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Pentium 4 won't dominate Intel sales until 2002

Although the company will release the Pentium 4 next month, the chip won't become the breadwinner of Intel's microprocessor family until at least 2002, analysts say.

!- eds update: 11:10 am PT 10/11 removes text in graph nine that repeates quote --> SAN JOSE, Calif.--Although Intel will release the Pentium 4 next month, the chip won't become the breadwinner of the company's microprocessor family until at least 2002.

Because of a number of marketing and technical issues, the more technologically advanced Pentium 4 will continue to be overshadowed by the Pentium III, at least in terms of revenue and units produced, for some time, say analysts and Intel executives.

"When does it become the economic center of gravity and when does it become the unit volume center of gravity?" asked Bill Siu, vice president of Intel's Architecture Group. "It won't be in 2001."

In 2002, the Pentium 4 will start to overtake the Pentium III in terms of revenue, he said, but "in terms of units, it will be longer than that."

While the length of the conversion is fairly normal for Intel, the 18- to 24-month cycle puts the chipmaker in a precarious position. The company will have to keep tweaking the Pentium III for another 18 months at least. At the same time, the company must maintain performance and price differences between the older chip and the Pentium 4.

Intel also has to work to get the Pentium III back up to speed after the August recall of the 1.13-GHz Pentium III, then Intel's fastest chip, due to malfunctions. Intel executives have said it will be at least several more months before a re-engineered 1.13-GHz chip is ready.

Rival Advanced Micro Devices will also no doubt try to exploit any chip shortages or other advantages that come the company's way.

"It is going to be a very delicate juggling act," said Nathan Brookwood, an analyst at Insight 64.

The length of the timetable derives from the size of the Pentium 4, said Linley Gwennap, principal at The Linley Group. The Pentium 4, when it debuts, will cover approximately 217 square millimeters, more than twice the area of current Pentium IIIs and larger than the 180 square millimeter chip expected earlier by analysts.

The principal problem surrounding the chip's size is that it greatly reduces the number of chips that can be produced form a single silicon wafer. "The same wafer will yield three times as many Pentium IIIs as Pentium 4s," Gwennap said. "You're throwing away two-thirds of your yields."

The larger size means the Pentium 4 will cost around $80 to $90 to manufacture, more than double the $40 manufacturing cost of the Pentium III, he estimated.

Intel will shrink the Pentium 4 and the Pentium III to a more financially attractive size when the company converts from the current 0.18-micron manufacturing process to the more advanced 0.13-micron process. (The micron measurements refer to the size of features on the chip, such as transistor gates.)

Shrinking the processors will increase the number of chips that can be produced per wafer. In addition, it will cut the manufacturing cost of each chip and allow Intel to speed them both up. These smaller chips made on the 0.13-micron process, however, won't appear until the first part of the second half of 2001, Gwennap noted.

The increasing size of the PC market is also a factor, Siu said. Approximately 150 million PCs are being bought annually now. "The market size today is a lot bigger than three years ago," he said. As a result, there are only so many chips the company can produce.

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Intel CEO Craig Barrett
Still, Intel is rapidly adding capacity and shifting to the 0.13-micron manufacturing process. The company earlier this week promoted vice president Mike Splinter to take over manufacturing and gave him the specific mandate to safeguard the transition.

"We will have a very aggressive ramp on 0.13," Siu said "Part of Mike Splinter's job is to make sure that happens."

Brookwood added that the gradual conversion is necessary because of the ongoing Rambus saga. When it debuts, the Pentium 4 will work only with computers containing Rambus memory. Intel is coming out with a chipset, the piece of silicon that connects the microprocessor to the rest of the computer, that will allow PC makers to use less expensive DDR DRAM memory.

"They can't ramp it in quantity until they get the DDR chipsets out," Brookwood said. "Until the 0.13-micron conversion in the second half (of 2001), it can't possibly become the...dominant product...It's for show."

Historically, Brookwood noted, long conversions are standard for Intel. It took approximately 18 months for the original Pentium to move from introduction to volume production. Roughly 24 months passed before the Pentium Pro, repackaged as the Pentium II, became the main chip inside desktops.

Intel shifted rapidly from the Pentium II to the Pentium III in 1999, but the chips shared the same basic microarchitecture.