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AMD Ups the Ante, Again

By Arik Hesseldahl Chipmaker Advanced Micro Devices (AMD) is raising the stakes in an ongoing turf war with Intel (INTC) in the market for high-end computer chips aimed at servers and workstations.

AMD launched the opening salvo in August, placing full-page ads in major newspapers, and challenging Intel to a "dual-core duel" pitting one chip against another. The aim? To see which company's chips perform faster and better (see BW Online, 08/23/05, "AMD to Intel: Let's Rumble"). AMD has a lot riding on its dual-core chips, which boast two cores on a chip and can handle tasks more efficiently than single-core semiconductors.

WAITING FOR INTEL. Although Intel was the first to announce a dual-core chip for desktop PCs, unveiling its Pentium Extreme Edition on Apr. 18, AMD beat Intel to the punch with dual-core chips for servers, the computers that run Web sites and networks. AMD announced its Opteron chips for servers in mid-April, and has since announced dual-core versions of its Athlon 64 chips for desktops.

Intel has yet to announce a dual-core version of its best-selling chip for servers and workstations, the Xeon. And Intel Chief Executive Paul Otellini hasn't accepted the challenge handed down by his counterpart at AMD, Hector Ruiz. However, Otellini addressed the matter recently, saying he preferred that the two companies compete in the marketplace.

AMD is aiming to improve its advantage by now announcing three new versions of its Opteron chips for server computers. Although smaller than the market for desktop PC processors, the market for server chips is key. "The important part about the server market is that the chips tend to sell for more, and so being successful there, in AMD's case, produces more resources that can be used in the desktop market," says Dean McCarron of Mercury Research.

SUN'S BLESSING. Server and workstation chips account for about $4 billion in annual revenue, according to McCarron. AMD and Intel moved about 2.7 million server chips last quarter between them. Most of those came from Intel, which holds 88.8% of the market. But AMD has been winning a growing piece of that pie. After hovering between 6% and 7% of the market for the two previous quarters, AMD's share surged last quarter to 11.2%, primarily due to heavy buying from Sun Microsystems (SUNW) and Hewlett-Packard (HPQ), McCarron says.

These same companies are lined up to buy the new chips, AMD says. Sun only recently announced it was using AMD chips in a new line of servers called Sun Fire x64. Sun, in particular, has pegged much of its plan to rebuild its share of the server market on using AMD chips. HP will put the chips in a line of ProLiant servers and workstations.

The battle between Intel and AMD is being played out on other fronts as well. In June, AMD sued Intel, alleging the chip giant used market power and cash payments to coerce computer makers like Dell (DELL), HP, Toshiba, and Hitachi (HIT) into not using AMD chips. Intel has repeatedly denied the accusations, saying that while it's an aggressive competitor it hasn't broken any laws.

QUICK BOOST. Intel has called AMD's interpretation of events "incorrect," described the AMD complaint as a "case study in legal dissonance," and has accused AMD of seeking to "impede Intel's ability to lower prices."

Meantime the turf war rages. Analyst Nathan Brookwood, head of Insight 64, a chip-industry consultancy based in Saratoga, Calif., says that AMD chips are designed to run slightly slower than Intel's, but are more efficient in how they process data. Despite Intel's speed, he says, the outfit's products are at a slight disadvantage in terms of efficiency.

As a result, AMD has a little more flexibility to boost the speed on its chips. "It gives the end-user a quick 10% boost to performance with very little effort," Brookwood says. "You drop in a new one and the thing runs faster."

ANSWERING THE CHALLENGE? Brookwood suggested that Intel may be close to releasing a dual-core Xeon, but an Intel spokesman declined to comment on the speculation. For the time being, there's little chance Intel will accept AMD's challenge, Brookwood says.

"It's very unlikely that Intel would win," Brookwood notes. "But once Intel does release that chip, AMD will have the challenge going forward of demonstrating that its dual-core technology is superior to that of Intel, while Intel will be saying to its customers, 'If you want a dual-core processor, we've got it.'"

Yet as long as customers such as Sun and HP line up for its server chips, AMD can keep issuing its bring-it-on challenge to Intel.

Hesseldahl is a reporter for BusinessWeek Online in New York

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