05/10 13:48 UPDATE 1-Intel to replace circuitboards in tech glitch
(recasts first sentence, new throughout with analyst comments, background, stock
movement)
NEW YORK, May 10 (Reuters) - Intel Corp. <INTC.O> on Wednesday said it would
replace computer circuitboards with a defective memory part that causes some
personal computers to crash, a move that analysts said could cost the world's
largest computer chip maker hundreds of millions of dollars.
Shares of Intel, the world's largest computer chip maker, were off 7-1/2, or about 6.5
percent, at 109-7/16 in midday trading on Nasdaq, where it was the second most
active issue.
Intel said the problem arose from a defective memory translator hub, or MTH,
component that translates signals from SDRAM (Synchronous Dynamic Random
Access Memory) to the Intel 820 chipset. The problem results in "system noise" that
causes some systems to suddenly reset, reboot or just stall.
In some instances it can also "corrupt," or affect the accuracy of, a computer's data.
Analysts said the replacement of the so-called motherboards on PCs shipped since
November 1999 would dent Intel's earnings per share by at least a couple of cents
during the current quarter. Motherboards are the computer equivalent of an
automobile chassis, serving as the platform on which chips and other circuitry are
mounted.
Before the news of the glitch, analysts on average were expecting Intel to earn 71
cents per share in the second quarter, according research firm First Call/Thomson
Financial. Intel on Wednesday said it was not changing its guidance.
"This is a technology black eye for Intel," Merrill Lynch analyst Joe Osha said in a
research note. "In terms of financial impact, we believe it will amount to roughly a
few hundred million dollars." Intel said it had no estimates of the cost of the
replacement program but added that it planned to make a reserve for the costs, and
that the reserve could be material depending on the rate of replacements.
"We would consider something material if it approaches a few hundred million"
dollars, Intel spokesman Michael Sullivan said.
Sullivan said it shipped fewer than a million motherboards containing the chipsets
in question but how many companies will ask to have them replaced is not known at
present.
Analysts called the motherboard episode just the latest of several operational
problems Intel has been experiencing.
"I think this is another case of Intel having a lot of balls up in the air. Management
doesn't have their eye on one ball anymore," J.P. Morgan analyst Terry Ragsdale
said. "There have been numerous examples of technical screw-ups. The problem
comes when some of these screw-ups have actually shipped and they are going to
lose some money."
Last fall, Intel discovered several bugs in its 820 chipset version that employs
RDRAM (Rambus Dynamic Random Access Memory), another type of
memory-enhancing technology produced by Rambus Inc. <RMBS.O>, and as a
result delayed shipping that version.
The delay in the chips reaching computer makers caused a headache for computer
makers such as Dell Computer Corp. <DELL.O>, which at the time was seeing
growing demand for PCs that would use the 820 chipset.
Indeed, Dell warned of a fourth-quarter profit shortfall in 1999 and blamed it on the
delay in the Rambus version of the 820 chipset. The supply crunch short-changed
results for two quarters at the Austin, Texas-based computer maker.
Intel said the RDRAM-based systems, now available, are not affected because they
do not use the memory translator hub used in the SDRAM version.
ABN Amro analyst David Wu agreed Intel hadn't been executing on detail for several
months now.
"A few guys are getting their butts kicked at Intel. They are organizing more tightly to
avoid those black eyes," Wu said.
But an Intel spokesman said that recently announced reorganizations were geared
toward strategic issues and not tightening engineering operations. |
