AMD responds to processor shortage controversy

For the past month or so, retailers and distributors have been complaining about shortages of AMD processors. Dell's recent adoption of AMD chips has been named as the culprit by many, and Dell even stated last month that—unlike AMD's channel partners—it had a "bountiful" supply of AMD chips. Discontent has been growing, and a system builder in Florida was quoted a few days ago as saying that AMD was effectively "divorcing" the channel. On Tuesday, AMD offered to respond in detail to these allegations, and I recently had a chat with Stephen DiFranco, AMD's Global Consumer Channel VP, about the subject.

According to DiFranco, the supply problems aren't so much caused by Dell as by generally heightened demand. He claims Dell "hasn't really had much of an impact yet" because it just started selling AMD-based systems, and because its sales are mostly concentrated in the server sector. However, DiFranco says the entire industry was caught off-guard this quarter by a combination of the holiday season rush and aggressive pricing intended to stimulate demand before the release of Windows Vista. A number of reports have been saying that demand is actually lower than expected because consumers are waiting for Vista, but PC prices are indeed dropping. DiFranco reckons most consumers and industrial buyers haven't really paid much attention to Microsoft's new OS just yet. Put together attractive prices and a consumer base that has no reason to wait for anything else, he says, and demand ends up increasing by a lot.

Another factor behind AMD's channel supply problems is notebook demand. DiFranco says notebook sales are "far outpacing every analyst forecast," so much so that AMD is "seeing a lot of inventory movement from desktop to notebook parts." Few system builders sell notebooks, and retailers don't sell many notebook chips, so less of AMD's production is going to the distribution channel. Since channel demand for Athlon 64 X2 processors is also above AMD's expectations, the tight supply is no surprise.

It's not just vanilla Athlon 64 X2s that are hard to come by, though. AMD's low-power "Energy Efficient" Athlons have been difficult to find ever since their introduction. About those chips, DiFranco stated, "We're looking at our low-power desktop strategy a little bit. We don't think we have the perfect strategy yet, and I just think we're trying to determine what the best route to market is for those. So, until we really have that locked and nailed down, we're gonna continue selling our main-line products." AMD brought down prices for all its Energy Efficient chips to match their vanilla counterparts last month, but this statement suggests AMD is putting the Energy Efficient processors on the back burner for the time being.

Despite the shortages, DiFranco expects channel partners to stand by AMD as it attempts to increase manufacturing. "Actually, I've been getting many more calls thanking me for trying to work out a solution than people calling to complain about the problem," he says. Additionally, holiday season orders for large PC makers have already been filled, so AMD can now "start to focus a little bit more" on the channel. DiFranco also says supply and demand "should probably match up pretty nicely" in the first and second quarters of next year, although he thinks the Vista launch makes orders for 2007 hard to predict.

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