April 18, 2002 11:55 AM PDT

AMD to phase out Durons by end of year

AMD will phase out its budget Duron processors by the end of the year as part of the release of the upcoming Hammer chips.

CEO Jerry Sanders and President Hector Ruiz, who will become AMD's CEO next Thursday, laid out the company's manufacturing plans Wednesday for the future, and they don't include Duron.

Instead, AMD will position Clawhammer, a chip that is expected to make its debut by the end of the year, as its premier desktop and notebook chip. Meanwhile, Athlon, the company's current top-end chip, will become its processor for cheap desktops and notebooks.

The decision to phase out Duron, which currently accounts for about 42 percent of AMD's processor sales, is partly a result of the normal evolution of product lineups and a limit of factory capacity.

The company plans to dedicate its Dresden, Germany, facility, its most sophisticated factory, to make the Hammer line of chips, Ruiz said. Athlon production, which currently takes place in Dresden, will then get shifted to UMC, a Taiwanese foundry that is engaged with AMD on other deals. AMD has only one other factory, located in Austin, Texas, and that is being converted to handle flash memory manufacturing by the end of the year, Ruiz said. Currently, Duron is only made in Austin.

Competitively, however, the demise of Duron won't hurt the company, Sanders said. Athlon and Duron are somewhat identical and cost roughly the same to manufacture. AMD, therefore, will have room to cut prices on Athlon. On Pricewatch, a Web site that compares retail processor prices, a 1.3GHz Athlon chip sells for $99, while a 1.3GHz Duron sells for $64.

"The only difference is the L2 cache (a reservoir of memory near the chip core for rapid data access) and the front-side bus," Sanders said. Athlons have a larger cache and a faster bus than Durons.

UMC will manufacture Athlons for the first time on 300-millimeter wafers. These wafers, which contain more than twice the surface area as wafers with 200-millimeter diameters, dramatically increase chip output without raising costs.

AMD and UMC are currently building a facility for 300-millimeter wafers right now, but it won't be open until 2005. As a result, some analysts have said that Intel, which just started 300-millimeter wafer production, would be able to open a cost advantage. Building chips at a foundry costs more than building them in-house, but the early, unexpected move to 300-millimeter wafers should let AMD keep pace somewhat with Intel.

AMD topped estimates in its first-quarter financial results yesterday, reporting a loss of 3 cents a share rather than the 6 cents a share that analysts had expected. The company also shipped a record number of microprocessors. Mobile chips, which generally are more profitable than desktop chips, accounted for 10 percent of AMD's processor sales.

Still, some clouds are gathering over the company's future. The average selling price of AMD chips dropped from $90 to $86 during the quarter. During its fourth-quarter conference call in January, the company predicted it would return to profitability in the second quarter. Yesterday, company executives said the profitability would depend on several circumstances, including a recovery in the relatively dour flash memory market.

"Our processor business is enduring a PC slump. Our overall business is unlikely to show improvement," Sanders said. "Intel continues to be very aggressive on bringing down the price of the Pentium 4."

Nonetheless, Ruiz and Sanders said that Hammer would likely make an appearance by the end of this year, with volume production beginning in 2003.

 

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