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Intel faces costly recall
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May 10, 2000: 4:08 p.m. ET
Cost of motherboard replacement could cost company hundreds of millions
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - Intel Corp., the world's largest maker of microprocessors, said it will replace up to one million circuit boards that could cause computers to intermittently freeze or reboot.
The cost of replacing the circuit boards could hit hundreds of millions of dollars, depending on how many users decide to have them replaced. The defect could turn out to be the most embarrassing one since the late 1994 controversy over a flaw in the company's Pentium microprocessors that caused incorrect answers to some division problems.
Intel (INTC: Research, Estimates) said in a press release issued Wednesday that it plans to reserve for the cost associated with the replacement program when it determines what the cost will be. Depending on how many circuit boards are replaced, the amount of this reserve could be "material," the release said.
"When a cost reaches a few hundred million dollars, then we consider it to be material," said Intel spokesman Michael Sullivan. "At this point, it's too early to know whether it will be material."
In late-day trading, Intel's stock was down 7-7/8, or 6.8 percent, at 109-1/16, while the entire Nasdaq was down about 3.8 percent.
The problem relates to certain motherboards Intel manufactured after November 1999. Motherboards are printed circuit boards that hold a computer's central processing unit, RAM chips, and expansion slots. Intel made a chipset called the "820" that can be used with two types of computer memory - a higher performance type called R-DRAM and an older, slower type called S-DRAM. The company made a component called a "memory translator hub" that enables the 820 chipset to be used with S-DRAM. Intel said in its release that some of those memory translator hubs give off electrical noise that can cause a computer to freeze or reboot.
In addition, when Intel placed the potentially defective motherboards under high stress conditions in a laboratory, the company's engineers found that the defect could corrupt data in some cases.
"To us, data corruption is not something that anyone should have to live with," Intel's Sullivan said.
Intel doesn't know which PC makers used the motherboards with the potentially defective memory translator hubs because some of its products are sold through intermediaries, rather than directly to PC equipment makers.
"Fewer than one million units were shipped to end customers. Not all seem to have this issue, but some do," Sullivan said.
Intel said that people who bought a PC made after November 1999 should check with the manufacturer to determine if it contains the memory translator hub used with the 820 chipset and S-DRAM. In addition, Intel placed a utility on its Web site that can determine whether a user's machine has the potentially defective component. That utility can be downloaded at www.intel.com/support/mth.
A spokesperson for Hewlett-Packard said only one product of one line, from HP's high-end business workstations, is impacted by Intel's defective motherboards. HP is putting a hold on shipments of all HP Kayak XM600 S-DRAM models. Meanwhile, a spokesperson for Dell said the defective component does not affect any of the company's products.
Analysts downplay impact
Semiconductor analysts generally downplayed the impact of Wednesday's announcement.
"Given that less than one million of these motherboards have been shipped, we do not foresee the reserve being above a few hundred million," said Erika Klauer, an analyst Deutsche Banc Alex. Brown. "The timing of the reserve will match when the shipments were made, resulting in a restatement of first quarter 2000 results."
"While this news is likely to cause further doubt in investor minds as to the company's ability to execute without flaws, we believe the memory translator hub issue will likely be temporary," Klauer said.
Joe Osha, a semiconductor analyst at Merrill Lynch, said he expects the replacement will cost Intel "a few hundred million dollars."
"We believe the biggest impact for Intel is that this is a technology black eye," Osha said in a note to Merrill clients. "We don't believe that many PC makers have chosen to ship motherboards in this configuration."
The 1994 Pentium chip flaw affected a small number of computer users who create complex spreadsheets with thousands of calculations. At that time, Intel said that the flaw would cause an error once every 27,000 years for the typical spreadsheet user, although IBM said errors could occur as often as once every 24 days within highly complex spreadsheets.
Intel releases information on new chip
Separately, Intel took the dramatic step of releasing to the public detailed information about the architecture of its soon-to-be released Itanium processor. Previously, information about the "microarchitecture" of Intel's chips was a closely guarded secret shared only with a few large software and hardware companies, such as Microsoft and Hewlett-Packard.
For Intel, releasing a reference guide that details the functional behavior of its forthcoming Itanium microprocessor is a double-edged sword. On the one hand, it enables thousands of software developers to write programs that are optimized for the new processor. On the other hand, it gives Intel's competitors, most notably Advanced Micro Devices (AMD: Research, Estimates), proprietary information about how the Itanium is designed. In this case, Intel decided that the benefit to software developers outweighed the risk of giving information to competitors, Intel's Sullivan said.
The Itanium is a 64-bit microprocessor that Intel expects to start shipping in the third quarter of this year. It will be used in workstations and commercial servers, rather than desktop PCs. Intel has billed the Itanium as "the most significant new development in Intel microprocessor architecture since the 386 processor was introduced in 1985."
While Intel started producing 32-bit chips in 1985, software operating systems weren't optimized for 32-bit architecture until a decade later, Sullivan said. By releasing the Itanium's microarchitecture details to the public, Intel hopes to greatly reduce the amount of time it takes software developers to create operating systems and compilers optimized for the powerful new chip. A compiler is a program that changes the high-level source code of a programming language into the basic strings of ones and zeroes that a computer understands.
To the same end, Intel said it will distribute thousands of prototype servers and workstations to developers and create "Net farms" that allow 64-bit programs to be tested on prototype systems over Internet connections. 
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