The Scoop...

We're that other chip maker

Advanced Micro Devices (AMD) has become the world's largest supplier of integrated circuits (ICs) for personal and networked computers and the public communications infrastructure. With a 10 percent share of the semiconductor market, AMD is a David of the industry looking to knock off the Goliath of semiconductors, Intel. The company began in 1969 when marketing whiz Jerry Sanders was fired from Fairchild Camera & Instrument. By putting his marketing know-how to work, Sanders was able to overcome a capital shortage and a lack of management experience to launch his company and go public in 1972. Cash infusions from Siemens and Intel in 1977 and 1982, respectively, helped AMD grow quickly alongside increasing demand for semiconductors during the mid-1980s.

Current operations

Today, AMD's activities include product design, process-technology development, and wafer-fabrication (making microchips). Its main development sites are in Austin, Texas, while its headquarters reside in Sunnyvale, California. The company opened a state-of-the-art, $1.9 billion facility in Dresden in 1999, which began contributing to its earnings in 2000. (In fact, AMD has a greater investment in manufacturing plants than any other microprocessor maker, save Intel.) It also has a joint venture factory with Fujitsu in Aizu-Wakamatsu, Japan. Most testing and assembling occurs at the company's facilities in Penang, Malaysia and Bangkok, Thailand. AMD has also begun construction on a manufacturing facility in Suzhou, China.

Speed of lightning, roar of thunder...

Now may be the underdog's chance to chip away at Intel's lead. AMD's microprocessors, like the K6-2 (with 3DNow! technology) and the K7 compare favorably with Intel's Pentium chip, but sell for less. 3DNow! speeds up 3D graphics and represents an advance over Intel tech. The Duron line from AMD is shipping in different speeds ranging from 600 to 700 MHz, in order to compete with Intel's low-priced Celeron processors.

Compaq, Hewlett-Packard, IBM, Gateway, and Acer are all using AMD chips in certain models, and AMD is continually improving its position supplying chips for the sub-$1,000 PC market. Despite its mammoth 80 percent market share, Intel has reacted furiously to any and all challenges from its small competitor. Intel has cut prices on its lower-powered Celerons to compete directly with AMD. Intel's 500 MHz processor now goes for less than $200. It's no wonder, because sub-$1,000 PCs, which require cheap chips, are an increasingly important market segment. According to researchers PC Data, 58.5 percent of the retail market in November 1999 consisted of sub-$1,000 PCs.

AMD is making substantial headway breaking into the higher-end market. Spurred to quicker production by Intel's continuing dominance, AMD introduced an 850 MHz Athlon processor while Intel's Pentium III was at 800 MHz. AMD scored a big win over Intel when it introduced a 1 GHz chip two days before its competitor. The Athlon chips also have higher capacity caches than Intel's current offerings. The company plans to have a 1.5 GHz processor by January 2001.

Do AMD's chips stack up?

It remains to be seen whether AMD can cut into the market share of its much larger competitor. Company officials are optimistic, a feeling that has been justified by AMD's success in beating Intel to the 1GHz processor. Signs like these have led the company to set some lofty goals for itself: AMD is aiming to increase its PC market share to 30 percent. To achieve that kind of presence, however, it is likely that AMD would need to ace out nearly all its competitors (except for Intel!)

Unlucky breaks

The price war with Intel and an ill-timed K6 manufacturing error severely cut into AMD's profits in the first quarter of 1999. Still, AMD managed to sell more chips than Intel for the first time in January of that year, and top hardware makers including Gateway and Toshiba announced that they would use the AMD's K6-2 over Intel's Pentium. But coinciding with this good news, AMD's president and chief operating officer S. Atiq Raza unexpectedly resigned in July 1999. Raza had been considered the heir apparent to CEO Jerry Sanders. The company took another blow in two months later when Gateway announced it would phase out AMD chips, opting to use Intel processors instead. This move was reversed early in 2000 though, when Intel was unable to supply Gateway with enough chips; Gateway soon became one of the biggest customers of Athlon chips.