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Intel Stumbles in Great Chip Race

By Keith Regan & Tim McDonald
Aug 29, 2000 12:00 AM PT

Intel Corp. (Nasdaq: INTC) suffered a setback in its bid to produce ever-speedier microprocessors Monday when it announced it would halt production of its fastest version to date of the Pentium III chip.

Intel Stumbles in Great Chip Race

Intel confirmed that its 1.13 gigahertz (GHz) Pentium III chip, which was shipped July 31st, has a flaw that causes some applications to fail under certain conditions. Intel insists the stoppage, which could last up to three months, does not affect most computer users because the company had just begun production of the chip and was aiming at a niche market of graphic and Web designers.

"We were in limited production and had shipped a small number of the processors," spokesman Michael Sullivan told the E-Commerce Times. "The stoppage will really not have any material impact on our revenue numbers going forward."

Bad Timing

In fact, what may prove most troubling for the Santa Clara, California-based chip maker is the embarrassing timing of the recall. Intel was the undisputed leader in the field until last year, when its main competitor, Advanced Micro Devices (AMD) (NYSE: AMD), announced its new Athlon microprocessor.

In April, AMD was the first to release a chip that ran at a speed of 1 GHz, and Intel came out with its 1 GHz chip two days later. Since then, although Intel has continued to dominate sales in the industry, the two companies have been in a race to come up with the fastest chip. Analysts say the 1.13 GHz Pentium chip may have been rushed to market too fast.

AMD, which is based in Sunnyvale, California, said several computer makers, including Gateway, Hewlett-Packard, IBM and Compaq, plan to include its new chip in their machines. Unlike earlier processors from AMD, the Athlon chip is not compatible with other Intel hardware.

Faulty Test

Intel's recall was prompted by hardware Web site HardOCP.com. According to reviewer Kyle Bennett, the site had been given a copy of the chip to test and was prepared to unveil its review this week, as a non-disclosure agreement with Intel expired.

When the reviewers informed Intel of problems they were having running several programs, including some versions of Windows and Linux, Intel investigated and subsequently announced the recall, Bennett told the E-Commerce Times.

Latest Glitch in a Series

However, Intel is coming under criticism for not reporting the flaw earlier. Although company officials said the problem was discovered in tests over the weekend, other Web sites have reported the chip was unstable for weeks.

The recall is the latest in a series of manufacturing glitches over the years for Intel. Earlier this year, the company recalled nearly a million motherboards using its 820 chip set, which cost the company $200 to $300 million (US$).

Also, technical problems have forced Intel to delay the introduction of its Timna processor, which is designed for less expensive personal computers, until next year.

In 1994, the company was criticized for not disclosing a flaw in its Pentium chip to its customers. In 1997, more problems were found in Pentium and Pentium Pro chips.

No Sea Change

An AMD spokesman, who declined to comment on Intel's woes, said the firm is focusing on the need to continually break new ground in the race to make faster chips, which are seen as an important building block for development of the Internet.

However, analysts said it is unlikely that AMD can use the Intel stumble to gain significant market share. AMD has limited capacity, they note, and Intel is still favored by many computer makers and end users.

Just last week, Intel made headlines by announcing it will begin production on its Pentium 4 chips, which it said will be capable of reaching speeds of 1.4 gigahertz, early next year.


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