Intel Scuttles Low-End Chip

Intel Corp. (Nasdaq: INTC) has abandoned plans for a long-delayed, low-end computer chip aimed at making personal computers cheaper to build. According to the company, while technicians worked to fix design flaws, the potential market for the chip disappeared.

The “Timna” chip was supposed to make building PCs cheaper by combining several functions of different chips. However, advances in memory control and graphics technologies made the chip obsolete before it was completed, according to the company.

Originally scheduled to be released this fall, the date was pushed back to 2001 because of a series of glitches involving a companion chip. Finally, designers admitted further adjustments would have pushed the release date beyond the second quarter of next year, creating problems for PC makers, who indicated they no longer had any need for the chip.

Intel officials said Timna resources will be re-directed to the company’s successful Celera chip and other budget processors.

September Blues

The abandonment of the Timna chip is the latest blow in a month full of bad news for the technology giant. In late August, the company announced it would halt production of its fastest version to date of the Pentium III chip for several months due to a design flaw.

Next, the company’s shares plunged 30 percent following an announcement that its revenue growth for the quarter ended September 30th would be roughly half of what analysts expected. Industry experts believe that Intel’s dramatically lower revenues are a result of the company losing market share to rival Advanced Micro Devices (AMD).

Then late last week, high-speed communications chip maker Broadcom (Nasdaq: BRCM) asked a California court to block Intel’s sales of its Media Access Controller (MAC) and Gigabit Ethernet Physical Layer Interface (PHY) chips, which Broadcom claims were developed by Intel using Broadcom’s trade secret information.

Since 1999 Intel has emphasized diversifying the markets in which it sells — and has acquired 20 companies to that end — but product delays and manufacturing problems have affected investor confidence in the world’s largest chip maker.

Intel was once part of a so-called “duopoly” with Microsoft and considered unassailable. Analysts are now questioning whether the titan has lost ground through neglecting its core business of innovative product design and volume manufacturing.

Chip Wars

In addition to the problems it already has, Intel is about to face formidable competition from upstart chip maker Transmeta, whose low-power Crusoe chip offers potentially twice the battery power of Intel chips. The chip, which is named for the literary character Robinson Crusoe, enables software to perform functions previously performed by a computer’s hardware. As a result, it consumes less power.

Transmeta announced the terms for its initial public offering Monday, which will include 13 million common shares in a range of $11 to $13 per share (US$), and could net the company $144 million in proceeds.

Moving Forward

The good news for Intel is that last week it released its fastest mobile processors yet.

Compaq, Dell, Hewlett-Packard and IBM are among those expected to offer systems with the new Intel processors, the 800 MHz and 850 MHz Pentium IIIs, and the 700 MHz Celeron.

The new releases, however, will face competition, with IBM, Sony, Hitachi and Fujitsu all set to release portables using Transmeta’s Crusoe chip in the near term.

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