Will Intel Take a Loss on Each CPU, but Make It Up in Volume?
Krause - April 21st, 2000
Advanced Micro Devices (AMD) may finally be able to break into Dell Computer
Corporation's product line, according to sources quoted by Forbes.com.
Reports indicate that Dell is negotiating to buy approximately 100,000
of AMD's upcoming "Spitfire" chip. Spitfire is expected to compete against
Intel's Celeron chip, their low-end CPU.
report comes barely two months after CEO Michael Dell stated quite publicly
that his company had no plans to use AMD chips (including the high-performance
"Athlon", AMD's competitor to the Intel Pentium III). This would also
mark the third or fourth high profile win for AMD in recent months (Gateway
and Hewlett-Packard were the others.)
has been no mention of Dell considering any other chip than the Spitfire.
When AMD started shipping its Athlon CPU, some observers expected Dell
would consider it as an alternative for Pentium III - class machines.
However, that has not happened as yet.
has suffered from the perception that it's manufacturing facilities were
unable to provide the same level of service that Intel's fabs were, That
perception appears to be changing as AMD gets more quarters of satisfied
customers under its belt.
If this deal actually gets consummated, it is really bad news for Intel.
Dell has been Intel's strongest supporter in the ranks of PC manufacturers,
publicly refusing to consider AMD. We expect that if such a deal truly
is under consideration, Intel will resort to the tactic of cutting a great
deal with the manufacturer. This worked (for a short while) with Gateway,
and also appears to be the reason Microsoft chose Intel for the CPU in
its upcoming X-Box gaming console. If Intel decides to play the price-cut
card, this will put a damper on Intel's profit expectations, since Dell
now occupies the top position in U.S. PC sales, having passed Compaq last
Because of the bus speed at which the Spitfire is expected to operate
(200 MHz), its performance should exceed that of the Intel Celeron - the
chip against which it's designed to compete. If AMD can post great performance
numbers against Celeron, and keep prices down, then that's another market
where Intel will feel AMD's breath on its neck.
AMD produces Sledgehammer, there's a reasonable chance it will give Itanium/Merced
(Intel's future 64-bit CPU) a run for its money. In fact, Sledgehammer
may hold a slight edge, due to its announced backward compatibility with
x86 applications - something Itanium will not have. (Note that neither
product will be here until at least September 2000, and AMD's claim of
x86 compatibility must be thoroughly verified once the product ships.)
the deal goes through, the psychological boost will be huge for
AMD. They have been trying to break Intel's hold on Dell systems, at least
partially, for quite some time. Michael Dell has publicly talked about
reasons he has/had no plans to use AMD. But as the saying goes, "Things
big question is: what will Intel do when AMD finally produces a
chipset that will allow AMD CPUs to be used in a multiprocessor server.
Presently, Intel owns that server space completely. (We of course mean
Intel architecture servers. There are numerous variations of multiprocessor
servers in other architectures.) If AMD can finally produce the HotRail
chipset (which will make AMD multiprocessor servers possible), and make
it work credibly, Intel will be in real trouble.
Assuming the reports are true, and assuming AMD makes good on its commitment,
this is good news for the consumer. If Dell sticks with Intel, it will
probably be the result of price reductions. If Dell goes with AMD, the
CPU will most likely be less expensive than current Celerons. No matter
who the vendor, we expect the result to be lower prices. If AMD can generate
enough volume from Dell, this should drop the Spitfire price even further.
(As with many commodities, CPU prices are largely volume-driven: as volumes
increase, prices decrease.)
a less pragmatic note: people who view Intel as being too powerful in
the chip business will be rooting for AMD to succeed, if for no other
reason than to keep the market a little more balanced. Intel has been
cleared of wrongdoing (vis--vis monopolistic practices), but there are
still techies out there who believe otherwise.