Competition from AMD contributed to Intel's recent production problems, but AMD's limited chipmaking capacity will prevent it from cashing in on the embarrassing mistakes, according to analysts.
"Intel has been pushing the clock speed on Pentium III really hard to keep up with AMD," said analyst Linley Gwennap of The Linley Group. "When you push a chip beyond what it was designed to do, you run into problems."
Intel would not comment directly on whether the speed race with AMD caused it to stumble. But a spokesman said, "It's a disappointment if (a chip) is introduced and has a quality issue" associated with it.
The two chipmakers have been battling to offer the fastest PC processor since AMD debuted its Athlon chip last year. While Intel has stumbled, AMD has turned from a gang that couldn't shoot straight to a formidable competitor.
Yesterday the company introduced its 1.1-GHz Athlon and said a number of computer makers including Hewlett-Packard and Gateway were adopting the chip. Industry watchers said AMD has been consistently able to deliver its fastest chips in higher volumes than Intel.
Analysts caution, however, that there are limits to how much business AMD can grab.
"In the end result, it doesn't make a lot of difference, because AMD has exactly two factories, and Intel has many more," said International Data Corp. analyst Roger Kay. "No matter what AMD does, it can't turn around and supplant Intel. On the other hand, they can get some share with the disgruntled."
AMD remains on track to ship 3.6 million Athlon and Duron processors this quarter and still plans to ship 7.2 million of the processors in the fourth quarter, its target before the latest Intel misstep, said company spokesman John Greenagel.
"While we would have additional capacity, it puts a strain on our infrastructure to supply chipsets and motherboards," he said.
Unlike older AMD chips, the Athlon is not compatible with Intel motherboards, meaning computer makers wanting to switch would have to design entirely new systems.
Prudential Securities analyst Hans Mosesmann said Intel's latest glitch may give AMD some bragging rights but won't change the bottom line for either company. Even the incremental hit to Intel's image is probably minimal, he argued.
"Their brand has been a little tarnished over the past year," Mosesmann said, but he noted that most in the industry knew that the architecture of the Pentium III was on its last legs. Mosesmann said the problems highlight the need for Intel to execute flawlessly on the Pentium 4.
"It is important for Intel to be perceived as the leader," he said.
ABN Amro analyst David Wu said Intel needs to make sure that it can continue to manufacture the Pentium III in volume because the Pentium 4 will be too expensive for the mainstream market for most of next year.
But Wu said Intel should be able to produce Pentium IIIs at up to 1.4 GHz once it shifts to an even thinner 0.13-micron manufacturing process in the middle of next year. The thinner wiring allows the same design to operate at a quicker clock speed.
AMD's Greenagel said it is the competition that is revealing Intel's vulnerability.
"I'm sure Intel has had problems in the past," Greenagel said. "They've never been visible because they haven't had anyone nipping at their heels."
News.com's Joe Wilcox and Cecily Barnes contributed to this report.