News Analysis: A lack of backing to send AMD packing

The chip vendor must win industry support if its K6 ?Pentium II killer? is to live up to its name

When a company launches its latest products, it at least hopes that it can rely on its previous partners to adopt and support its technology. After all, if a company wants to take a huge chunk of the market, it has to be done by working with others.

So what went wrong for AMD when two weeks ago it announced its Pentium II killer ? the K6 ? the chip that is trying to break Intel?s stranglehold? There was a lack of support and enthusiasm from the industry.

But the lack of support does not mean AMD?s attempt to shake Intel?s 90 per cent of the market is doomed to failure. That is the message from analysts and sources at tier one vendors, which still insist they have their own plans to oust Intel. But how much of the cake they and AMD will be able to eat by this time next year is doubtful.

Senior AMD officials have claimed that the firm will capture a 30 per cent share of what they coyly term the ?sixth generation? market. That means AMD is targeting Intel?s Pentium Pro, but it is not a wide assault on the existing raft of products. AMD is aiming to win desktop market share.

Joe D?Elia, senior microprocessor analyst at Dataquest UK, said AMD?s problem is nothing to do with production. It has a state-of-the-art fabrication plant in Austin, Texas, and has already broken ground by setting up a site Dresden, Germany, which is due to come on stream in 1999.

D?Elia said: ?It could conceivably produce enough chips to challenge Intel, but in market terms 30 per cent is not an achievable sum.? While there are several reasons for that, D?Elia said if AMD succeeded in achieving any double figure it will be worthwhile.

?In the short term, anything that gets it into double digits is aggressive,? he said. ?Ten to 15 per cent is achievable, but it has to get it right.?

But it is questionable how AMD will get this aggressive market share, when there appears to be no support from the key players. AMD has not, so far, announced support from any of the tier one vendors. ?It has to get support from companies like Compaq, HP and IBM otherwise it will be playing in the second and third-tier markets,? D?Elia said.

These so-called partners offered varied but cagey answers about whether they are going to use AMD?s chip. Compaq, a favoured partner by AMD, said: ?There are no products currently available or planned at present using the AMD chip, but Compaq is continually evaluating new products.?

But there has been growing speculation that Compaq will use AMD?s K6 chip in its machines. Like many other vendors, it is common knowledge that Compaq has talked to AMD. Compaq does not operate a policy of only using Intel?s technology as it previously produced a machine based on the Cyrix Media GX chip as part of its low-end Presario range.

Keith Corbett, marcoms manager at the Mitsubishi Electric PC Division, also maintained that the company was waiting to see what would happen. ?The AMD technology has a lot of merit. We, like most other PC manufacturers are looking at it and evaluating it,? he said.

But there is more commitment from Mitsubishi than meets the eye. A source at the manufacturer said: ?I think it looks likely and the K6 sounds positive. Intel has its own agenda which is different from the PC manufacturers.? Just when Mitsubishi is planning to go public with its plans is another thing.

IBM was adamant it will not use AMD parts. ?We won?t use them. If we don?t use Intel chips we have our own technology we can use instead,? said a representative at the PC Company, referring to IBM?s Microelectronics subsidiary which has a deal to manufacture chips for clone company Cyrix.

There is speculation, however, that there are a number of European companies in the frame to use the K6 technology, but AMD is keeping quiet about details of the plans. Elonex, Evesham Micro and Opus are all said to be close to releasing machines based on the processor when volumes become available later on this year.

Richard Baker, European marketing director at AMD, claimed the manufacturer was confident that it would strike deals with first-tier vendors. ?I would be very hopeful that we?ll have first-tier vendors in place by the end of the year,? he said.

The signings would definitely help AMD in its quest to usurp Intel in the chip market, but Baker admitted that AMD was unlikely to achieve a 30 per cent share until its German plant starts producing processors this year.

AMD?s commitment to the desktop market could also be a flaw in its strategy, said D?Elia. Intel has an architecture for the Pentium Pro which means that it can produce multiprocessor systems for its customers.

?If we look at PCs, the bulk of the business is still in desktops, but any PC vendor AMD deal with will be forced into Intel?s arms when it?s not the desktop.? There is considerable business on workstations as well as SMP servers.

This is an all or nothing game for AMD. It has already invested millions of dollars in developing the K6 chip and has borrowed money to make sure the Dresden plant comes to fruition on time and the expertise of Nexgen has been integrated into the AMD superstructure.

While the company still has a profitable future because of its other, non-microprocessor, product lines, the K6 is the most high profile offering it has. So AMD has to ensure it gets the support of the industry if it wants to beat Intel.