Rival’s New Processor Poses Threat to Intel

Computer chip superpower Intel Corp. may soon face a serious threat to its dominance of the personal computer microprocessor business in the form of a powerful new chip from longtime rival Advanced Micro Devices, according to a trade magazine report.

In a series of performance tests, San Francisco-based PC World magazine concluded that AMD’s soon-to-be-released K6 microprocessor compares favorably with Intel’s upcoming Pentium II, the successor to the wildly popular Intel Pentium.

Although the K6 performed slightly more slowly than the Pentium II in the tests, the AMD chip is expected to be substantially cheaper than the Intel product. Charles Piller, executive editor of PC World, said the magazine concluded that the K6 is a better value and could pose a serious competitive challenge to Intel.

Intel is expected to ship two versions of the Pentium II in May, while AMD’s new chip will hit the market April 2. Because AMD lacks the manufacturing might of Intel, the K6s are likely to be in scarce supply for several months. Still, AMD is expected to be able to produce between 10 million and 15 million K6s by year-end and 40 million more next year, PC World said.

Even if Intel prevents the K6 from making a significant dent in its 80% to 90% share of the PC microprocessor market--and Intel has a long history of responding powerfully to any competitive threat--the AMD chip could disrupt the pricing strategy that has made Intel the world’s most profitable large industrial company.

Intel typically keeps the price of new microprocessors very high and progressively and deliberately cuts prices on older models. Thus the Pentium II would normally carry a premium price when introduced and for many months thereafter, with the current Pentium processors with MMX technology priced for the mainstream PC market.

If AMD can release a competitive product and ramp up production quickly, Intel could be forced to reduce prices on the Pentium II much more rapidly than it would like--and that would have a ripple effect all across the Intel product line.

Intel and AMD said they had not seen the PC World report, released Tuesday on the magazine’s Web site, and had no comment.

Intel has periodically faced threats to its microprocessor dominance--most dramatically from so-called RISC-based processors such as the PowerPC chip used in Apple’s Macintosh, but also from Intel-compatible chips made by AMD and Cyrix Corp. But aggressive marketing, strong product development and a scorched-earth legal strategy have kept the challengers at bay.

Intel and AMD have a long and bloody rivalry. In the late 1980s, Intel licensed the design of its early 8086 and 80286 microprocessors to AMD because PC makers feared dependence on Intel alone. But Intel tried to prevent AMD from manufacturing subsequent versions of the chip, and the two companies fought a lengthy and expensive court battle over the rights to Intel’s microprocessor designs.

AMD ultimately won the right to manufacture 386 clones, but it was not entitled to future designs. Since then, it has struggled to produce chips that are compatible with Intel’s but do not violate Intel patents or copyrights, generally lagging far behind its rival. The “Intel Inside” branding strategy has helped create consumer loyalty to Intel and made PC vendors reluctant to use non-Intel microprocessors.

Intel this week again sued rivals AMD and Cyrix, this time for alleged trademark violations concerning the MMX designation.