Suddenly, It's AMD Inside

For 35 years, Advanced Micro Devices stood in the shadow of archrival Intel
Corp. AMD churned out lower-priced clones of the tech leader's chips and
occasionally enjoyed a hit that helped boost its meager profits. But bad times
easily outweighed the good. Again and again, Intel used its manufacturing muscle
and pricing power to stymie AMD's ambitions, preventing it from gaining a
foothold in lucrative markets such as servers and corporate PCs.

Wave goodbye to the great imitator. In what may prove to be an historic
reversal of fortune, AMD Chief Executive Hector de Jesus Ruiz has grabbed the
momentum from his giant rival in recent months and left Intel scrambling to
catch up. The perennial underdog was first to market by more than a year with a
new class of microprocessors that's proving extremely popular with corporate
clients. It has smoothly launched new manufacturing techniques, while Intel has
been plagued with an uncharacteristic string of delays, glitches, and recalls.
And it pushed forward so aggressively with a new "multiple core" chip
design, which squeezes several processors on one chip, that Intel was forced to
speed up its own transition on some chips by as much as two years. In a humbling
moment, Intel executives announced the acceleration at the Intel Developer Forum
on Sept. 7, a week after AMD showed off a working version of its own multiple
core processors. "We've had some fumbles," says Intel President Paul
S. Otellini.

“We do not anticipate this will have any impact on CA's Indian operations” -Pravir Arora, director, marketing, CA—India & SAARC

AMD is making the most of its newfound edge. The Sunnyvale (Calif.) company
has grabbed 7% of the low-end server market, up from almost nothing two years
ago. When Intel shocked Wall Street on Sept. 3 by slashing its forecast for
third-quarter sales and profit margins, the chip giant cited "lower than
expected worldwide demand." But AMD says it's seeing no indication of a
broad slowdown, and analysts say that Intel's troubles have been exacerbated
by its pesky rival. "It's clear they don't have the products that
customers want today," says Ruiz. "That's just the way it is."

With the ball firmly in his hands, the 58-year-old Mexican immigrant plans to
make this a new game. He ticks off a list of ambitious goals for the company:
10% of the low-end server market by yearend, 30% of the corporate PC market in
five years, 50% of the consumer PC market in five years. And in flash memory
chips, which store data in digital cameras and other devices, he's aiming to
make AMD the leading provider, topping Intel, Samsung Semiconductor, and a slew
of others in the fiercely competitive field. "We're here to stay,"
he says. "We're not going away."

So confident is Ruiz, who holds a PhD in electronics, that he's targeting
growth markets well beyond AMD's traditional strengths. Last year he created a
group to figure out how to incorporate AMD processors into non-PC devices such
as cellular phones and consumer electronics. And BusinessWeek has learned that
AMD is planning to announce as early as October that it is teaming up with
contract manufacturers to create an inexpensive, networked PC for sale in India
or China. It's part of Ruiz's ambitious plan to help connect 50% of the
world's population to the Internet by 2015.

Sea Change

The company's striking success raises the possibility of a profound shift
in the technology industry. Intel has long dominated the microprocessor
business, in much the way that Microsoft Corp. has dominated software for PCs.
But if Ruiz can reach his goals, what was once a near-monopoly could become a
more competitive duopoly. That could spark faster development and more
innovation. And since microprocessors are the brains of all things digital, the
benefits could spread to everything from computers to flat-panel televisions.
"It will be good for the industry and good for the consumer," says Jay
Desai, founder and CEO of the Institute of Global Competitiveness, a think tank
and consulting firm in Cary, N. C.

Can Ruiz keep going toe to toe with Intel? It would be a small miracle. Intel
has so much more heft, money, engineering talent, and other resources that, with
a determined effort, it should be able to turn back AMD in short order. Intel is
almost seven times as large, with expected revenues of $34 billion this year.
Its projected 2004 profits of $7.35 billion mean that Intel earns in 11 days
what AMD will make all year. And Intel is sitting on $14 billion in cash,
compared with $1.1 billion for AMD, giving Intel a vast edge in funding research
and development and in constructing cutting-edge manufacturing facilities.

Still, at least for now, AMD is defying the odds. The company looks as if it
will easily hit Ruiz's server target and has a good shot at grabbing 50% in
consumer desktop PCs. Although AMD will probably fall short of its 30% goal in
the corporate PC market-a bastion for Intel and its closest ally, Dell Inc-its
multipronged attack is nevertheless sharply boosting sales. Moreover, it will
most likely put the company in the black this year for the first time since
2000. For 2004, revenues are expected to surge more than 50%, to $5.3 billion,
while net income hits $227 million, according to consensus estimates. In 2005,
revenues are projected to climb a further 10%, to $5.8 billion, as profits hit
$328 million.

For the first time in the company's history, AMD wields a potent weapon
that makes Ruiz's ambitious goals more than a wish list. Last year the company
took the wraps off the world's first industry-standard chip that can process
data in chunks of either 64 bits or 32 bits at a time, without any performance
trade-offs. The chips, dubbed Opteron for servers and AMD Athlon64 for high-end
PCs, offer the cheapest possible path to the next level of high-performance
computing.

Its success is due in no small part to Intel's missteps. Intel announced it
was working on a rival 64-bit chip, Itanium, back in 1994, about five years
before AMD announced plans for its own version. Itanium, however, didn't hit
the market until 2001, two years late, and even then was a huge flop. Intel
released a second version of Itanium in 2002, but it was never the hit Intel
expected because it required companies to rewrite their existing 32-bit software
to take advantage of the new architecture.

That gave AMD an opening. In March of 2003, the company released Opteron.
Although it too was delayed, corporations quickly warmed to it because it could
handle both the older 32-bit software and new 64-bit applications. That saved
companies headaches and millions of dollars in transition costs. "It's no
small fact that, although a small company, AMD is going to drive the
architecture for the next generation of microprocessors," says Banc of
America Securities analyst John Lau.

Intel is scrambling to stop that from happening. In July, CEO Craig R.
Barrett sent a blistering e-mail to employees saying that the recent execution
troubles were "not acceptable." Barrett and Otellini, who is expected
to take over as CEO in 2005, instituted a companywide review of upcoming chips.
The result: Intel jettisoned several chips under development, quickly introduced
a server chip that could handle 64-bit and 32-bit software, and shifted nearly
all of its engineers to work on multiple-core chips for servers, desktops, and
notebook PCs. To help jazz up its brand and broaden its marketing message beyond
the core PC market, the chipmaker also announced on Sept. 7 it had lured Eric B.
Kim, Samsung Electronics Co.'s top marketing exec, to work in the same
capacity at Intel. Otellini says the company is "going back to the
basics."

Lone Holdout

One of the key players in the battle between AMD and Intel will be Dell. The
Round Rock (Tex.) company is the lone holdout against AMD among the major
computer makers. Dell uses Intel chips exclusively in both servers and personal
computers, even though IBM, Sun, and Hewlett-Packard have started using AMD's
chips. One reason for Dell's loyalty is that it derives loads of benefits from
the close relationship, including millions in marketing dollars from Intel and
early insights into future technologies. Ruiz figures that the only way to
persuade Dell to use AMD chips is to win over so many customers that Dell is
forced to change. Already, Dell rivals are crowing about the brisk business they're
doing with Opteron servers. "Our Opteron boxes are just flying off the
shelf," says Sun Microsystems Chief Executive Scott G. McNealy. A Dell
spokesman says it is constantly evaluating suppliers but won't comment
specifically about AMD.

Dell's reticence is one reason for AMD's mixed prospects in the PC
market. The chipmaker is making progress in consumer PCs, particularly desktop
models, because of its low prices. But the more lucrative corporate market is
proving much more difficult to penetrate. There, AMD holds only about 8% share
and, without winning over Dell and getting more support from IBM and others,
that's unlikely to increase very much.

AMD has also been stymied by product delays at Microsoft Corp. The software
giant originally planned to release a 64-bit operating system this year, but
that has been pushed back until the first half of 2005 because Microsoft needed
more time to improve security in Windows. The AMD Athlon64 desktop chip, which
launched last year, is expected to shine when paired with the software for which
it was designed. Microsoft's delay has given Intel time to fine-tune a
competing chip to go with the software giant's release. Otellini says the
chipmaker will have a 64-bit desktop chip when Microsoft rolls out the Windows
update.

Perhaps the most difficult task for AMD is building credibility with
investors. The chipmaker has a long history of inconsistency. Impressive
products often have been followed by flops.

Still, for Ruiz, the company's improving fortunes and recent success
against its nemesis are accomplishments worth celebrating. At a gathering with
employees in July, he grabbed his Gibson guitar, introduced Peter Frampton, and
launched into an impromptu jam session. "We should have some fun while
working so hard," he says. It has been a long time since an AMD exec could
utter such a simple phrase.

By Cliff Edwards in Sunnyvale, Calif In BusinessWeek. Copyright 2004 by The McGraw-Hill Companies, Inc

AMD Comes On Strong

Intel once wielded near monopoly power in the microprocessor market, but now
AMD has transformed itself into a legitimate competitor in several key sectors.
CEO Hector Ruiz vows that this is just the beginning

Servers

Intel made a serious mistake when it introduced 64-bit chips that could not
handle corporations' old software easily. AMD came out with a more
customer-friendly product that runs both new 64-bit and old 32-bit programs on
the same chip. That has allowed AMD to grab 7% of the low-end server market, up
from virtually nothing less than two years ago.

Outlook Ruiz is likely to have 10% of low
end servers by yearend. Hewlett-Packard, Sun, and IBM all are selling
AMD-powered products.

Business PCs
& Notebooks

Intel continues to be the dominant player. AMD's 8% share has remained
largely unchanged in recent years.

Outlook Ruiz hopes to use the company's
success in the server business to convince corporations to buy more PCs and
notebooks containing AMD semiconductors. He wants 30% of the market by 2008, but
that's a long shot. For now, HP is the only major PC maker selling multiple
products powered by AMD to corporate buyers.

Consumer PCs
& Notebooks

AMD has done well catering to the cost-conscious consumer, hitting 50% of US
retail store sales for desktop PCs. Intel is still the clear leader in notebooks
because of the popularity of its Centrino chips for wireless computing.

Outlook AMD is pushing to grab 50% of the
consumer market by 2008. But meeting that ambitious goal looks unlikely. Intel's
strength in notebooks and entertainment PCs should help it keep the upstart at
bay.

New
Markets   

Both Intel and AMD are trying to move beyond the slow-growing PC market.
They've targeted wireless communications, digital entertainment, and emerging
markets.

Outlook AMD is likely to cut into Intel's
expansion possibilities. It's developing chips for a range of digital devices,
including TVs, set-top boxes, and cell phones. In October it will release the
first set of AMD-powered, low-cost networked PCs for emerging markets. But
making money will be a big challenge for both companies.