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New AMD pricing undercuts Intel

A window of opportunity may open up for Advanced Micro Devices as it unveils the new K6-2 processor.

A window of opportunity may open up for Advanced Micro Devices (AMD) with today's introduction of the new K6-2 processor, although analysts caution that aggressive pricing by Intel could quickly shut it again.

Increasingly found in sub-$1,000 PCs

AMD chip pricing
Processor May price July price
333-MHz K6-2 $369 $228
300-MHz K6-2 $281 $147
266-MHz K6-2 $185 $115
Source: CNET sources
from top-tier vendors such as Compaq and IBM, AMD's processor line could take another step forward with the K6-2. Incorporating the new 3D-Now instruction set, the chip is expected to be a staple for the next round of high-performance, low-cost PCs.

AMD officially unveiled the K6-2 today at the Electronic Entertainment Expo (E3) conference in Atlanta. The chip runs at 333 MHz, a new performance highs for the Sunnyvale, California, company, and later it will reach clock speeds of 350 MHz and 400 MHz, according to the company. It also supports new technology that increases the speed at which the chip talks to components in the computer.

The processor could allow AMD to build back its balance sheet. The 333-MHz version of the K6-2 will sell for a healthy $369 in volume while the 300-MHz version will sell for $281 and the 266-MHz version will go for $185.

For the past year, AMD's processor revenues have been hurt by production snags and processor price wars. The company has kept to its policy of pricing its chips 25 percent below equivalent Intel products; AMD currently sells its K6 chips for 15 to 25 percent less than comparable upcoming K6-2 chips.

Thus the chips in AMD's current lineup are selling for far less than the K6-2's anticipated price scheme. The 300-MHz version of the K6 goes for between $139 to $160 over-the-counter from various retailers nationwide. AMD's official posted wholesale price for the chip in volume is $246. The 266-MHz K6 sells for between $105 to $140, below its posted volume price of $156, while the 233-MHz version with a fan and three-year warranty goes for $103.

IBM and Fujitsu intend to use the K6-2 in forthcoming systems, according to AMD, while smaller PC vendors such as Tiger Direct currently offer desktops usiing the chip.

Beyond K6-2's introduction, Hewlett-Packard is currently evaluating the K6 for low-end versions of its Pavilion consumer computer line. A deal has yet to be finalized, but sources claim that HP is considering the processor for a $799 consumer box slated for later in the year.

Despite these positive developments, pricing pressure will return in late June and July when Intel cuts prices again, according to Ashok Kumar, semiconductor analyst for Piper Jaffray. For example, under third-quarter price cuts, Intel's 300-MHz Pentium II is expected to drop from $375 to as low as $200 for some customers. AMD has vowed to price its products 25 percent below the price of Intel chips running at the same speed.

As a result of the cuts, the 333-MHz K6-2 will go to $228 while the 300-MHz and 266-MHz versions will sink to $147 and $115, said sources. Intel will also pressure AMD with the release of a version of its low-cost Celeron chip containing an integrated cache in the fourth quarter.

"With average selling prices collapsing, the upside in earnings opportunity is limited," Kumar stated.

Michael Slater, founder of The Microprocessor Report, said that AMD is striving to do better than PC chip-market bottom feeding. "AMD is determined to compete as a full-line microprocessor vendor," he said at a conference last week. "They can't settle for the low end."

Kumar and executives within the chip set industry also note that full implementation of the chip's 100-MHz bus technology will not occur until June or later, further cutting down the period of time for AMD to capitalize on its accomplishments. A 100-MHz system bus, an upgrade from the 66-MHz system bus, should boost performance by 15 percent or more.

AMD is also touting 3DNow, a new series of instructions that will enhance 3D graphics performance. Microsoft's DirectX 6.0 will support 3DNow beginning in July; however, it is not clear how many developers will use the new instructions. If the instructions are not utilized, performance increases can be negligible in many cases.