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SUDDENLY, AMD IS IN THE CHIPS
Compaq won't comment. Intel won't comment. IBM won't say much. But Jerry Sanders is crowing.
Sanders, the irrepressible chief executive of Advanced Micro Devices Inc., is all pumped up about his company's swift move into the market for 386 microprocessors, the chips used in most personal computers sold today. And he's close to a big win: Giant PC maker Compaq Computer Corp. is set to ink a deal to buy 386 chips from AMD. Sanders says IBM may be next. "I expect Compaq and IBM to be customers in 1992," he says.
Sure, the two companies will continue to purchase most of their chips from Intel Corp., the Silicon Valley monolith that designed the original 386 chip. But for AMD, even small sales of its 386 knockoffs to the PC industry's big guns "would be incredibly important to its image," reports Mark Cuban, president of CompuServe Systems Integration Group, a Dallas-based retailer of Compaq computers.
SURPRISES. Even without final deals with IBM and Compaq, business is booming for AMD. Since last March, when the company first shipped its Am386 chips, AMD has signed up more than 200 customers. And 1991 sales have far exceeded Sanders' forecast of $47 million: AMD will sell $200 million worth of the chips, for a 14% share of the market, Sanders now says. Surprises of that sort have Wall Street crowing, too. AMD's stock has doubled from 7 at the start of 1991 to about 14 today. And analysts are busy ratcheting up earnings forecasts: Michael N. Gumport, an analyst at Shearson Lehman Brothers Inc., says AMD this year will earn $110 million on total sales of $1.2 billion. He sees profit next year of $142 million on total sales of $1.5 billion. That's a big improvement over last year, when AMD lost $54 million on sales of $1.1 billion.
AMD's jump into the 386 market turned its balance sheet around, even while it nudged the balance of power in the PC business. Before AMD came along, Intel had a monopoly in what has become a $1.4 billion annual market for the 386 chip. To woo Intel customers, AMD tweaked the 386 chip's design. Its versions are faster and use less power--a big plus for laptop makers. The improvements persuaded Compaq to consider AMD's chips for an upcoming line of PCs, which Compaq chief Eckhard Pfeiffer is describing as "low-price, high-quality." Although AMD's 386 chips generally cost the same as those from Intel, Compaq could employ the higher-performance processors as a way of differentiating its PCs from those of the clonemakers that have cut badly into Compaq's market share, says CompuServe's Cuban.
IBM's interest in AMD chips is murkier. Big Blue in early November announced a joint development agreement with Intel that weds it to Intel's microprocessor designs. And IBM makes its own speeded-up version of the 386 under a licensing agreement with Intel. But Big Blue may want AMD's low-power-consumption 386 chips for notebook or palmtop computers. For now, an IBM spokesman will say only that the company has "no plans at this time" to buy PC chips from "anyone but Intel."
MIMICRY. Meanwhile, AMD is plotting its next move: A 486-chip clone. Whether its gift for mimicry will work on the fancier chip is a question. And some wonder whether AMD can keep up with future Intel products, especially since Intel put $1.7 billion into research and capital equipment this year. "As soon as Intel comes up with something that can't be copied, AMD gets blown out of the saddle," says Erik N. Jansen, analyst at Robertson Stephens & Co.
Then there's the chance that AMD will lose a copyright-infringement suit Intel has filed against it or that 386 chip clones from still fresher competitors will sell well against AMD's products. Indeed, there are numerous ways for AMD to trip up. But Sanders says he isn't worried. Instead, he is projecting that AMD's 386 chip sales will increase by half or even double during 1992. And that, he figures, is something worth crowing about.Russell Mitchell, with Kathy Rebello, in San Francisco