Intel grapples with Pentium supplies

Pentium supplies improve, but supply difficulties remain
Written by Matthew Broersma, Contributor

As Intel released two new Celeron processors this week, questions remained over the dominant chip maker's ability to supply top-end chips to its manufacturer customers in sufficient volumes.

The shortages first became apparent last October, with the launch of the new Celeron, when 733MHz chips were near impossible to find; the situation continued through late last year, impacting even the biggest manufacturers.

Gateway cited the shortages as the main reason for switching to rival Advanced Micro Devices (AMD) as its chip supplier. In January Dell issued a profit warning, attributing $300m (£183m) of lost consumer PC sales to the processor supply shortages.

At the time Intel chalked up the problems to an unusual surge in demand for PCs, which, along with increased competition from AMD, caused Intel to release some new chips before it had reached historically sufficient levels of supply. Also playing a part was the transition to new manufacturing technology, which temporarily decreased production capacity.

Pat Gelsinger, vice president of Intel's desktop products group, promised a speedy fix to the problems: "In Q1 we will catch up on everything," he said at the time.

So, with Q1 ending Friday, what progress has been made?

Generally, it seems that Intel is back up to speed with its most recently introduced chips -- with the exception of the one-gigahertz Pentium III.

Some dealers have said the 800MHz Pentium III remains difficult to find, but British manufacturers said their supplies were adequate. "At the moment it's not too bad, we have a reasonable supply," said a representative of Mesh. But "there are some issues with getting higher-speed CPUs," he added, specifying the 1GHz chip.

Dell, which uses Intel as its exclusive chip supplier, and which is often the manufacturer to get Intel parts to market first, said it is having "no problems at the entry-level, medium or high end", though supplies of the 1GHz PIII are "reasonably tight", with an 11-day lead time. Dell's customers normally face an eight to nine day wait.

Dell has apparently surmounted the financial side-effects of the shortages. Mort Topfer, a Dell director and counselor to CEO Michael Dell, told an audience of money managers attending the annual SG Cowen Global Technology Conference in Cannes earlier this week that parts shortages were no longer a threat to near-term results. He did say the company is planning conservatively for the year, however.

All is not rosy for Intel, however, with shortages continuing with the highest-end chips.

Dell is currently the only manufacturer to release a 1GHz PIII system in the UK. Unlike Mesh, which has announced a system but has not yet begun shipping, Dell has been able to take advantage of its supplies from the US side.

"I'm not saying we have vast quantities [of the 1GHz PIII], but we can meet top-end demand," said Dell desktop product manager Stephen Duignan. "The gigahertz chip is not yet in a volume market."

Of course, that hasn't stopped AMD from making its own gigahertz chip plentifully available, to Intel's embarrassment. The 1GHz Athlon is currently available in Europe from Gateway as well as several smaller OEMs.

Intel has not yet returned to the levels of inventory of mid-1999. Before Athlon's autumn launch, Intel's practice was to build up reserves of its processors before launch, so that OEMs could have systems available immediately when a new chip was announced.

While Intel did follow this process with the Celeron launch, the company admits it still does not have the inventory on hand it would like.

Nowadays Intel is distinguishing between normal launches and "limited volume" launches. "Intel is being very clear about the supply they have," said Dell's Duignan. "If it's a top-end processor, they're being fair, and saying... 'We're not in a position to supply volume quantities.' They don't want people to get their expectations up and then be disappointed."

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