Early next year, Intel plans to convert from an 8-inch to a 12-inch manufacturing wafer for its microprocessors. In doing so, Intel will save more than 30% in manufacturing costs while producing more chips per wafer.
"Intel will be the lowest-cost producer, enhancing its gross margins and giving the company an edge in any price war," explained Ashok Kumar, an analyst at US Bancorp Piper Jaffray.
AMD officials recognise the advantage of moving from the company's current 8-inch manufacturing process to a larger wafer. While the US-based chip maker will not officially confirm or deny plans to move to a 12-inch wafer, company sources believe an increase to some larger wafer size is a "when" and not an "if" scenario for AMD.
Both AMD and Intel are rapidly moving to 0.13-micron transistor technology for their chips; AMD early next year and Intel before the end of 2001, according to officials of both companies. Intel is building new fabrication plants (fabs) for 12-inch production in line with its transition to 0.13-micron technology. AMD's recently opened German fab, designed to produce 0.13-micron chips, builds chips on 8-inch wafers.
Intel appears to be ready to capitalise on any head start.
"If we move out on a larger wafer before [AMD] does, they'll basically be forced to move faster [toward 12-inch wafer production]," an Intel source said.
Kumar believes Intel has as much as a 12-month lead on AMD in moving to a larger wafer size.
Todd Kort, a principal analyst at Gartner , says AMD's chip pricing is already low enough for the company to maintain a strong market share even against a ramped-up Intel, but agrees that "there is some threat" from Intel's move to 12-inch wafers.
"There will be a point in the future when AMD finds itself at a disadvantage," said Kort.