It seems too good to last. In the slugfest between chipmakers Intel Corp. and Advanced Micro Devices Inc. over AMD's microprocessor clones, everyone is winning. Both companies surprised Wall Street by capping 1991 with record fourth-quarter results. Both exceeded the rosiest earnings projections, thanks to soaring demand for the 386 microprocessors, the most popular "brains" for personal computers. In fact, the booming 386 business helped propel Intel into the No.1 spot among U.S. chipmakers. Its 1991 semiconductor revenues topped $4 billion, ahead of an estimated $3.9 billion for No.2 Motorola Inc.
Now, AMD is gearing up to grab a chunk of the market for Intel's newer 486 chip, the heart of today's most powerful PCs--and a product line so profitable that it offsets smaller margins on the 386. Nobody relishes what that portends more than the companies that build IBM-compatible PCs. Today, they're swimming in 386 microprocessors, and the chips are substantially cheaper than a year ago--which helped spur a 30% jump in unit sales, to more than 11 million chips. Credit that in part to the new competition from $1.2 billion AMD: Intel has accelerated price cuts since the clones started shipping last summer, most recently slashing 386 list prices by 35%. As a result, one version of the Intel386 that went for $152 last summer costs $99 today. And for PC buyers, that means the cost of computers with a 386's IQ--about what a minicomputer had a few years back--will soon slide below $1,000.
`WORKALIKES.' At the end of January, AMD will make what Chairman W.J. Sanders III terms "a definitive statement" about the Sunnyvale (Calif.) company's plans to enter the 486 market. Presumably, this means that AMD has now developed "workalike" clones of Intel's 486 line, perhaps offering the same advantages that AMD's Am386s have over Intel386s: slightly faster data processing speeds for about the same price, plus lower power consumption to prolong battery life in laptops. Those benefits helped to more than double AMD's fourth-quarter microprocessor sales, to $146 million, up from $59 million in September. This quarter, Sanders expects AMD to do "something north of $180 million in microprocessors."
Most of that comes out of Intel's pockets. Before AMD announced its 386 clone last March, Intel had enjoyed a four-year monopoly on 386 chips--partly because of a series of lawsuits against AMD that slowed its clone. Sanders claims his company sold 1.4 million 386 chips last quarter, grabbing 30% of the market. And it snagged some top PC makers, including Packard Bell Electronics Inc. and AST Research Inc.
MORE MEGAHERTZ. Intel is intent on keeping AMD from doing as much damage in 486s. To upstage AMD's announcement, Intel on Jan. 23 unwrapped a bevy of new Intel486 designs. The major advance: faster speed. Intel has doubled the "heartbeat" of its 486 chips--so the top-rung 50 million cycles per second (megahertz, or MHz) design now runs at 100 MHz. While that doesn't translate into twice as much processing power in finished PCs, says Intel President Andrew S. Grove, tests indicate that performance usually jumps by about 70%. At a price of $500 per chip, compared with $1,000 for the early, far less powerful 486 designs of three years ago, "it's pretty compelling," says Michael Slater, editor of Microprocessor Report, a Silicon Valley newsletter.
Intel also plans aggressive moves to boost the 386's price-performance ratio--the amount of computing power for the money. By yearend, it's expected to add a dozen more chip designs, including newer "flavors" of the 386 at both the high and low end. "We'll be filling all the price-performance points," says Grove.
But AMD's Sanders promises to dog Intel's tracks, no matter what: "I think we'll surprise them and stay ahead in speed." And by the end of this year, assuming some economic recovery occurs in the second half, Sanders boasts that "we will be outproducing Intel in 386s, with a market share of around 50%." Grove's reaction to that? No way.
Even if AMD does bite off more of the microprocessor market, Intel will soon play its next card: This summer, it plans to introduce its next-generation chip, now code-named P-5 but likely to be dubbed the Intel586. It will lift personal computing to unprecedented levels. Packing a mind-boggling 4 million-plus transistors on a single chip--compared with 1.2 million on the 486--the 586 will quadruple the power of the 486. An entry-level 586, pundits predict, will breeze through 100 million instructions per second (MIPS), vs. 40 MIPS for the speediest 486. While mainframes and PCs process their instructions differently, a 1989-vintage IBM 3090 handles just 20 million per second.
Beyond the 586 are still more complex chips, with tens of millions of transistors and perhaps thousands of MIPS by around the year 2000. To get these astounding gains, $4.8 billion Intel will pump $500 million into microprocessor development alone this year, estimates Daniel L. Klesken, an analyst with Prudential Securities Inc.
Indeed, the seemingly limitless potentials of ever-beefier Intel designs--a 686 should arrive around 1995, followed by a 786 by decade's end--could take the wind out of sales of reduced instruction-set computing chips. RISC chips were developed for computers that needed more oomph than Intel could provide, such as workstations from Sun Microsystems Inc. and Hewlett-Packard Co. But there are so many different and incompatible RISC designs, using different variants of the Unix operating system, that none has attracted the software following of Intel's "x86" family running Microsoft's MS-DOS. Today, roughly 85% to 90% of the desktop computers in the world rely on Intel chips or their clones.
BEST FRIENDS? Because of the huge variety of programs for these PCs, some RISC boosters are having second thoughts. Sun Microsystems, the leading builder of RISC workstations, has adapted its software to run on Intel chips. And, on Jan. 22, NeXT Computer Inc. announced a similar move. So, Intel's dominance in desktop computing seems assured, and might even grow.
That means plenty of business foreverybody--Intel, AMD, and aspiring Intel cloners such as Chips & Technologies and Cyrix. Indeed, says Sanders, the presence of clones is already expanding the market--the way clones caused the PC market to mushroom. "Intel is really in the catbird seat now," he says."But we're keeping them honest on prices, and that encourages new customers. So you could say we're their best friend."
You could, but Grove doesn't quite see it that way. At any rate, if both companies keep winning in the microprocessor wars, they might be too busy to bother fanning their bitter rivalry.