Intel Chip Sets Sold Out

The chip maker says its chip-set manufacturing capacity is maxed out.

Intels chip-set factories are running flat out, the company said.

The chip giant, which earlier this year said it was reprioritizing its chip-set manufacturing in an effort to keep up with demand, doesnt expect to catch a breather until early 2006, said Andy Bryant, Intel Corp.s CFO, on Thursday.

Chip sets provide the equivalent of PCs nervous system and thus are designed to work with a specific family of processors, making them a vital component that cant be easily substituted.

"Were sold out on chip sets," Bryant said during a conference call to discuss Intels third-quarter financial update. "I think chip sets [will] remain tight into the fourth quarter."

The third quarter can be a wild card for Intel; PC makers sometimes hold off on placing orders for components like processors until the last month of the quarter as they try to get a read on fourth-quarter demand.

But, thus far, the quarter has generally gone as expected, Bryant, said during the call, despite the chip-set woes.

As a result, Intel narrowed its revenue projection from $9.6 billion to $10.2 billion to between $9.8 billion and $10 billion, but didnt change the mid-point of that range, $9.9 billion, signaling the steady-as-she-goes outlook to financial analysts.

The analysts generally view the midpoint of Intels guidance as its de-facto quarterly revenue estimate and therefore watch it closely.

Bryant summarized the first two months of the quarter by saying that aside from manufacturing—overall manufacturing has been positive for Intel as costs have been running lower than expected due to higher wafer starts and lower spending thus far in the quarter—all other factors, including revenue, which reflects on the prices Intel is getting for its chips, and unit shipments were as expected.

The tight supplies of chip sets, which Bryant said Intel expected to see coming into the quarter, stem from the ultimate manufacturing capacity of the network of older chip plants Intel uses to produce its chip sets and other processors such as communications chips, Bryant said.

Intel reserves its newer, high-capacity plants for producing its processors.

Intel will add capacity to the network later this year, but that bump wont have a noticeable affect on supplies of chip sets until the first part of 2006, Bryant said.

Indeed, wafers, the silicon discs on which chips are made, can take a month to make a complete trip down a manufacturing line.

The wafers are eventually shipped off to be carved up, creating numerous individual chips, which are packaged and sold.

The chip-set issue first cropped up during Intels second-quarter earnings discussion.

At that time, Intel said it would reprioritize its chip-set manufacturing and focus on ensuring adequate supplies of its high-end desktop and mobile chip sets.

The measure, it said at the time, could leave some chip sets in short supply, should demand for them spike.

Indeed, "We are putting more of our wafer starts on the leading-edge product," Bryant confirmed during the call.

Intel expects to leave its competitors with a bigger than normal opportunity until it can increase production, Bryant acknowledged in the call.

Once source familiar with Intels production changes told Ziff Davis Internet in early August that the company would back-burner its low-end 900-series chip sets, including models such as the Intel 910GL Express and 915GL Express, for desktop PCs.

The two chip sets are designed for relatively low-end Celeron and Pentium 4-based desktops.

However, Intels 840 and 860 series chip sets, which are arguably more popular for corporate and consumer desktops using Celeron and Pentium 4 processors, were not to be affected by the changes, that source said.

Intel refused to comment on which chip sets were being bumped at that time.

"Were doing the best we can to meet the demand for the majority of our customers," Bill Kircos, an Intel spokesman, said at the time. "We can be pretty quick [to change] and flexible about our manufacturing schedule. In this case its prudent to prioritize."

Kircos, at that time, also denied reports that Intel would exit parts of the chipset business.


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