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Can AMD Deliver the K-7 Athlon ?

Originally Written June 25, 1999 - Updated September 22, 1999

An InfoHQ Editorial

On the eve of the launch of AMD's "revolutionary" K-7 , many individuals and analysts wonder if AMD can deliver the new CPU in quantity ( AMD announced the K-7 CPU (now named Athlon) was shipping to vendors on 23 June and that systems would be available in the 3rd quarter of 1999). While there has been much speculation, we believe that a careful study of the K6-3's history and a review of AMD's factory capacity may be the key to the answer.

One of our burning questions for the last 3 months has been, " Why hasn't the K6-3 been produced in sufficient numbers to meet demand?

Since the introduction of the K6-3 on February 22 1999, the CPU has been in very short supply. We have seen very few new K6-3 systems advertised in our local newspapers, and as a general rule, secondary retailers have few, if any, K6-3 CPUs for sale. In the midst of this shortage, AMD continued to increase the speed of the K6-2 to 450 MHz (February 27) and then to 475 MHz (April 5) and launched several new laptop CPUs including: the K6-2P at 350, 366, and 380 MHz (March 9) and the K6-3P at 350, 366, and 380 MHz (May 24).

From the above we can conclude that it was not AMD's intention to manufacture the K6-3 in large quantities or they were having such significant quality control problems manufacturing the new CPU that they chose instead to increase the speed of the K6-2 and to manufacture laptop CPUs to cover this shortfall. Mr. W.J. Sanders III, Chairman and Chief Executive Officer of AMD, stated in his Letter to Shareholders in AMD's 1998 Annual Report dated 1 June 1999, "I expect that an increasing proportion of production for the market segments served by AMD will be devoted to the AMD K6-III processor family throughout the remainder of 1999". Does this mean that finally the K6-2 line will be phased out in favor of the K6-3 that was announced in February?

Our second major question is, "Does AMD have the factory capacity to manufacture the K-7 in sufficient numbers?".

Right now, AMD has only one factory producing all its desktop and laptop CPUs, Fab 25 in Austin, Texas. Per AMD, the factory is capable of producing 5,000 wafers per week -- 250,000 wafers per year and was operating at 80% of its capacity in May (a wafer is roughly equivalent to 100 CPUs). AMD is also completing its new Fab 30 in Dresden, Germany which is supposed to be up and running by the end of this year and will also be capable of producing 250,000 wafers per year (manufacturing capacity was stated in the above referenced Letter to Shareholders).

So the burning question is, "Can Fab 25 produce enough Athlon K-7s to meet demand through January of 2000?".

We think not. Assuming AMD can get the one factory up to 95% production capacity, that would mean they could produce an additional 2,187,500 CPUs in the 7 months from July 99 - January 2000 (25,000,000 annual CPU production x 15% additional factory capacity x 7/12 months of production). Also, assuming that any discontinued K6-2 capacity is used to produce K6-3s, AMD would only produce 312,500 K-7 CPUs a month. Which means that the majority of the new K-7 CPUs will be used in new systems from large OEM manufacturers like Compaq and IBM. < Actually Mr Sanders has been quoted as saying that there would only be 1 million K-7s shipped during the 1999 calendar year> .
We assume that the low K-7 production will result in a similar scenario as the release of the K6-3. Even though the K6-3 was announced in February of 1999, AMD still had not reached reasonable production levels by June of 1999. So even though AMD announced the release of the K-7 on 23 June, we will not see reasonable production numbers of the CPU until the new Fab 30 comes on-line in January 2000.

Story Update as of September 22, 1999

Three months have passed since this editorial was written, and while additional facts have surfaced, the fact still remains that AMD is continuing to have difficulty converting its K6-2 production lines to K6-3 production and meeting Athlon demand.

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