AMD Pins Hopes on New Chip’s Versatility

Advanced Micro Devices, Inc. is about to take a risky plunge into high-speed chips for computer servers, a move that could eat away at the dominance of archrival Intel Corp.

Sunnyvale, Calif.-based AMD on Tuesday plans to unveil its Opteron chip, which can process 64 bits of information at once. It also can operate in the standard 32-bit mode. AMD’s future rests in no small measure on the popularity of the Opteron chip, analysts said.

If the chip is a hit with server vendors and corporate clients, it would help AMD grab market share from IBM Corp. and Sun Microsystems Inc., which dominate the 64-bit market, as well as from Intel, which is a grow- ing presence in the high-speed server sector.

If Opteron is a dud, it would threaten AMD’s efforts to reverse seven straight quarters of losses. The world’s No. 2 semiconductor manufacturer said last week that its first-quarter loss widened to $146 million from $9.2 million a year earlier.

Opteron “is crucial for AMD to return to profitability,” said Kevin Krewell, a semiconductor analyst with technology research firm In-Stat/MDR.

“They need products with higher margins and higher average selling prices, and also they need a broader line of processors to compete with Intel,” Krewell said. “The Opteron line is really, really important to AMD to be a viable company in the future.”

At a time when companies are hesitant about spending on information technology, AMD is banking on Opteron’s price advantage over the competition.

Intel’s Itanium chip runs only 64-bit applications, forcing customers to rewrite their 32-bit programs. Opteron, by enabling use of the huge library of 32-bit programs, will allow businesses, universities and other server users to upgrade at their convenience without rewriting software, said Marty Seyer, general manager of the microprocessor business division at AMD.

Seyer likens the situation to that of videocassette tapes and DVDs. People who want to upgrade their VCR tapes to DVDs must migrate that content to an entirely different format -- unless they have a machine that plays both systems. That, in effect, is what AMD is providing.

“People who buy 32-bit servers can now buy an Opteron server at the same price point as a 32-bit server and get 64-bit capability,” Seyer said. “Tell me why you would need an Itanium server.”

The answer, say those behind the Itanium, is simple: Because Intel’s chip is likely to become the sole standard in 64-bit computing.

“Many people believe there is only space for one architecture in 64-bit for the future, and Itanium is going to be it,” said Mike Winkler, chief marketing officer for Hewlett-Packard Co., which co-developed the chip.

Intel spokesman Chuck Mulloy, although declining to comment on the Opteron, said Itanium remained “the performance leader on a wide variety of benchmarks.” The Intel offering, he said, “is very, very competitive.”

Overall, Mulloy pointed out, Intel claims more than 80% of the server chip market, including 32-bit and 64-bit processors.

For its part, AMD maintains that the Opteron already is gaining favor. It points to commitments from clients such as Computer Associates International Inc. and Angstrom Microsystems Inc.

If the chip does take off, AMD could be on its way to a long-awaited turnaround.

AMD is “currently on the cusp of positive operating cash flow versus deep red ink the past two years,” said Rick Whittington, a semiconductor analyst with American Technology Research.

Opteron “may have the ability to spur demand,” Whittington added. “Taken in tandem, declining costs and accelerating demand would poise AMD for a terrific recovery.”