Intel running short on 1GHz notebook chips

Less than a month after releasing the 1GHz mobile Pentium III processor, Intel has told PC makers it cannot meet demand.

Several PC makers said Intel contacted them late Monday delivering the bad news: Supplies of the new 1GHz chips will be tight until late May. The shortage is surprising, as it comes during an industrywide chip glut, analysts say.

The timing could be terrible for Intel as it prepares to deliver first-quarter results after the market closes Tuesday. Wall Street analysts expect the company to report a year-over-year sales decline of about 17 percent and as much as 25 percent from the previous quarter.

"They can just add this to all the bad news, get it all out there and start fresh looking to the future," said Technology Business Research analyst Humberto Andrade.

Notebook makers are scrambling to manage the supply crisis, which is affecting manufacturers in different ways.

Dell Computer, because of its production system emphasizing slim inventories of components, has been hit harder than some competitors. Company salespeople are quoting 30-day leads on the 1GHz Inspiron consumer notebook and putting prospective buyers on a waiting list. Dell also is steering customers who need a notebook now to the 900MHz Pentium III processor model with 256MB of RAM.

But Dell spokesman Tom Kehoe emphasized that the company's direct selling approach will be an asset when Intel starts delivering an ample supply of chips.

Intel production problems over the past 18 months: March 2001 • Commercial release of Itanium servers delayed until second half 2001. October 2000 • Bug in Pentium 4 chipset pushed back release of new chip from October to late November. Chip eventually released with a bug. August 2000 • Timna, a low-cost processor with a built-in graphics chip, is canceled. Problems with chip stem from bugs with the Memory Translation Hub. August 28 • Intel says it is recalling its fastest Pentium III, the 1.13-GHz Pentium III, because of potentially faulty circuits. July 2000 • Intel says the first revenue from its high-end Itanium chip will come later than expected. A week earlier, Intel said most of the initial chips will ship at 733 MHz instead of the planned 800 MHz. May 2000 • Intel recalls more than 1 million motherboards using its 820 chipset because of a faulty chip called the "memory translator hub" (MTH). The recall cost the company some $200 million. April 2000 • Intel says it has underestimated PC demand for the first half of the year and will continue to have problems supplying as many processors as computer makers want. February 2000 • Intel discovers a bug that affects some server and workstation computers using Intel 840 and 820 chipsets. Though the glitch is rare, three motherboard designs are canceled in response. September 1999 • Intel delays the release of its 820 chipset because of problems connecting to Rambus-based memory. Compiled by: Ian Fried and Cecily Barnes

"Once the supply does lighten up, we can get it there faster because we don't have to get it through the (dealer) channel," he said.

Gateway, which also works on a low-inventory system, started seeing supply problems Friday, said company spokesman Greg Lund.

A Gateway salesman reported end-of-May availability on the 1GHz Solo 9500 notebook. He recommended an 850MHz or 900MHz model with more memory and a larger hard drive deliverable in about two weeks.

Dealers carrying IBM 1GHz models reported ample supply of some ThinkPad A22 notebooks but long lead times on others.

Intel spokeswoman Shannon Johnson blamed the shortage on "unusually high demand, and we're very pleased with demand. We anticipate availability will be a little bit tight until the end of May, and then we'll see broader availability."

But several PC makers said 1GHz notebook sales were consistent with their expectations.

When told PC makers had reported normal demand for the 1GHz processor, Johnson again reiterated that, "We're seeing strong demand from our customers for the 1GHz processor. Absolutely."

Mercury Research analyst Dean McCarron said Intel is likely getting lower-than-expected yields of the 1GHz processor and much better yields for the 900MHz. Yield, the percentage of usable chips coming off an assembly line, is often low at the beginning of a product cycle.

"When they introduced the 1GHz desktop processor, they couldn't get any significant volume for almost three quarters," he said. "At the same time, they were delivering tens to hundreds of thousands of units of the 900MHz and 933MHz " processors.

PC makers started selling 1GHz Pentium III notebooks only on March 19. But this wouldn't be the first time Intel had supply problems right out of the gate. The company delayed the release of the Pentium 4 processor late last year because of a chipset glitch, for example.

IDC analyst Alan Promisel said the crisis would be worse if not for Intel's lock on the high-end mobile processor market.

"Because of the absence of competitors in that high-performance processor space, it's not as big a deal as it could be," he said.

McCarron noted that the situation might not be good for PC makers looking for price cuts on the chips, "because Intel doesn't have any competition."

AMD is not expected to release a comparable mobile processor until June.

But there is a silver lining for Intel and PC makers, Promisel said. The second quarter is typically the slowest sales period of the year.

"If there is a good time for this kind of problem to happen, this is it," he said. "It's the third and fourth quarter where you want things running smoothly. From a damage-control perspective, this is the right time."

Gartner analyst Ken Dulaney said the problem points out larger concerns with Intel. "This problem is one Intel's own making," he said . "They push out too many processors way too fast that people don't need. I think hopefully this problem will get buyers to go out and buy 700MHz or 800MHz chips, which are a far better buy and will last just as long."