But while the market opportunity is enormous, the challenges are sobering.

During the third quarter alone, just over 1 million servers were sold, according to Dataquest Inc. in San Jose. Roughly half of those were manufactured by Compaq Computer Corp., Hewlett-Packard Co., and IBM Corp. -- all existing customers of the desktop Athlon microprocessors from AMD.

Sunnyvale-based AMD will take the same evolutionary-minded approach to the server market that it has to the desktop space, using agreed-upon standards to minimize costs while driving ahead with its own technology initiatives.

"All of this adds up to higher levels of performance than anything else we're competing against," said Bob Mitton, divisional marketing manager for server products at AMD.

But AMD's expertise in designing consumer PC microprocessors will only get them so far, analysts said.Potential server OEM customers said they're less interested in the strident one-upsmanship that characterizes the PC market, and will ask AMD tough questions about the stability, reliability, and cost of the AMD platform.

"This is clearly a much more conservative audience than even on the business desktop," said Rich Partridge, an analyst at D. H. Brown and Associates, Port Chester, N.Y. "Consumers want to brag about the fastest, meanest chip on the block, and business desktops want to maintain consistency to minimize support costs.

"You won't see Unisys, for example, manufacturing 32-way mainframe systems as it plans to do with Intel chips. There's not the desire to do that yet; that's something you do with the lead player. But file and print kind of servers could well find themselves using AMD chips."

The potential rewards are great. In the past, rival Intel Corp. has sold certain versions of its Xeon microprocessor for about four to six times as much as desktop versions. And although AMD reported record earnings and revenue for the third calendar quarter, average selling prices failed to fall below the $100 barrier that executives had previously targeted. AMD chairman and CEO Jerry Sanders told analysts earlier in November that he estimates Intel's average selling price at about $200.

Analyst Jonathan Joseph of Salomon Smith Barney, San Francisco, said his 2001 earnings model for AMD only takes into account "a little bit" of server revenue.

"But there's no reason they can't get their fair share," Joseph said.

Still, the clock is ticking. AMD executives have said they plan to offer dual-processor systems for entry-level servers in the first half of 2001. Top-tier OEMs will likely eye the new AMD offerings from a distance.

Executives responsible for designing and marketing servers at top-tier OEMs generally declined to comment on the record, as the companies involved have not committed to or away from AMD's microprocessors. But opinions on the company's prospects varied widely.

Each of the three OEM executives interviewed were concerned with reliability: First, AMD's ability to manufacture and deliver products; second, a planned, stable roadmap to faster clock speeds and improved technologies, and third, an adequate supply of validated chip sets.

For one thing, customers may have to ask for AMD by name. Like their own IT customers, server OEMs will need a compelling reason to design in AMD chips, and second-and third-tier vendors will probably be first to take any risks.

"The question isn't so much from a component standpoint, it's that they have to deliver compelling arguments from a price/performance standpoint," said one source at a top-tier OEM who is responsible for strategic design decisions. "For a long time, IT groups shied away from AMD because of reliability, and there's going to be that IT perspective in the server space. But also consider: how many people do IT staffers support? Take a company like Boeing, which may run exclusively on Intel. If you suddenly expand the knowledge base of that IT department, it gets very, very costly."

OEM sources said they haven't forgotten AMD's manufacturing troubles of about 18 months ago, when AMD essentially stopped selling chips to the reseller channel and left even top-tier OEM accounts at a loss for parts. Intel has "paper launched" new microprocessors, too.

However, AMD owns just two fabs. Only one, Fab 30 in Dresden, Germany, is being tasked with manufacturing the latest Athlons, even though the company is adding silicon-on-insulator technology to complement the copper interconnects used to help increase clock speed. Intel, on the other hand, is adding three additional fabs, including a new 0.13-micron facility in Leixlip, Ireland, scheduled to enter production in late 2001, and a similar fab in Chandler, Ariz.

"IT departments have tried AMD in the past and found it wasn't a robust solution," the source said. "AMD's got a big stone to push."

A second executive at another top-tier OEM disagreed.

"As far as the question of whether they really have continuity of supply, of whether they have the fabs in place ... yes, I think they've passed that barrier dramatically," said the executive, who is responsible for strategic marketing of his company's server line. "I think AMD's position over the past two years has changed dramatically. OEMs are now asking the question almost openly: Is now the time to go with AMD?"

Within the PC space, the question has been answered. Hewlett-Packard, Cupertino, Calif., is one of many PC OEMs to adopt the Athlon chip. The company adopted the AMD K5 inside its Brio business PC and later the Athlon inside its consumer Pavilion line. But it is important for a chip supplier to know the risks a customer is willing to take, HP executives said.

"To an IT manager, the challenge of the price of the microprocessor is relatively small, compared to the other challenges he must deal with, including manageability and reliability," said Jean-Luc Meyer, worldwide marketing manager for all HP PCs. "In the consumer space, you are the CEO of your own company."

One question mark looms over the Athlon infrastructure. AMD does manufacture chip sets, and its two-way AMD 760 MP chip set was demonstrated at October's Microprocessor Forum in San Jose. But the company has also said it would cede the PC chip set market to partners like Via Technologies Inc. and Acer Laboratories Inc., which have built their businesses entirely on chip set products.

"We intend to get into dual-processing chip sets and establish the business there," AMD's Mitton said. "Then we'll see about Hammer."

A company spokeswoman confirmed that AMD plans to move into 4- and 8-way systems only in the Hammer generation -- the company's next-generation 64-bit microprocessors.

In this area, AMD is following the lead of Intel, which tried to establish its Intel 840 chip set in the two-way space. However, questions about an additional component, the Memory Repeater Hub, caused Intel to essentially withdraw the chip set earlier this year in favor of the ServerSet III LE designed by ServerWorks Corp. in Santa Clara.

ServerWorks CEO Raju Vegesna declined comment when asked if his company would support the Athlon or future derivatives, which would require designing in AMD's EV-6 microprocessor bus and possibly AMD's propriatary Lightning Data Transfer LDT I/O technology.

"We still have an open partnership with Intel," Vegesna said. "We're not currently working with AMD."

However, he called AMD's entry into the workstation and server space "really exciting."

Instead, API NetWorks Inc., formerly Alpha Processor Inc., appears to be ready to step into the breach. The Concord, Mass., company said in January that it is working on a four- and six-way capable chip set, called Tasman, for the Athlon.

A complementary two-way chip set, called Caspian, has been validated in the laboratory and will be formally announced in January, said Guy Ludden, a marketing manager at API NetWorks.

Software support will also be important. While several major operating systems run on the X86 architecture, AMD's X86-64 architecture found in the Hammer will likely require some dedicated engineering. In February, Sun Microsystems Inc. and Intel engaged in a well-publicized spat over supporting the Solaris operating system on Intel's own 64-bit chip, Itanium.

To AMD, it's almost a done deal. "When Intel cut the legs out from Sun, the Solaris team came running to us," Mitton said. A spokesman for Sun in Palo Alto, Calif., declined to confirm any change in the relationship with either AMD or Intel.

"We're still absolutely committed to IA-64 platform," he said. "Going forward, however, it will be more difficult. But customers want the solution...so we need to figure out a way to make this happen."

AMD's well-publicized microprocessor roadmap will also allow the company to dictate the pace of the market through new technology, something that Sanders highlighted as early as 1998. In 1999, AMD ranked 17th in the number of patents filed as ranked by the Derwent World Patents Index, compiled by Derwent Information, London.

"How do you compete against a gorilla assuming no regulatory or heavenly help?" Sanders asked an audience at the Robertson Stephens conference in San Francisco in 1998. "The answer, of course, is that you must become a gorilla."