1999 - Gateway Inc. revealed that it plans to stop purchasing microprocessors
from Advanced Micro Devices, Inc., after current models are replaced. Gateway
will now use only processors manufactured by Intel Corporation. Gateway presently
holds the #4 position in U.S. sales volume of PCs. AMD holds the #2 position
in U.S. sales volume of microprocessors.
marks Intel's continued gains in the consumer PC marketplace, achieved primarily
through price cuts on its processors, and will lead to faster market consolidation.
Gateway's decision will have a negative effect on AMD, reducing both sales volumes
and profits. In addition, if AMD is to continue to challenge Intel's dominance,
it cannot afford to lose vendors of this size (845K systems shipped in Q2 19991).
announcement had its most immediate effect on the lower-end PC market, it also
means that the Athlon, AMD's high-performing CPU, will also lose a valuable
sales outlet at a time when it is trying to make a big push. Since Gateway owned
the high-end (>$1500) home PC market in 1998 (19.9% market share vs. 15.8%
for Compaq and 10.9% for Dell2), this is potentially a major loss.
(Presently, Gateway accounts for an estimated 5% of AMD's sales volume). In
addition, this compounds AMD's cash flow problems operating losses in the
last two quarters, combined with a drop in both processor sales volume and average
selling price. AMD will need to respond aggressively to maintain its long-term
viability as an Intel alternative.
In the short
term, the effect on the user is generally neutral-to-positive: pricing will
stay the same, perhaps even drop slightly, on Gateway products. Although some
AMD chips perform better than some Intel chips, most customers will not notice
the difference. Purchasing decisions need not be delayed in response to this
In the long
term, this will have a negative effect for the user: Intel's price reductions
were to fight AMD's increased market share. If AMD suffers enough defeats that
it no longer is a serious challenger to Intel's dominance, eventually Intel
may decide price reductions are no longer necessary to maintain market share.
2Source: Technology User Profile