AMD profits from Intel loss as Digital switches suppliers

PC price cuts likely as Digital drops Intel to buy cheaper chips fromindustry minnow.

AMD has signed Digital as the first major PC maker to use its Intel clone processors. It is a move which the chip maker admits it must repeat several times if it is to justify the money spent on a massive increase in manufacturing capacity.

Last month, Germany's Chancellor Kohl opened a building site for a $1.3bn (#793m) AMD plant in Dresden. According to Richard Baker, regional marketing manager at AMD's PC products division, the plant will have the capacity to make 35% of the world's processors when it opens in 1998.

But the chip maker's sales currently account for less than 10% of the worldwide processor market. Baker admitted that the company will face serious problems if it cannot sell all the processors it makes at Dresden.

Baker claims AMD's chips are 35% cheaper than the equivalent Pentium Pros, allowing PCs to be sold for #200 less. But although AMD promises its chips are 100% compatible with Intel, it is struggling to overcome widespread corporate resistance to anything but Intel chips.

Digital may have been pressed into taking AMD chips by its legal battle with Intel. Last week, it threatened an anti-trust lawsuit if Intel continues to sue for return of its intellectual property.

Digital general counsel Thomas Siekman has written to Intel implying he is willing to escalate the patent dispute. He claims Intel holds a monopoly in the chip market and has an obligation to provide product information.

To crown Digital's troubles, key investor Herbert Denton, owner of New York broker Providence Capital, has demanded the company appoints a number two executive to balance president Bob Palmer.

- Additional reporting by Robert Juman Blincoe.