Intel shortage costing PC makers
Chip maker's inability to fulfill unanticipated orders is costing box makers hundreds of millions of dollars.
By Ken Popovich and Lisa DiCarlo, PC Week
UPDATED January 31, 2000 5:33 AM PT
Intel Corp.'s failure to keep up with customer demand -- coupled with product delays and abrupt changes in product direction -- is costing OEMs hundreds of millions of dollars in revenues.
Dell Computer Corp. (Nasdaq: DELL) last week preannounced a revenue shortfall of as much as $300 million in its fiscal fourth-quarter sales due in part, officials said, to chip shortages.
Similarly, Gateway Inc. (NYSE: GTW) last month publicly blasted Intel (Nasdaq: INTC) for chip and motherboard shortages, saying they cost the company up to $250 million in sales.
IBM Corp. (NYSE: IBM), for its part, has also had difficulty securing some chips in the fourth quarter, sources said, although the company made no mention of it in its recent earnings announcement.
Changing needs causes problem
Intel officials said the PC makers' shortages are due to "upside requests" from OEMs. "When (OEMs') needs change rapidly is when we get into trouble," said Sunlin Chou, vice president and general manager of Intel's technology and manufacturing group in Santa Clara, Calif.
Other Intel officials said the company shipped a record number of products in the fourth quarter.
But not all of those chips were the ones OEMs were waiting for. Several PC officials said Intel abruptly withdrew its commitment to 450MHz Pentium III chips in the early fall and later to 500MHz models.
"Overnight they made obsolete the 450MHz and didn't give anyone a price break, so we had to eat the difference," said one executive at a major OEM who requested anonymity, explaining that it had to sell higher-megahertz systems at the 450MHz price.
But there were also shortages at the high end. Several OEMs contacted said Intel announced the 700MHz, 733MHz, 750MHz and 800MHz chips without having adequate supply in an attempt to maintain parity with Advanced Micro Devices Inc. (NYSE: AMD) in the so-called megahertz race.
Keeping up with AMD
"They're introducing products they can't ship (because) the perception is that AMD is getting better at execution," the OEM official said.
As of last week, Intel's 800MHz chips were still in tight supply. PC makers such as Dell and Gateway are quoting two- to four-week lead times for systems with those chips.
According to sources, Intel has also accelerated the ship date for its 1GHz chip from the second half of the year to the second quarter. Meanwhile, AMD is racing to deliver the first 1GHz X86 processor.
"Intel always wants to hold the bragging rights," said Ashok Kumar, an analyst at US Bancorp Piper Jaffray in Minneapolis. "They're having to go announce products without (volume) shipments."
Despite Dell's problems, CEO Michael Dell said he has no plans to explore alternative chip suppliers. "You're not going to see us change our approach to partnering based on one difficult transition," Dell said last week during a conference call.
However, it's not just one difficult transition. The last 12 months for Intel have been marked by major delays in the high-end 820 chip set; performance issues with the low-end 810 chip set; and a bungled transition to the 0.18- micron process, code-named Coppermine.
"They could not have botched up more last year," Kumar said.
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