1/26/2000 - 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.
"We've 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 (PCs) at."
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."
These 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 for Gateway.
Intel 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.
Short-term 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.
Market Impact
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.
But 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.
AMD 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.
User Recommendations
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.
The 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.
SOURCE:
http://www.technologyevaluation.com/research/articles/intel-chip-shortage-continuing-15302/
Intel Chip Shortage Continuing
AMD Earnings Beat the Street! Intel Earnings Beat the Street?
April 18, 2000 - Spurred by heavy demand for chips in the first quarter, chip makers AMD and Intel announced sales and earnings estimates far in excess of what "Wall Street" had predicted. For Intel, earnings were 88 cents per share, vs. the expected 69 cents per share. But the real surprise was AMD: analysts expected earnings to be 58 cents per share, the actual results were $1.15 per share, almost double the estimates.
Closer inspection reveals that 17 cents of Intel's earnings came from a tax settlement with the IRS, which means the earnings was more like 71 cents per share. Still ahead of estimates, but not a barn-burner of a quarter. Then factor in the "extra" $140M Intel earned from investments (i.e., expected $500M vs. actual $640M) and a picture of operational weakness starts to appear. Although Intel is clearly trying to stake out a major portion of the networking market, the problems for its microprocessor business - its bread and butter - must be troubling to management.
Market Impact
About a year ago, maybe two, everyone thought the CPU wars were over, with Intel the victor. Cyrix was just about dead, and AMD looked like all it could do was deliver lower-priced Intel-like processors. Although AMD's revenues are still only a fraction of Intel's ($1.1B vs. $8B for the quarter), their growth rate is currently greater than Intel's. Intel and AMD have also been going through rounds of aggressive price cuts, with the end-users reaping the benefits.
Even with the price cuts on the Athlon CPU et al., AMD is destroying (in the good sense) Wall Street's estimates, which would seem to indicate that their volumes are increasing and their production costs are decreasing. We expect continued performance (AMD also handily beat street estimates last quarter) will start to get Intel a little nervous, if they aren't already. In addition, rumors have surfaced regarding Dell Computer considering adding AMD chips (most likely Spitfire, a Celeron competitor, refer to TEC News Analysis "Will Intel Take a Loss on Each CPU, but Make It Up in Volume?"). If that isn't enough to give Intel CEO Craig Barrett the heebie-jeebies, then maybe nothing will.
As we have mentioned in the past, one place where Intel is still the only game in town is PC servers - they aren't called "Intel-based" for nothing. When/if AMD gets the "HotRail" chipset working (which will allow AMD's CPUs to work in a multi-processor environment), Intel will have another 12-24 months of relative peace in that market. (Making a quality multiprocessor system is naturally more complex than a "uni", and we expect it to take AMD that long to figure out and fix all the issues / complexities / problems.)
Intel still owns the corporate desktop, but AMD is making inroads there as well.
Finally: we believe at least some of the great sales and earnings performance was due to pent-up demand from the pre-Y2K jitters. Thus, we do not expect sales to be as robust during the second quarter.
User Recommendations
As we have said in the past, corporate users generally don't concern themselves with the brand of CPU powering their machine, except that there has been (and continues to be) a strong preference for Intel. Although "Intel Inside" still carries a certain cachet, we wonder how much longer it can maintain the aura. If Intel continues to commit blunders, the "halo effect" may wear out.
Users should review the performance specs of comparable Intel and AMD machines to determine if there is any difference vis--vis the programs they expect to run. AMD's performance numbers are generally comparable to Intel's, and generally at a lower price. However, Intel can probably reduce prices to a greater degree than AMD, as we believe their manufacturing costs are lower than AMD's.
IT professionals concerned about more than price should also review the various "roadmaps" from each company. Although Merced/Itanium is the next big thing in the chip world, the alleged backward-incompatibility with x86 code may cause people to reconsider it as their 64-bit upgrade path. With AMD planning to deliver their backward-compatible "Sledgehammer" processor soon after Itanium, IT managers may think twice about following Intel in lockstep.
SOURCE:
http://www.technologyevaluation.com/research/articles/amd-earnings-beat-the-street-intel-earnings-beat-the-street-15725/
