August 28 was a startling study in contrast in the chip world. Intel announced it was stopping production of its limited-release 1.13-GHz Pentium III processor and recalling existing parts. A few miles away, archrival Advanced Micro Devices announced volume shipment of its 1.1-GHz Athlon processor.
Intel's critics found the single day's events symbolic: The chip giant -- which was still smarting from supply problems, AMD's 1-GHz race victory, and lingering chip set and memory issues -- had stumbled again while its competitors sped ahead.
But Intel's troubles didn't end there. Last Thursday the company delayed release of the Pentium 4, the processor the company has pinned its future hopes upon. The next day, Intel closed out a tough week by canceling Timna, the unreleased, integrated, low-end CPU.
Intel's gaffes and its competitor's gains have made for interesting headlines, and arguably better products and pricing for consumers. In this three-part series, PCWorld.com examines the reasons for Intel's missteps and the companies that turned them into opportunities. First up: AMD battles Intel for processor-performance bragging rights. Part two will look at Intel's disastrous 820 chip set problems and VIA Technology's resurgence. Part three will explore the looming battle for the mobile PC market.
AMD Challenges the Leader
Slapping an "Intel Inside" sticker on a performance desktop PC once seemed almost gratuitous. AMD and others were splitting the low-end and retail desktop markets, but even just a year ago Intel's fastest desktop processors -- where big money is made -- faced zero competition. If you wanted speed, you bought Intel.
Today, Intel maintains a sizeable lead in the high-end processor market, but AMD has struck a nerve with its speedy Athlon processor. By the second quarter of 2000, AMD had grabbed a notable 10 per cent of the world's high-end processor market from Intel, according to Mercury Research.
Introduced in August 1999, the Athlon has received high marks from analysts and computer publications alike. Based on a seventh-generation architecture, the processor challenges Intel's comparable-speed Pentium III in performance. And despite a history of supply problems, AMD is reliably producing the chip in quantity.
One of Intel's biggest mistakes was underestimating AMD's capability to execute, says Mario Morales, program director for semiconductors at research firm IDC.
"They didn't see the competition executing as well," Morales says.
AMD had production problems in the past, admits Martin Booth, product marketing manager for AMD's computation products group.
The K6 (which preceded the Athlon chip) was a good product, but manufacturing difficulties often led to product delays and supply snags, says Mike Feibus, principal analyst for Mercury Research.
"They learned a lot about tuning in their manufacturing with the K6," Feibus says. "They're much more efficient now."
Booth acknowledges the company's problems with the early K6 product, but says AMD learned from the experience. "As we went to Athlon, all the K6 learning came into play," he adds. AMD's successful ramp to manufacture Athlon in its US plant, and its uneventful opening of a second Athlon-producing plant in Germany, were accomplished through experience and a little luck, he says.
Revving the Megahertz Wars
Another matter of no small importance was AMD's capability to increase Athlon's speed.
AMD designed Athlon to go faster, Feibus says. The Athlon's modern design is tuned to run at higher megahertz, which is what sells, he says.
The Athlon lets AMD play in the high end of the market, going after the meat of Intel's profits, says Dean McCarron, principal analyst with Mercury Research. In the low end, where AMD has traditionally played, profit margins are significantly lower. When AMD started nibbling at Intel's high-end market share, the company also began pushing down some of Intel's premium prices, he says.
AMD's capability to quickly ramp Athlon to higher speeds -- and Intel's efforts to keep pace -- would lead to rapid processor announcements, with each company trying to outrun the other. The media dubbed the marketing blitz "the megahertz wars."
"There's no denying that AMD's presence has changed the rules for Intel," Feibus says. The new chip announcements became a game of leapfrog, he says.
Intel announced more than a dozen improved processors but celebrated the product launches in the shadow cast by its postponed launch of the 820 chip set. Intel designed the 820 to bring together the fast new processors and Rambus high-speed memory (RDRAM). However, problems in wedding the complex memory to the new chip set caused Intel to pull the product just days before the launch. (More details on the 820 appear in our upcoming chip set report, part two of this series.) Intel's huge product launch also turned out to be ill timed as end-of-year demand for PCs skyrocketed beyond expectations. "They were caught between the .25 and .18 micron processes" and couldn't meet vendor demand for PIIIs, says Kevin Krewell, senior analyst with MicroDesign Resources. That opened the door for AMD.
Intel Learns to Adapt
Any time you identify the marketplace wrongly or miss the timing on a product release, it gives other companies an opportunity, says Howard High, an Intel spokesperson.
Intel's rapid expansion into new markets, including high-end servers, networking, and telecommunications, stretched its management teams, High says.
When a company grows broadly, it tries to spread its best people into new spaces, High notes. Sometimes people make errors when they're learning new jobs. Expect Intel to settle down in its traditional areas, learn from experience, and make wiser decisions, he says.
Intel has great management, but its expansion made it difficult to focus simply on processors, analyst Krewell says. It's notable that heading into the Athlon launch AMD did just the opposite, shedding its communication products division. It retains its flash memory business, but clearly concentrates on processors, he says.
Despite Intel's supply problems, year-end numbers from IDC show the true scale of the chip giant's dominance. In 1999, Intel produced more than 111 million processors; AMD produced more than 18 million.
AMD Scores With Speed
Despite Intel's huge production numbers, leading PC vendors still couldn't get enough PIIIs heading into 2000. "Gateway vocally complained" about Intel's shortages, Krewell says. Because it couldn't get enough PIIIs, the direct vendor added Athlon-based systems to its product line in January, he adds.
A Gateway spokesperson -- speaking on the condition of anonymity -- spins that story a little differently. He admits the company was concerned about Intel's capability to supply enough PIII products, but says adding Athlon to the mix was simply a way to offer more choices and products.
Other vendors, including Compaq, Hewlett-Packard, and IBM, had already adopted Athlon processors for their PC lines. Longtime Intel supporter Dell has become the only major PC maker to avoid the Athlon.
Intel's shortage of PIIIs hurt the direct-PC leader, says Neeraj Srivastava, director of product marketing for Dell Dimension. Michael Dell is on record saying a shortage of processors in the fourth quarter of 1999 hurt sales, Srivastava says. He notes that Intel is ramping up to meet demand.
With its manufacturing capacity strained, and AMD firing off faster chips at a rapid clip, Intel began a practice of announcing chips before they were available in large volume. The practice would draw the ire of speed-hungry PC buyers unable to find Intel's latest processor, and probably drew more attention to its supply problems.
"The 1-GHz was a total win for AMD," Krewell says. That number held major significance to some PC users, he says.
Eager to recapture the speed crown, Intel pushed its PIII not one but two speed grades to 1.13 GHz for a late-July launch. Pushing the PIII to that speed was a stretch because the chip's architecture wasn't really designed to go beyond 1 GHz, Mercury Research's McCarron says.
That stretch led to problems when Intel and its vendors realised a flaw in the chip could cause PCs to freeze under certain conditions. Intel was forced to recall the part. It plans to relaunch the 1.13-GHz PIII later.
The 1.13-GHz problem only slightly impacted Dell, which had sold but not yet shipped systems using the chip, says Dell's Srivastava. The 1.13-GHz problem was not the result of sloppy or rushed work by Intel, he says.
Today's processors are more complex than ever, and sometimes problems just crop up, he says. McCarron agrees.
Willamette to the Rescue?
AMD's Athlon has outrun Intel's PIII largely because of its newer architecture, says Intel's High. Now the Athlon is more than a year old, and Intel plans to soon launch its next-generation P4. It's the first totally new processor architecture since the Pentium Pro in 1995, and it features a 400-MHz front side bus. "The P4 will ramp beyond our competition," High says. The P4 is a more sophisticated processor than the Athlon, Krewell says. But he notes the new P4 design may actually run some of today's applications more slowly than an equivalent PIII. It is designed to excel at tasks such as streaming media, he says.
Although a new P4 may not outrun an equivalent PIII, its architecture is designed to scale to much higher speeds, which should help make up the difference, McCarron says. Whereas the PIII is running out of steam at 1 GHz, the first-generation P4 should go beyond 2 GHz easily, he says.
P4 will initially depend upon a RDRAM and a new Intel chip set (the 850); the company has plans to release an SDRAM-based P4 chip set next year.
Killing the low-end Timna may have been only a minor public relations hit, but it was another example of product shuffling from Intel all the same. The apparent delay of the P4 is also minor, although annoying to vendors preparing PCs for the holiday season. A further delay would be more serious, analysts agree. But Intel appears determined to meet its targeted fourth-quarter release date.
"Intel's business probably couldn't take a hit to their credibility without ramifications," Feibus says. "P4 must come off well." And, of course, AMD won't be standing still in the interim.