The Soul Of An Obscure Machine
The list of customers for Advanced Micro Devices Inc.'s speedy new K6 microprocessor reads like a Who Isn't Who: Cybermax, U-tron Technologies, Leapfrog Labs, Micro Express, and Polywell, among other unknowns. Not exactly the household names you're likely to find at the local CompUSA. And that's the way it is with most of the other 33 customers AMD so far has persuaded to use the K6 chip, which competes with Intel Corp.'s popular Pentium and Pentium II. The largest taker, Digital Equipment Corp., ranks No.13 in worldwide sales of personal computers. To date, AMD hasn't cracked the Top 10 PC makers.
Is something wrong? Not exactly. The K6, which hit the market in April, continues to win rave reviews from buyers and computer magazines. Tests by PC World, for instance, show the 200-megahertz K6 outgunning a 200-Mhz Intel Pentium with MMX by about 4%, while the 233-Mhz K6 matches the speed of an Intel Pentium II chip running at the same frequency. The price, too, is hard to beat. AMD charges about 25% less than Intel for roughly equivalent speed, which lets PC makers sell models priced some $500 lower than a comparable $2,600 Pentium II PC. AMD has sold twice as many chips as it can make, and supply won't meet demand until the third quarter of this year. "AMD has a better price," says Erik Christensen, a sales manager with Riodan & Ross Distribution Inc., which also sells PCs using Intel and Cyrix Corp. chips.
So think of it as bottom fishing. These small, largely unknown PC companies command a surprisingly large share of worldwide PC output: Market researcher Dataquest Inc. estimates that 24 million PCs, or 35% of last year's total, came from these small shops, which are especially strong in reaching price-sensitive customers and buyers in developing countries. AMD can churn out millions of chips in the next year--and pack a tidy profit--by selling just to these Compaq wannabes. "AMD doesn't need big customers to get to a 10% market share next year," says analyst Drew Peck at Cowen & Co.
But what about the year after? That's when AMD will feel the pain if it doesn't have a few big-name customers. The K6's ability to fit into existing Pentium motherboards could become a liability because the Pentium architecture is running out of gas and Intel is migrating PC makers to new, higher-speed motherboards used for the Pentium II. AMD needs to come up with an alternative--and needs big customers to lend legitimacy to its scheme.
Diverging from 100% Intel compatibility may sound like a crazy idea, but Intel is forcing the issue: AMD can't legally copy the Pentium II architecture. So the company is rallying a consortium of PC parts suppliers to help engineer advancements to K6 computers. "We'll be able to set a separate path from Intel because customers want that," says Richard Previte, AMD's president and chief operating officer. Analysts are more cautious: Peck says AMD has just 12 months to win the loyalty of PC makers, or the K6 will fade into obscurity.
FEAR OF INTEL. There's more than technology at stake for companies considering the K6. PC makers are fearful of damaging their standing with Intel. Using non-Intel chips can cost PC makers millions in co-op advertising support from Intel. Worse, Intel can move them to the end of the list for its newest, most profitable chips, such as the Pentium II.
What's more, PC companies want a guarantee that K6 is just the first in a family of speedy chips. So AMD is briefing them on its plans to produce 300-Mhz K6s by the end of 1997 and a follow-on chip called the K7 by 1999.
That could be enough to turn some PC makers. Sources say that Hewlett-Packard Co. and Acer America, which both use AMD's Pentium-class K5 chip, will deliver K6 machines this year. Executives at both companies say they have not yet committed to the K6. And reports are swirling around Silicon Valley that IBM and Compaq Computer Corp. are considering the K6, though both companies would only say they continue to evaluate all new chip technology.
If AMD wins over such companies, it may yet put together a customer list that is a genuine Who's Who.