October 1, 1997 5:05 PM PDT

AMD problems won't go away

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Any opportunity for Advanced Micro Devices (AMD) to grab market share away from rival Intel appears to be slipping away due to manufacturing problems.

Low yields on the company's K6 microprocessor, especially the high-end AMD reports gloomy outlook 233-MHz chips, lay behind the substantial losses expected for the quarter that ended September 30, according to analysts and AMD statements. The company had planned to produce between 1.2 and 1.5 million K6 chips, but only produced a million.

The shortfall, however, is having repercussions beyond the current revenue picture for the quarter, said observers. Because of the shortfall, AMD is not producing a large enough amount of chips to make switching to the platform attractive to a computer vendor, and the chips the company is producing are performing at lower speeds than Intel's high-grade chips.

To top it off, the K6, which uses the Socket 7 design, is becoming outdated as Intel continues to aggressively push its "slot" chip-coupling design.

The fact that AMD has made two separate announcements on its expected losses for the quarter indicate to some that the company's problems are fairly severe. AMD, which yesterday announced its quarterly results would be worse than its early warning, saw its shares plummet 17.24 percent to close at 27, down 5-5/8 over yesterday on heavy volume.

"I've seen this happen a couple of times," said Charles Boucher, a semiconductor analyst with UBS Securities, noting that if a company pre-announces twice in a short period of time it usually means that its business is melting down in real time.

"They are not able to capitalize on their opportunity to take market share," Boucher added.

Ashok Kumar, an analyst for Southcoast Capital, among others, pointed out that the company has been hurt by continuing price cuts engendered by Intel.

Intel cut prices in August and is expected to make another processor price cut at the end of this month. (Intel is an investor in CNET: The Computer Network).

AMD has vowed to stay below Intel's prices by approximately 25 percent. Thus, another price cut likely will come soon.

Sales and marketing goals for AMD get no easier going forward, either.

AMD has said it plans to produce 2 million K6 chips during the current quarter, a production run that will include commercial shipments of 266-MHz versions of the K6. Samples of a 300-MHz version also will be produced, the company has said.

Ironically, the glum news comes on the heels of a notable design win: Sony announced that it has adopted the K6 processor for its Passport Web-viewing and entertainment system for airplanes.

Further, AMD is expected to unveil its "K6 Plus" chip at the Microprocessor Forum starting October 12. The K6 Plus is expected to improve how the processor talks to the rest of the computer system and boost its number-crunching capabilities for scientific and multimedia applications. Enhancements also may include improvements to the cache, a high-speed memory that boosts system performance.

Sources close to AMD said the company also will release mobile versions of the 200-MHz K6.

 

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