Intel relents, offers chip like rival's

By Michelle Kessler
USA Today

Intel's newest computer chip, expected this week, is an attempt to fix a big product snafu — one of several recent mistakes by the No. 1 chipmaker, analysts say.

The chip, a processor for business computers, will use technology favored by Intel's much smaller rival, Advanced Micro Devices.

AMD shook the chip industry last year when it introduced a chip that could process data in different size chunks, either 32 bits or 64 bits at a time. Intel had separate 32-bit and 64-bit chips, which it said worked better.

AMD's chip won over computer makers such as Hewlett-Packard and IBM. Even Sun Microsystems, which usually makes its own chips, bought AMD's. No. 1 PC-maker Dell didn't, because it uses only Intel chips.

Intense pressure from Dell forced Intel to offer its copycat chip, analysts say.

But Intel's been lucky. Most of the 64-bit software for the chips — notably, Microsoft's Windows operating system — isn't ready yet. That gives Intel time to ramp up its own chips, says chip analyst Dean McCarron with Mercury Research.

Intel's misstep is one of several in recent months. CEO Craig Barrett e-mailed all 80,000 Intel employees last week, telling them, "this is not the Intel we all know, and that it is not acceptable."

In his memo, Barrett says he recently met with senior managers, wanting them "to have no doubt about the need to improve our performance."

Some of Intel's recent problems:

• Intel in June had to recall some new PC chips because of defects. Most of the chips were in computer factories, and had not yet made it to consumers.
• Two upcoming processors were scrapped after engineers realized they would generate too much heat, analysts say. In their place, Intel plans chips with two smaller processors each — a huge change in its product lineup.
• Several chips have been delayed. An upcoming set of chips for laptops, expected in the fall, now probably won't be available until 2005, analysts say. A laptop processor, expected in January or February, didn't come out until May. And PCs with the new Pentium 4 processor, which most analysts had expected during last December's holiday shopping season, weren't ready until February.
• Last year, Intel had to retool prices for one kind of memory, called flash memory, after customers balked at price increases.

Intel "has had a couple of black eyes over the past couple of months," says chip analyst Jim McGregor with In-Stat/MDR. Intel shares have fallen 28 percent this year.

But McGregor and other analysts say Intel remains a well-run company. Its second-quarter revenue rose 18 percent from a year ago. The company is "maintaining its leadership" by driving cutting-edge chip technologies, McGregor says.

And they say it's important not to underestimate the difficulties of Intel's challenges.

"It's not a problem of engineers napping," says Semico Research chip analyst Jim Feldhan. "We're getting down to atomic-level structures here."