Processor shipments to increase 21% in 2000

By Staff -- Purchasing, 11/16/2000

Microprocessor buyers are slowly getting viable alternatives to Intel for x86 microprocessors.

While Intel continues to dominate the microprocessor market with its Pentium III and soon-to-be-released Pentium 4 MPUs, AMD is making inroads with its Athlon microprocessors and in some cases is releasing faster versions of processors before Intel. AMD is also finding success with processors for low-cost PCs with its Duron processor. Duron competes with Intel's Celeron chips. Via Technologies also supplies low-end processors with its Cyrix line which, it purchased from National Semiconductor last year.

The competition is resulting in aggressive processor pricing. Several years ago, Intel used to reduce prices in an orderly fashion about once a quarter. It would release the latest, greatest and fastest processor at a high price and then reduce its cost as it ramped up production, built volumes, achieved economies of scale and recouped its investment. But now, Intel seems to drop prices every other month because of the heat of competition and its effort to not only stay number one, but to dominate the processor market. Buyers can look forward to steep price declines to continue as Intel strives to maintain its dominance in microprocessors.

Solid growth forecast

Despite price declines and financial analysts' fears about slowing computer demand, the number of microprocessors shipped to the computer industry will grow about 21% from 1999 to 166 million units in 2000, according to Semico Research. In fact, the growth rate in 2000 will be greater than the growth rate in 1999 when it was only about 13%. Intel will likely grow its sales by about 15% this year, but could lose a couple of points in market share.

How much, if any, market share Intel loses remains to be seen. In 1999, Intel shipped 76% of all processors that were used in desktop computers while AMD accounted for about 15% of unit shipments. In revenue, Intel had 87% of the market to AMD's 8%. However, in 1999, many of the processors that AMD shipped were low-end MPUs. In 2000, AMD is shipping higher-end Athlons, which will improve its revenue numbers because they have higher prices than K6 2 or Duron processors.

"That is why Athlon is so critical to AMD because they can increase their average selling prices," says Tony Massimini, Semico's chief of technology officer. AMD should increase market share in units and there should be a change on the dollar side because ASPs are going up.

He adds that AMD is making headway in notebook computers where the company had very little presence in the past. "Intel dominates even more on the notebook side than on the deskstop side," says Massimini.

AMD is also entering "the server and workstation market where Intel derives a good chunk of its revenues," he says. In terms of x86 servers and workstations, AMD has zero presence in 1999. "Now as we approach the end of the year, AMD is going to make a foray into the server and workstation markets. There the units are not very high, but you can command a much higher ASP," says Massimini.

"AMD is making inroads. It is the best position that AMD has been in for over six years," says Massimini.

Smooth sailing

Key to AMD making inroads is that it has not suffered any recent manufacturing problems that plagued the company in the past. "A stumbling block for AMD for many years was their manufacturing. They had one horrendous problem after another, says Massimini. "It used to be a risk to some purchasing people to go with AMD because they weren't sure if the would get the parts or not."

But AMD is making Athlons at its Dresden fab on 0.18 micron copper technology which is a new manufacturing process. Often with new processes, problems arise, but so far things have gone smoothly, according to Massimini.

"Now AMD seems to have been able to assure purchasers that it will be able to deliver product, says Massimini.

For AMD to stay viable in the eyes of buyers, the company needs to continue to avoid manufacturing problems and to be aggressive in new product releases. With Athlon, AMD has had some success doing that. It recently beat Intel to market with the fastest processor by shipping its 1.2 GHz Athlon. Leading manufacturers planning to offer systems with the processor including Compaq, Gateway and Hewlett-Packard.

Another processor supplier buyers should watch is start-up Transmeta, a company that makes low-power, low-cost microprocessors for the portable computer and handheld market. Transmeta's Crusoe processors are x86 compatible.

Several computer manufacturers have recently introduced computers that use the Crusoe. NEC uses the chip in a three-pound notebook that it says will operate 11 hours on a single battery charge. sony and Fujitsu have also introduced portables that use Crusoe. Crusoe extends battery life of computers by using software to adjust voltage and frequency on the fly, consuming only the amount of power needed for maximum efficiency.

While Crusoe is x86 compatible it is not an x86 processor. Crusoe processor consists of a compact hardware engine surrounded by a software layer. The hardware component is a very simple, high-performance, low-power vliw (Very Long Instruction Word) engine with an instruction set that bears no resemblance to that of x86 processors. Instead, its software layer gives programs the impression that they are running on x86 hardware through so-called "code morphing."

The software translates x86 instructions into the hardware engine's instruction set. Code morphing means hundreds of millions of transistors are not needed. They are replaced by software, according to Transmeta.

Crusoe processors use about 25% of the logic transistors required for an all-hardware design of similar performance. This means the chip can be smaller, faster and more power efficient

Buyers should also keep an eye on chipset supply for Pentium 4 microprocessors. Supply could be limited especially in the first half of the year when Pentium 4 starts to ramp up significantly.

"How quickly Intel will be able to ramp up Pentium 4 in the first half is tied to chipset reports," says Massimini. Intel will need chipsets of various architectures including synchronous and double data rate. Initially it was thought that with Pentium 4 only Rambus dram would be needed, but Rambus has not caught on.

Intel and many computer manufacturers had thought that by now Rambus would be low cost and high volume, but it isn't, so chipsets that support other memory architectures such as synchronous and DDR are needed.

"If we assume that the chipsets are going to be there for the first half of the year, there will be a strong ramp up of Pentium 4 in the first half, says Massimini. However, Intel's own chipsets won't be ready until the second half. VIA Technologies and others, however, say they will make chipsets that support various architectures.