While both companies are coming off a lackluster fourth quarter, Intel expects the current quarter to be even worse and is investing heavily in capacity in anticipation of a robust second half of the year. In contrast, AMD does not see the current quarter as any worse than the last and expects to gain share from arch-rival Intel in the first half of the year.

"We are not seeing as grim an outlook as Intel," said William J. Sanders, chairman and chief executive officer of the Sunnyvale, Calif.-based AMD. "Its ongoing projections are so grim that either we're serving different markets, or [Intel] loaded up all of its customers in the last quarter and it is going to have to pay the penalty this quarter."

Indeed, Intel (Santa Clara, Calif.) reported total revenues of $8.7 billion in the fourth quarter and anticipates a drop of as much as 15 percent in sales this quarter. Fourth-quarter revenue was flat compared to the preceding quarter, up just 6 percent from the same quarter in 1999.

The holiday quarter is traditionally one of the strongest in the PC and processor segments, and the first few months of the year are generally a slow period. However, those anticipated robust sales did not materialize in the recent end-of-year period, so the expected decline is following an already weak sales period. A 15 percent sequential sales decline would be the largest in Intel's history.

Meanwhile, AMD reported revenue of $1.2 billion for the fourth quarter, up 21 percent from the fourth quarter of 1999 and flat from the preceding quarter. AMD expects sales in the current quarter to be roughly flat, Sanders said.

AMD also reported net income of $178 million for the quarter, while Intel posted net income of $2.6 billion. Total sales for 2000 were $4.6 billion at AMD — up 63 percent from 1999 — and $33.7 billion at Intel — a 15 percent gain over 1999. "AMD had the best year in its history," boasted Sanders.

AMD owes a big part of its success to its Athlon processor line, which managed to grab the lead from Intel in the megahertz speed race. By the end of this quarter, Sanders said the company will debut a 1.3-GHz Athlon chip, and by the end of the year he said all Athlons will be produced using copper interconnect technology and will have clock rates exceeding 1 GHz. AMD will introduce a 1.75-GHz Athlon later this year and plans to break the 2-GHz mark next year. "The Pentium 3 is dead meat," Sanders said.

For its part, Intel is in the process of ramping its Pentium 4 chip, which was launched in November. While the fastest Pentium 3 available runs at just over 1 GHz, the newest Pentium runs at 1.3 GHz and will get even faster. The Pentium 4 currently works only with Rambus memory, which Intel states will improve performance, but it also adds significantly to the cost of a system because the RDRAM chips are at least 50 percent more expensive than standard SDRAM.

Paul Otellini, general manager of the Intel Architecture Group, said the company has shipped the Pentium 4 in the 100,000-unit range to date, but this quarter Intel expects that figure to increase into the millions. By tying the chip to RDRAM, however, the company has encountered resistance from its OEM customers.

Brookdale linked to SDRAM

Nathan Brookwood, principal analyst for market research firm Insight 64 (Saratoga, Calif.), said the Pentium 4 will see much larger volumes later in the year when the company introduces the Brookdale chip set that links the processor to standard SDRAM, making it more affordable to implement. Some independent chip set vendors are also expected to introduce similar parts later this year. As a result, Brookwood said AMD will likely have a stronger first half of the year than Intel, but Intel will finish up 2001 strongly as the Pentium 4 becomes more popular.

Intel is expecting a similar pattern and is building up capacity now to support it. The company announced that its capital equipment budget for the year is a whopping $7.5 billion dollars, up from the $6.7 billion spent in 2000. That increase comes even as Intel is pushing to reduce spending on basic office buildings. The company plans to divide the money evenly between chip-making tools and fab construction. Key expenditures are bringing on the 0.13-micron node, which Otellini said would ramp in volume by the second half of the year, and installing 300-mm production lines.

Those efforts are aimed at shrinking the Pentium 3, which will allow it to run at speeds more competitive with the Athlon, and at reducing the die size of the complex Pentium 4, which will allow the company to produce the chip at lower cost.

Meanwhile, both companies are watching the macroeconomic picture, which is so turbulent that both have said it will be difficult to accurately forecast the year. In that regard, Brookwood noted that AMD will have the advantage. "For Intel to grow, it has to grow the entire market, which may be difficult to pull off in a slowing economy," he said. "But for AMD to grow, all it has to do is steal some market share from Intel."