Turmoil in CPU-Land

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Turmoil in CPU-Land
R. Krause - September 18, 2000

Event Summary

August 29, 2000 - Intel Corp. will recall its 1.13GHz Pentium III chip. Intel officials said the company is recalling the chip due to a problem that could cause certain applications to freeze.

"We found some marginality in the part within certain temperatures within the operating range and certain code sequences (in applications)," said spokesman George Alfs. "We're not happy with the chip and we're going to pull it back."

Only some of the 1.13GHz chips showed the problem, according to the chipmaker. However, the company will recall all 1.13MHz Pentium III processors that have shipped to date. Presently, IBM has shipped the chip, but no other US PC manufacturers have. Dell Computer was alerted to the problem before any of their systems were shipped to customers.

August 30, 2000 [Source: AMD press release]-- AMD announced today that Larry Hollatz, group vice president of the company's Computation Products Group, has resigned to pursue other interests. Effective immediately, Hector de J. Ruiz, AMD president and chief operating officer, will serve as acting group vice president for the business unit which produces PC processors.

Market Impact

First, the Intel problem. The magnitude of the chip recall is nothing like Firestone's recent tire recall (relatively few of these CPUs have made it to customers yet), and the furor will die down before long. But, this latest problem, combined with other recent issues (ref. TEC NA Should It Be Renamed 'Unobtainium'? ), indicate to us that there are still underlying problems in the company. We have hinted before that CEO Craig Barrett might want to look into the situation more closely; we reiterate that suggestion. Frankly, we'd be a little surprised if he hadn't already started "kickin' some tail". All of this provides yet another opportunity for AMD to succeed at Intel's expense.

For some time, AMD has been matching Intel shot-for-shot, and in some cases winning (relative to CPU performance). This has elevated AMD from its former "me-too" status to a serious contender in the Intel-architecture market. We don't envision AMD surpassing Intel any time soon (especially because of AMD's non-presence in the server market), but this stuff does make life interesting.

For AMD, we envision a slight loss of momentum (as generally happens when a key person leaves), but we do not presently believe the long-term effects will hurt AMD greatly.

User Recommendations

The normal suggestion would be to check your PC to see if it's using the offending CPU. Since only IBM (of the major vendors) has shipped any systems, and since they seem to have the situation well in hand, users are running a low risk of problem(s).

For the longer term, users should keep a watchful eye on both Intel and AMD, though for different reasons. Intel watchers should see if the missteps continue; if they do, customers should give serious consideration to switching to AMD. A key indicator: if Dell Computer decides to add AMD processors to their product line. Dell has been the most steadfast of Intel's supporters thus far; their "defection" would spell trouble. (No, we have no evidence of this happening, we merely mention it as an indicator.)

AMD will be more difficult to assess, because the effect of a personnel change generally takes a lot longer to become apparent. Additionally, momentum can carry a company for awhile. If we see significant attrition (such as key designers, etc.), this will be a bad sign. If there is no apparent loss of momentum over the next 3-6 months, then AMD will probably weather the change well.

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