Gateway Inc. will tie itself more closely to Advanced Micro Devices Inc.'s supply lines by doubling the number of AMD microprocessors it will purchase for its consumer-PC line this quarter, Gateway executives said this week.
In a conference call hosted by Montgomery Securities International analyst Kurt King, Gateway chief financial officer John Todd said Tuesday that the company was not able to purchase as many microprocessors from Intel Corp. as it would have liked, and so is looking to AMD to fill the gap.
Todd cited widespread supply problems across the PC industry, but said that for his company the shortages are concentrated in the areas of Intel processors and motherboards and AMD-compatible motherboards. Gateway procures its AMD-based motherboards from contract manufacturer Jabil Circuit Inc.
Todd added that accessing DRAM, flat-panel displays, monitors, and disk drives -- all of which are in a general stage of short supply -- is "not a problem" for Gateway.
In the often-politicized world of PC manufacturing, Gateway walks a fine line between Intel and AMD. As the largest supplier of consumer PCs in the United States, a majority of the company's sales have come from its Select PCs, which are designed around the AMD Athlon processor. Gateway has tended to reserve Intel-based machines for business customers, Todd said.
But market politics and supply issues are testing relationships between suppliers and OEMs. At one point Gateway debated whether even to design an AMD-based system. The decision paid off when AMD reserved its 1-GHz Athlon chips for Gateway, while Intel chose to ship its limited quantities of 1-GHz chips to customers like Dell Computer Corp.
Now, the increase in orders places Gateway more firmly inside the AMD camp. "We are moving a ton of [Gateway's product] mix towards AMD and Jabil, and in [terms] of magnitude we'll probably double our mix of AMD and Jabil in the current quarter in the consumer space," Todd said.
Todd was quick to emphasize that Intel has met its shipment obligations. But he added that Intel has been unable to provide additional processors to meet demand beyond its commitment, a situation Intel has openly acknowledged since early this year. "We asked for a significant number of chips...for whatever reason [Intel] couldn't deliver," Todd said. "It's not a Gateway issue, but an industry issue."
Todd said the supply of Intel microprocessors should improve by the third quarter, just as DRAM prices are expected to rise driven by a growing shortage. The rise in DRAM pricing could push average-unit-prices (AUPs) upward as well, Todd said. "We don't know what the future will look like, but it will probably get better before it gets worse," he said.