Gateway Drops AMD

September 20, 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.

Market Impact

This announcement 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).

Although this 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.

User Recommendations

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 announcement.

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.

1Source: IDC
2Source: Technology User Profile


SOURCE:
http://www.technologyevaluation.com/research/articles/gateway-drops-amd-15340/