TOKYO — Taking its competitive struggle with Intel Corp. to the next level, Advanced Micro Devices Inc. unveiled its K6-2 processor here and at the E3 gamers show in Atlanta this past week, with a new instruction set, called 3DNow, optimized for 3-D gaming and digital video and audio.

The faster CPU, based on a 0.25-micron process, and the enhanced instruction set are aimed at the so-called "Christmas build cycle" for mainstream desktops. The older K6 processor will compete against the Celeron from Intel and other MPUs in the low-cost segment of the market.

AMD claims that it will keep its K6-2 pricing at 25 percent less than Intel, with performance comparable or superior to the P6-II product line. Though AMD processors are designed-in at nine of the 22 top-selling PC vendors, AMD managers here claimed that the midsize computer companies still fear Intel's ability to control the silicon needed to build servers and notebooks, areas where AMD has limited products thus far.

The recent announcement that the U.S. Federal Trade Commission is considering an antitrust suit against Intel will make it easier to penetrate smaller accounts, said Rob Herb, the senior marketing executive at AMD (Sunnyvale, Calif.).

"The customers are certainly willing to listen to us. The fact that the U.S. government is looking at Intel offers them some protection against retribution by Intel," Herb said, adding "that is always an issue when we engage with a new customer."

With its 0.25-micron process ready to ramp, the FTC breathing down Intel's neck, and the newly designed MPU and instruction set in hand, AMD now faces the same problem facing all PC-sector chip vendors: tremendous pressure on average selling prices and competition from a growing number of X86 vendors, including Cyrix, IBM and Integrated Device Technology (IDT). AMD expects to lose money this quarter but ride the K6-2 to prosperity in the second half.

Herb lectured about 100 reporters here about how Intel's monopoly had created a price umbrella held so high that AMD could easily undercut Intel's pricing by 25 percent and still offer better-performing silicon. That claim, of course, will be tested during the rest of this year and next.

Thus far, no major computer vendor has announced systems based on the K6-2, though many game developers in Atlanta said they have worked with AMD to create K6-2 "native" versions of their 3-D games. Ten games support the K6-2 in native mode, a number that will increase rapidly this year, Herb said. Softmap Corp., one of Japan's larger computer retailers, already has house-branded computers on sale here based on the K6-2, but a competing retail chain, Tzone, switched from the K6 to Intel's processors for its line of systems.

"Tzone got pressured by Intel," claimed Shun Yoshizawa, an AMD Japan marketing manager.

Mark Lunsford, director of marketing for the Asia-Pacific region, said this week's Computex in Taiwan, Asia's largest computer show, will be the venue for a number of announced design wins.

"Fujitsu and IBM have not announced design-ins yet but they do say they are seriously evaluating the technical capabilities of the K6-2, and there are many others," he said. "This processor is aimed at the design cycle that will hit during Christmas, so it is a little bit early to talk about systems."

AMD has enough quarter-micron capacity at its Fab 25 in Austin, Texas, to make 12 million of the K6-2 processors, said Herb, who claimed that the manufacturing problems at the Austin fab are now history. IBM's foundry agreement with AMD will backstop the Austin fab as needed and offer what Herb called "special processes" — that is, copper interconnects.

Next year, AMD is to open its Dresden, Germany, fab. It will be in volume production by late 1999, Herb said.

The 3DNow instruction set and strong floating-point performance on the K6-2 were created with game developers in mind. Microsoft's DirectX 6.0 APIs will be ready this summer (July or August in Japan), with support for the K6-2. Software-based DVD decoding and AC-3 audio also can be done on-chip.

"Until now, Intel has announced a new-generation processor first, and then AMD followed. With the K6-2, we believe we are on the same level," said Sam Rogan, AMD computation products marketing manager, based here.

Shipping now in limited quantities, the 266-, 300- and 333-MHz versions range from about $200 to $400, in the published prices announced last week. In the third quarter, a 350-MHz version will be ready, with a 400-MHz device to follow by the fourth quarter.

At least three Taiwanese chip-set vendors — Acer Labs, Via and SIS — have said they will support the K6-2. At the press rollout here, K6-2 motherboards from a dozen motherboard vendors, mostly Taiwan-based as well, were on display.