AMD loses IBM as a PC chip customer

IBM Corp. has quietly dropped microprocessors made by Advanced Micro Devices Inc. from the PCs it sells in North America, dealing AMD a blow as it faces the possibility of an expanded price war with chip giant Intel Corp.

The disclosure of IBM's move coincided with the news that Intel will announce a 2-GHz Pentium 4 processor next week. Intel also is expected to make steep price cuts in its Pentium 4 line shortly, and analysts said the combination of events could make it even harder for AMD to get its devices into corporate PCs.

The loss of IBM's support "won't have a financial or material impact on AMD, but it will have a public relations effect," said Steve Kleynhans, an analyst at Stamford, Conn.-based Meta Group Inc.

Rob Enderle, an analyst at Giga Information Group Inc. in Cambridge, Mass., agreed that IBM's decision to drop AMD's Athlon processors from its NetVista line of consumer-oriented PCs creates "an image problem for AMD."

IBM had offered Sunnyvale, Calif.-based AMD's chips as a build-to-order option but discontinued that practice in May, except on PCs sold in Asia. IBM spokesman Ray Gorman confirmed the move last week and said the decision was made to cut costs and simplify the company's PC product line.

"Our major business customers prefer [Intel systems]," Gorman said. "Because the profit margin on PCs is so low, it didn't make sense to invest in two chip technologies." IBM will decide what to do in Asia at the end of the year, he added.

AMD spokesman Ward Tisdale said IBM's decision was "old news" and chalked it up to the computer maker's exit two years ago from the retail PC business in the U.S. The retail channel is a strong market for AMD's chips, but the company "is focused on growing its enterprise business," he said.

Earlier this month, Dan Niles, an analyst at Lehman Brothers Holdings Inc. in New York, said in a report that he expects Intel to "detonate a price bomb on AMD" by cutting prices on its Pentium 4 and Pentium III processors by as much as 50 percent.

An Intel spokeswoman declined to comment, except to say the 2-GHz Pentium 4 announcement won't coincide with any price cuts.

Material from the IDG News Service was used in this report.

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