Intels Plan for Faster Chips Hits Speed Bump

Fab glitches also threaten delivery of newer chips.

Already dealing with an inability to meet demand for its 1GHz mobile Pentium III chips, Intel Corp. is now facing a manufacturing problem that could delay the chips even-faster successors.

A delay in the delivery of a key chip-making machine to the Santa Clara, Calif., semiconductor company could disrupt its plans to ship later this year a 2GHz-plus version of the Pentium 4, code-named Northwood. An upcoming mobile chip, code-named Tualatin, should be released on time this summer, but volumes could be affected by the problem. As a result, corporations hoping to get the latest PCs this fall could very well be out of luck.

Although Intel officials said the processors will be introduced as planned, sources said only one of four fabs scheduled to produce the new chips will be ready on time. As a result, though Intel may be able to introduce chips on schedule, sources said the company will be unable to produce as many as planned.

The manufacturing machine in question is the Micrascan V, by Silicon Valley Group Inc.s Lithography Inc., which will enable Intel to build chips with the 0.13-micron process instead of the existing 0.18-micron process. SVG is running months behind schedule. Company executives told analysts of the delay April 25.

"We would have liked to have had that machine in April," said Papken Der Torossian, chairman and CEO of SVG, in San Jose, Calif. "Now it looks like it wont be until sometime in the fourth quarter."

Declining to comment on the reported delay, Intel officials were confident last week about shipping the next chips on time. "Were on track to begin shipping products this year on 0.13 micron," said Intel spokesman Chuck Mulloy. Nevertheless, sources said the delay has forced Intel to sign a multimillion-dollar licensing agreement to use an alternative chip-making solution from Numerical Technologies Inc., in San Jose, Calif. Called phase-shift mask technology, it will enable Intel to use 0.18-micron machines to make 0.13-micron parts.

Sources, however, said the late switch to NTI and other related technical issues could result in delays and make Intel unable to meet volume targets. The move is also costing Intel millions of dollars more than expected, sources said.

In addition, the delay is exacerbating Intels current 1GHz mobile chip shortage. At 1GHz, the mobile Pentium III is being produced at close to its speed limits on the 0.18-micron process, analysts said, causing a steep drop in manufacturing yields and resulting in a shortage of the chips.

But once Intel moves to using the 0.13-micron process, it will be able to significantly improve yields and rev the chip even faster.

Last year, Intel faced a similar problem with the 1GHz desktop version of the Pentium III, said analyst Kevin Krewell, of MicroDesign Resources, in Sunnyvale, Calif. While Intel made enough chips to introduce the product, Krewell said, it was unable to ship them in volume.

"They probably pushed it so they [could] cross the 1GHz notebook barrier first," he said. Chip rival Advanced Micro Devices Inc., also of Sunnyvale, beat Intel to the punch on the desktop last year when it was first to release a 1GHz chip. But the existing low yields on the chip indicate that Intel has pushed the Pentium III as far as it can with the 0.18-micron process. Speeding the chip more could result in an unstable product and another embarrassing recall, such as Intels highly publicized withdrawal of its 1.13GHz Pentium III last August.

For PC makers, Intels low yields mean shortages. IBM spokesman Ray Gorman said that while "availability of the 1GHz processor is constrained," it will have minimal immediate impact, in part because IBMs major corporate customers currently are more interested in buying ThinkPads that feature 900MHz chips.

Dell Computer Corp., Hewlett-Packard Co. and other PC makers agreed that the lack of 1GHz mobile chips so far has posed few problems. But the shortages could become more severe and widespread if Intel has problems moving to its new manufacturing method.

Intels move to a "fail-safe" isnt unusual, one analyst said. "You always have hiccups when you ramp a new technology," said Klaus Rinnen, director of the Semiconductor Manufacturing Analysis Group at Gartner Dataquest, in Stamford, Conn.

More important, Rinnen said, is if Intel needs to move quickly to 0.13. "Is there a market for those products?" he asked. "We can only speculate."

Jim Kennedy, senior systems analyst at CST Inc., said he doesnt believe so.

"I dont see a 20 percent boost in CPU power making much of a difference in an average users daily life," said Kennedy, who helps manage databases at the Commander Navy Region Southeast center at Jacksonville, Fla.

"The 0.13 micron is really important for Intels product plans," MicroDesigns Krewell said. "In order to get beyond 1GHz with Pentium III and above 2GHz with the Pentium 4, they really need to move to the 0.13-micron process."