Commentary: Intel's stumble unlikely to have long-term effect

Meta Group says the chipmaker's recall of its high-end Pentium III processor is a black eye for the company and hands competitor Advanced Micro Devices a PR coup.

Jan. 11, 2002 5:15 p.m. PT

2 min read

Intel's recall of its high-end Pentium III processor is a black eye for the company and hands competitor Advanced Micro Devices a PR coup.

But like all black eyes, it will heal. The problem won't have a lasting effect on the marketplace.

In the consumer market, a high-end desktop system requires much more than a faster chip. Realizing the benefit of the CPU's speed requires a highly optimized memory, cache and bus structure, among other components.

See news story:
Recall may hurt Intel, but will AMD benefit?

Designing a high-end PC takes time, and a short-term CPU supply problem caused by Intel's recall will not greatly affect that process.

If Intel's problems persist for three months or more, however, AMD chips will gain market share in this segment.

But the high end of the processor market--chips running faster than 1 GHz--is a very small part of the overall consumer marketplace. It's mostly the province of a relative few who use processor-intensive applications such as video editing. Most consumers will not pay the premium price for those systems.

Business users see both AMD chips and Intel's Celeron as consumer-only items and have been loathe to buy systems built around them.

In addition, few business applications are processor intensive, so companies are seldom in the market for the fastest and therefore most expensive PC.

Consequently, this recall will have negligible effect on Intel's business sector fortunes.

Nor will it give AMD an entry into the server marketplace. The chip Intel is recalling is not intended for servers.

It appears that Intel, faced with stiff competition from AMD in the high-end desktop market, pushed Pentium III further than originally intended and rushed it out without adequate testing. The good news, though, is that unlike previous incidents of quality issues (such as the "long division" bug in the original Pentium chip), this time Intel has moved aggressively to acknowledge and redress the problem.

We believe neither Intel's brand nor business will be undermined.