Intel rival to sell 'clone' 486 chips: Market leader faces competition from its own design after court verdict

INTEL, the Silicon Valley firm that dominates the market for semiconductors in personal computers, is suddenly facing competition for its 486 computer chips.

Advanced Micro Devices announced yesterday that it planned to start selling a rival chip based on Intel's design immediately following a court victory against Intel last Friday. In a surprise ruling, a California judge overturned a jury decision that banned AMD from selling the cloned chips and ordered a retrial.

AMD, whose own 486 design was not expected to enter the market until June, said it saw 'no legal barrier' to selling the chips or to cloning its more powerful successor, Intel's Pentium microprocessor, which is just starting to come on to the market.

The decision pushed Intel's share price down 15 per cent and prompted some investment advisers to buy AMD shares on a speculative basis. By midday AMD shares were up dollars 3.625 at dollars 27.50 while Intel's were off dollars 14.25 at dollars 95.75, causing an Intel spokesman to suggest the market was overreacting to the news.

AMD has the capacity to produce only 1 million of the chips this year, compared with the 6 million Intel is projected to sell. Demand for the 486 also continues to outstrip supply, industry analysts point out, arguing that AMD's entry will be at little more than 'annoyance level' for the semiconductor giant.

While the ruling is likely to result in big short-term profits for AMD, it may have to forfeit those gains if it loses the retrial.

Thomas Dunlap, an Intel executive, also noted that the licensing agreement that allowed AMD to develop the controversial clone expires in 1995, limiting its potential profit from any clone of the Pentium chip.

Many investment advisers, who said the panic created an opportunity to buy Intel cheaply, agreed, and its share price recovered later in the trading session.

'There is only so much damage AMD can do,' said David Wu, an analyst with SG Warburg in New York.

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