HP Joins the Athlon Pile-On

While Gateway Inc.'s recent rollout of new PCs powered by Advanced Micro Devices Inc.'s Athlon processor drew widespread attention, Hewlett-Packard Co. was quietly stocking the shelves at Sam's Club discount stores with two new desktops that mark its first use of the chip.

HP's addition of the Athlon to its desktop systems means AMD, of Sunnyvale, Calif., now has its top processor, and the chief rival to Intel Corp.'s Pentium III, featured in systems made by four of the five largest PC makers in the United States. The lone holdout remains Dell Computer Corp.

"Certainly we're pleased that interest in Athlon continues to grow and we're attracting more strategic customers," said AMD spokesman Drew Prairie. "It signals a continuing trend that Athlon's performance message is getting out there and there's a strong demand for systems based on it, and OEMs are reacting to that demand."

For its part, HP downplayed the company's unannounced decision to add the Athlon to its Intel-dominated product line. "Really the choice of Athlon isn't any more in favor of performance than a Pentium III, it's just a pricing decision for these models," said Ray Aldrich, a spokesman for HP. HP would not comment on whether the PC maker would feature Athlon chips in any future products.

AMD also reported it grabbed a bigger slice of total processor sales by garnering 16.6 percent of the market, up from 12.6 percent the previous quarter and its highest level in a year. Intel's market share slipped from 83.7 percent in the third quarter to 82 percent for the final quarter of 1999.

Aside from overall strong demand for processors, AMD's return to profitability was also fueled by Athlon's strong showing in the more lucrative high-end consumer PC market. Before introducing the Athlon, AMD chips were mainly featured in low-end systems, where profit margins are much slimmer.

Market Impact

More good news for AMD: it keeps adding key vendors to their customer list, its profits are up, and it is becoming associated with high-end systems, not just the low end of the market.

More good news for the PC market in general: AMD may finally attain sufficient market share to keep Intel at bay. In our opinion, reasonable competition (i.e. where all/most of the competitors actually have a reasonable chance) is a good thing. AMD's increased strength improves the odds of reasonable competition. A side benefit relates to pricing - Intel's typical response when threatened has been to cut prices. Although PC prices have edged up recently, Intel may decide it is time for another round of price cuts.

Intel may be looking for the license plate of the truck that hit them. It recently lost its sole-source status at Gateway, a scant three months after getting AMD booted (See TEC News Analysis article: "Gateway, Jilted by Intel, Kisses and Makes Up with AMD" January 21st, 1999). In addition, Dell has publically stated that Intel's inability to meet demand is the cause of Dell's Q4 supply woes. Intel will certainly survive, but this will probably put enough fear into it to make some operational and management changes.

User Recommendations

This announcement will have only modest effect on the business user - it is aimed primarily at the consumer market (HP's Pavilion product line). However, the eventual effect will be to reduce prices on all CPUs: Intel because of its anticipated response to the AMD threat; AMD because its increased shipments will reduce chip cost, and it will probably respond in kind to any Intel price cut.

Users who have already planned to use (or at least consider) systems containing the Athlon CPU should be encouraged by this. It should give them enough psychological security (regarding AMD's viability) to allow them to proceed with Athlon purchases that may have been on hold.

This news will not affect those users totally committed to Intel, unless they decide the time is right to consider alternative CPUs.

SOURCE:
http://www.technologyevaluation.com/research/articles/hp-joins-the-athlon-pile-on-15305/