Gateway, Jilted by Intel, Kisses and Makes Up with AMD

1/6/2000 - Gateway Inc. has reversed its earlier decision to drop Advanced Micro Devices (AMD) CPUs. Gateway's executives have criticized Intel Corp., coming close to blaming it for Gateway's poor financial performance in the last quarter.

As Gateway officials announced late Wednesday that the company's fourth-quarter earnings would fail to meet expectations, they also strongly hinted that the company would be seeking an alternative chip supplier. The financial warning, the officials said, was due in large part to Gateway's inability to obtain needed processors and motherboards.

"Let me say that it's an understatement when I tell you that we're all intensely frustrated by the supply situation we found ourselves put in," said Jeff Weitzen, Gateway's president and CEO, during a conference call announcing the company's lower earnings forecast. "We are not about to stand by and let the actions of others dictate what products Gateway customers can buy."

Gateway Chief Financial Officer John Todd said a shortage of Intel Corp. microprocessors and motherboards trimmed $200 million to $250 million from fourth-quarter revenue. Citing a shortage of processors and motherboards, Todd said, "We didn't have the products to deliver on the sweet spot." Gateway defines that "sweet spot" as PCs that range in price from $999 to $1,299, which come configured with Intel's motherboards and Celeron processors. "We never knew what we were going to get, when we were going to get it, so we never had a coherent marketing strategy," Todd said. "Part of the reason why this sweet spot is so important is [that] in the third quarter it was 55 percent of our [revenue] mix," Todd said.

An Intel spokesman declined to comment on Gateway's claims, saying that the Santa Clara, Calif., chip maker is in a "quiet period" before the release of its own fourth-quarter earnings.

Market Impact

Bad news for Intel, good news for AMD, good news for the PC market in general. Gateway "dropped" AMD as a supplier barely three months ago, after Intel cut their prices enough to make it worth Gateway's while. We anticipated that would last until Intel got complacent, although we believed that complacency would be manifested through price increases, not poor delivery of product. However, we do not believe the new state of affairs will last forever, either. Expect to see AMD and Intel jockey back and forth. Since AMD has more at stake than Intel by virtue of Intel's vastly superior market share and strength, we expect them to keep pushing in this area, i.e. $1000-$1300 PCs.

Market growth (PCs) will be unaffected, except as it relates to Gateway sales lost due to its inability to ship systems. This is a bump in the road, not a trend. The more significant market action we see is increased migration to Advanced Micro Devices CPUs. AMD will not overtake Intel anytime soon, except perhaps in market segments such as $1000 home PCs, but each victory gives them more market strength and credibility.

Long term, we expect considerable flux in this area, with AMD winning some battles, Intel winning others, and a lot of aggressive sales and marketing from both.

User Recommendations

Users benefit from the increased competition and choices available. "Who manufactures the CPU" usually has only a secondary effect on purchasing decisions, but some users may wish to add this to their set of criteria. We believe that it is more a matter of personal preference, since performance differentiation is generally too small to be noticed by the majority of users.

Users should have some concern that Intel could/would not meet the volume demands of Gateway, one of its larger customers - but as mentioned above, this should be a secondary consideration. Performance differences between similar Intel and AMD CPUs are modest at best, and users should base their decisions on feature set and performance, and not on a particular logo "Inside".


SOURCE:
http://www.technologyevaluation.com/research/articles/gateway-jilted-by-intel-kisses-and-makes-up-with-amd-15308/