- Dell Computer Corporation said it expected a revenue and earnings shortfall
for this quarter. Among the reasons stated was a shortage of chips from Intel
Corporation. Dell claims it lost approximately $300 million in sales due to
its inability to meet demand for its high-end PCs. Intel is blaming the shortage
on "upside demand", which means demand for the particular chips was significantly
higher than forecast. In a recent statement, Intel has said it expects shortages
to continue at least through February and possibly March.
been able to meet our commitments. But we hadn't, in Q4, been able to meet upside
demand," said Intel spokesman, Howard High. "We're still, as a company, working
to get our capacity levels up to this (new) level that the industry is building
Dell chief financial officer Thomas Meredith said the shortages also forced
Dell to ship more expensive components in place of those it could not get, for
example, replacing unavailable 450MHz Pentium III chips with more expensive
500MHz Pentium III chips. "We ate that difference in order to fill the demand
that we created," Meredith said. On the high-end, "We didn't get the volumes
we would have liked."
problems come on the heels of the highly-publicized complaints by Gateway that
Intel was unable to keep up with Gateway's requirements, resulting in lost revenues
expects that its newest fabrication plant (to be called Fab 22), along with
$800 million worth of its updates to its Hudson, Mass., fab, should help ease
its supply situation in the long run.
relief should come from conversion of the company's New Mexico-based Fab 11
to manufacture processors on Intel's 0.18-micron process. This should be complete
by the end of this quarter, High said. Fab 22, Intel's first fabrication plant
to use 300mm wafers, is expected to come online in 2001. In addition to supply
issues, there are also concerns about the Pentium III's "flip-chip" design -
a package not uncommon in the industry, but new to Intel.
This is the latest in a series of problems for Intel. Although it is still the
800-lb. gorilla in the CPU market, it seems to be doing its best to provide
an opening for Advanced Micro Devices to gain parity. After Intel muscled AMD
out of Gateway through price cuts (See TEC News Analysis article: "Gateway
Drops AMD"), it only took them about three months to blow the deal
(See TEC News Analysis article: "Gateway,
Jilted by Intel, Kisses and Makes Up with AMD"). Compound this with
the bad press from the delays for the Coppermine chip, and the Rambus "fiasco",
and Intel starts looking vulnerable.
for Intel, like Scarlett O'Hara, there's always Tara, a/k/a Dell. Dell's success
has been partly due to its extremely close relationship with Intel, and thus
Dell is still an Intel-only house. We would have been surprised had Dell announced
it was going to second-source AMD after only one quarter of missed deliveries.
Michael Dell, however, is too good a businessman not to consider the AMD alternative.
Our only question is whether it will be two strikes or three before Intel has
company as Dell's CPU supplier.
must certainly be happy about this, but obviously should not get complacent.
In addition to capitalizing on Intel's woes in the present, they must also look
to the future. The 300mm wafers to be used in Intel's "Fab 22" do not threaten
AMD presently, but AMD will need to have its own 300mm facility to maintain
a lower cost structure.
This announcement has its greatest short-term effect on users committed to Dell
and needing either the latest, greatest Pentium III CPUs or certain Celeron
(low-end) CPUs. Those users will find shipments delayed until March, since Intel
has made it clear that the shortages will continue. Users need to get concrete/fixed
dates from Dell, and then decide if the delivery schedules (if delayed) are
acceptable. If they are not acceptable, customers have the fallback of purchasing
from Compaq, Gateway, or Hewlett-Packard - Dell's competitors who carry both
AMD and Intel.
long-term effect on users will be that competition between Intel and AMD will
intensify, which should result in some pricing benefit to users. Naturally,
when competitors get closer to parity, consumers benefit.