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PC makers await direction following Intel board recall
By Mark Hachman and Faith Hung
Electronic Buyers' News
(05/12/00, 07:48:46 PM EST)
It's no Pentium bug, but Intel Corp.'s recall of selected motherboards has customers waiting and wondering how quickly the company will correct the snafu.
While the number of affected components is relatively small, the recall will impose modest adjustments on the PC supply chain and white-box assemblers, according to observers. For now, OEMs and resellers are being asked to sit on their product inventory while logistical details are worked out.
The recall came Wednesday when Intel revealed that certain motherboards shipping with the 820 chipset could intermittently reboot or hang up. The boards were equipped with a so-called Memory Translator Hub (MTH) that enables the 820 chipset to communicate with SDRAM. The MTH component was identified as containing the glitch, Intel reported.
A higher-speed motherboard configuration, which includes the 820 chipset and Direct Rambus DRAM, doesn't require the MTH component and has experienced no performance problems, the company said.
As of late Friday, Intel's initial plan included an offer to take back the faulty MTH chip and replace the associated SDRAM on the motherboards with more expensive Direct RDRAM.
The recompense could cost the chip giant several hundred million dollars, according to analysts, which may include shipping and warehousing charges as well as costs associated with component replacement. And in the short term, Intel will have to deal with another slight to its chipset program amid growing competition from rivals like Advanced Micro Devices and Taiwan's Via Technologies.
?There have been a number of technology screwups, and the 820 chipset issue's just been another one,? said Terry Ragsdale, an analyst at J.P. Morgan Securities Inc., New York.
But Ragsdale and other analysts also said that, handled correctly, the impact of the MTH bug is likely to be minimal. Because MTH-equipped boards are a subset -- albeit a large one -- of the motherboard line that includes the 820 chipset, the bug should be less serious than the infamous Pentium bug Intel discovered in 1994, which affected all PCs regardless of chipset or memory type.
The industry's ability to react to market changes, planned or otherwise, should also enable Intel's customers to take the recall in stride. A particular strength, according to analysts, is the field of supply-chain management, which while still evolving, has been refined to the point that disruptions like last year's Taiwan earthquake can either be anticipated or dealt with quickly.
"We were expecting something like this to happen," said Roger Norberg, an analyst with Chase H&Q, Minneapolis. "Demand for electronics is so hyper right now, the opportunity for creating something defective is heightened. Right now, the idea is to build and ship it. Anytime you have that kind of environment, the chance for error goes up."
On the surface, Intel's plan seems relatively simple: replace the affected motherboards and associated SDRAM with Intel 820-based boards and Direct RDRAM. Although Intel told customers the defect may only affect 15% to 20% of motherboards shipping with the MTH, errors may include data loss. For that reason, Intel is designing a replacement MTH, due in the third quarter.
Analysts say about three-quarters of the affected Intel 820/SDRAM systems are in the hands of white-box assemblers, which have been told to wait while details are worked out. The recall will also affect third-party motherboard makers, which can purchase the 820 chipset and associated MTH to design competing boards.
Fortunately for Intel, perhaps, the Rambus and MTH/SDRAM market has been slow to materialize, shielding the company from greater losses. Supplies of the faulty component, meanwhile, did not seem to be concentrated at any one company.
In Taiwan, which dominates white-box assembly, leading PC maker Acer Inc. estimated only 1% of its units contained the potentially hazardous 820/MTH/SDRAM cocktail, a spokesman said. A representative of Asustek Computer Inc., believed to be Intel's largest Taiwan-based motherboard customer, said only 150,000 boards, or 5% of its shipments, would be subject to recall. Samuel Liu, a director at Micro Star International Co., projected that only 2% to 3% of the 500,000 to 700,000 boards the company ships each month would be affected.
"Intel has offered to fully cover our losses, including those [boards] we've shipped, those we've bought, and all of the handling charges associated with processing the recall," the Asustek spokesman said. "We don't think there would be a big disruption to our production, as we would use alternatives like BX chipsets per our customers' requests."
Representatives for U.S. OEMs Dell Computer Corp. and Hewlett-Packard Co. said they use the Intel 820 chipset exclusively with Direct RDRAM, so they don't have boards with the MTH component.
In Taiwan, 76% of the 19.45 million desktops shipped from the island in 1999 were OEM products, said Primasia Securities Co., Taipei. In the United States, meanwhile, resellers assembled and sold an estimated 6.87 million white-box PCs last year, according to CMP Media Inc.'s Reality Research analyst group, an affiliate of EBN.
Whether shipping credits will be extended to the hundreds of white-box assemblers is an open question. Several resellers said they were unaware of the issue, or that Intel field representatives were unable to provide further details.
According to a memo sent to its resellers, Intel is "recommending that [assemblers] do not ship any products with the MTH," and that refunds will be handled through Intel's normal warranty procedures after assemblers are contacted "as soon as possible."
That wasn't quite enough detail for David Chang, president of Agama Systems Inc., Houston, whose company has already suffered from a shortage of Intel CPUs in the Slot-1 form factor. "Asus, Gigatek, MSI, all [these motherboard makers] use the 820 chipset, and all are targeting the white-box reseller," Chang said. "We pay to ship these products in and out, but in this situation, why should I pay shipping?"
The effect on the volatile Direct Rambus market is equally uncertain (see May 10 story). Analysts noted that the MTH bug could be viewed in two ways, either as a data-threatening glitch or as an opportunity to gain a free upgrade to higher-performance Rambus memory.
Intel will essentially create a short-term spike in demand by giving customers participating in the recall an upgrade to Direct RDRAM systems -- most likely populated with slower PC600 (600-MHz) memory and not the higher-speed, and scarce, 800-MHz variety. Intel will also replace 820-based boards with SDRAM-based boards using other Intel chipsets, if requested.
"From a Rambus standpoint, since supply is very tight and prices have a relative add of 30% over synchronous [DRAM] parts, I don't think there'll be anywhere for prices to go but up," said Mark Giudici, an analyst at Dataquest Inc., San Jose.
But Sherry Garber, an analyst at Semico Research Corp., Phoenix, said the Intel replacement offer will not seed the market with much more than 8 million Direct Rambus chips, still a drop in the bucket compared with the 975 million DRAM units shipped in the first quarter.
"First, you have to assume that customers will want Direct RDRAM replacement memory and won't ask for conventional SDRAM motherboards," which were purchased in the first place to avoid the Direct Rambus premiums, she said. |
