Chip Shortage Threatens AMD's Channel Standing

Advanced Micro Devices' shortage of Athlon 64 2X processors is hurting system builders across the board and could threaten the chip maker's longstanding partnership with the channel.

"It's virtually impossible to find any desktop parts with the exception of old technology [such as] 939- and 754-pin. This is by far the worst shortage that AMD has ever had in the 15 years I've been selling AMD parts," said Bob Milliam, CEO of NowMicro, a system builder in St. Paul, Minn.

Many white-box manufacturers last week put the blame squarely on AMD's new partnership with Dell. And they were less than forgiving about the supply problem, which has been building since the end of the second quarter and has escalated to near-drought conditions. Dell started shipping its first AMD-based PCs this summer.

"It's a fiasco. There's no product in the channel. It's all going to Dell," said Glen Coffield, president of CheapGuys, a system builder in Orlando, Fla. "AMD is divorcing the channel."

Although AMD is believed to have allocation policies that govern how products are distributed among OEMs and the channel, it appears that system builders will take the fall as AMD tries to gain more market share against Intel, said one system builder who requested anonymity.

"It's always a very political process, and they'll never admit that sometimes they have to choose some customers over others. AMD has been pursuing Dell for so long that they certainly had to make commitments to them that they would be able to deliver good volumes of their best-selling products," the system builder said. "Naturally, AMD is going to have to pull that product from their smaller customers to be able to meet those demands. That's just a part of business."

AMD is not favoring some system builders, said large AMD partners who also face difficulty accessing product. "There is a desktop supply problem. Supply is tight," said James Huang, marketing specialist at Amax Information Technologies, an AMD Gold partner in San Jose, Calif.

In a prepared statement for CRN, AMD acknowledged the shortage but declined to discuss its allocation guidelines or channel strategy. A spokesman attributed the problem to a strain on supply as overall demand increases from both system builders and top OEMs.

AMD rival Intel was quick to capitalize on AMD's woes in the channel. In a letter sent to system builders on Nov. 1, one Intel executive told system builders they are working to ensure continued supply of Core 2 Duo for the channel.

"We had very healthy growth in the channel in the third quarter, with volumes up significantly vs. the prior quarters of 2006. We believe we can do better in the fourth quarter," wrote Sean Maloney, executive vice president and general manager of Intel's Sales and Marketing Group.

"Intel has made very large investments in our manufacturing capability so that we can more fully supply our customers throughout the remainder of the year and in 2007," Maloney continued. "Intel is a full generation ahead of its competition in manufacturing technology, with a majority of our volume on 65-nanometer technology. Intel is also working hard to accelerate and streamline our supply responsiveness," he wrote.