AMD and Intel in Fight For Computer Chip Sales

CALL it a chip off the old Intel block. Advanced Micro Devices (AMD) is getting ready to sell a new computer chip that will compete directly with the popular 80386 microprocessor sold by archrival Intel Corporation.

The AMD chip looks like Intel's 386 chip. It works like a 386. This week a federal judge is expected to rule whether it can be called a 386.

The Am386, as it is known, will be the first clone to break into the huge, $1 billion market that Intel has monopolized for six years. If sales take off, the new chip could be an important boost to Advanced Micro Devices (AMD), a struggling semiconductor manufacturer based in Sunnyvale, Calif.

Sales of the Am386 won't make or break the company, AMD executives say. ``We will just be more prosperous sooner'' if it succeeds, says Ben Anixter, vice president for external affairs. The company expects to ship the semiconductor soon, certainly by the end of the first quarter.

``It clearly would be very profitable'' for AMD, says James Barlage, managing director of research for Smith Barney, Harris Upham & Co.

Microprocessors are the heart of a personal computer (PC). The 386 microprocessor is extremely popular because computer users are demanding faster and more powerful machines to handle increasingly sophisticated software. When Intel introduced its 8088 chip 12 years ago (which was used in the original IBM PC) it handled 330,000 instructions per second. Intel's next generation 80286 (used in the IBM AT) handled 2 million instructions per second. Its 80386 is two-and-a-half times faster still.

Computers built around the 386 have become the standard in the personal computer industry.

Intel has filed three suits against AMD since the two companies broke away from an agreement to trade chip technologies. In the case likely to be decided this week, Intel charges that the name 386 is a protected trademark that competitors cannot use. Intel has also sued AMD for using its microcode to build a clone of an earlier Intel chip. In the third case, an arbitrator has ruled against Intel for breach of contract. The arbitrator has not yet set damages. Andrew Grove, Intel's president and chief executive officer, declined to comment on the legal cases.

Analysts say the microcode suit represents the biggest threat to AMD, because it might force the company to write its own code for the chip. But the immediate prospects for AMD are good.

ACCORDING to AMD, customers have already reserved the first six months' production of the chip. The company, which lost $53.6 million in 1990, expects to grab 10 percent of the 386 market by the end of this year.

``I think that's a pretty lofty goal,'' says John Lazlo, senior technology analyst for PaineWebber Inc. ``That would require perfect execution from a manufacturing standpoint.''

It also depends on how computer manufacturers react. Intel's presence is so strong Mr. Lazlo thinks large manufacturers will be leery of trying to sell a 386 computer with an AMD chip.

``I don't think anyone's going to care,'' counters a product manager of one well-known computer maker. AMD has already given samples of its chip to 21 top computer manufacturers. The chip appears to have done well in extensive testing.

``We have found no problems with the chips - much to my surprise,'' says the product manager, who requested anonymity for fear of offending Intel, which supplies his company with 386 chips. Most new chips have some kind of bugs initially, he adds, but the Am386 performed just like an Intel 386 on three operating systems: DOS, Unix, and Novell.

AMD claims its chip also uses less power than the Intel 386, an advantage in laptop and notebook computers that need to conserve as much power as possible. If computer makers decide to take advantage of that trait, then it will be some six months before a product would come to market, according to the product manager.

Intel, meanwhile, is expected to introduce a low-power chip set of its own - the 386SL - for laptops and notebook computers. It is also pushing forward on the high end of the market with new versions of its next generation microprocessor, the 486. A 586 chip is also in the works.

Reviews of AMD and its future are mixed. ``We have just gone through a metamorphosis in the last five years,'' says Richard Previte, the company's president and chief operating officer. AMD has eliminated hundreds of products to refocus on its strengths and invested $200 million in less than two years, much of it in a state-of-the-art development center. The company is also concentrating on customer service and cutting the time it takes for new products to enter the marketplace, Mr. Previte says.

Analysts are split on the company. Mr. Barlage of Smith Barney recommends buying AMD stock. Lazlo of PaineWebber says the company is fairly valued and he is not recommending it.