156. By the end of the year, the same 266-MHz part "will be dirt cheap," he predicted.

"We need to ramp up production to overcome our fixed costs," Sander stated. "We need to produce more [silicon] wafers than we are."

The new IBM Aptiva PCs sporting the K6 chip come with 64MB of memory--double the usual amount--for $1,499 without monitor. Another Aptiva model with a 266-MHz K6 and 48MB of memory goes for $1,399. Both models come with 4GB hard drive, a CD-ROM drive, and a 56-kbps modem.

The new Aptivas are immediately available at retailers as well as direct from IBM, the company said. Similar models will shortly reach the European market, according to IBM.

The timing of AMD's introduction is interesting in that it comes amid reports that IBM may be providing unannounced, incremental manufacturing or financial support to AMD. Sanders reiterated that IBM has agreed to act as an overflow manufacturer for AMD but said that the deal was strictly an "arm's length" transaction.

Kurt Oeler contributed to this report.