Intel running short of Pentium 4 chips

Intel is having trouble keeping up with demand for its Pentium 4 processor, leaving some customers and retailers short of the chips in the run up to the end-of-year holiday sales season.

"At this time demand is stronger than our supplies," said Hisashi Nagai, a spokesman for Intel KK, the company's Japanese subsidiary. Nagai said a strong jump in demand from October that surpassed the company's estimates came as a surprise and left factories unable to fulfill orders.

"Pentium 4 processor demand is very strong and we are increasing the volume. Factories are ramping (increasing production) and we expect to catch up at the end of the year," he said. Demand for the processor doubled from the first quarter to the second quarter, Nagai said, and in the third quarter it was four times that of the second.

In particularly short demand is the 478-pin version of the chip, one of two types that Intel offers. The other, which has 423 pins, is similar but plugs into an earlier type of connector socket. Intel has announced plans to transition to the newer 478 pin design and many computer motherboards already support that version. Because each chip is physically incompatible with the other's socket, the continuing availability of 423 pin Pentium 4 chips is not easing supply problems.

In Tokyo's Akihabara district, an area thick with stores selling chips and components for computers, some retailers began hanging up the "sold out" signs for the 478-pin variant of the chip earlier this week.

In the U.S., meanwhile, Dell Computer Corp. stopped offering the 2GHz Pentium 4 altogether for a short period earlier this month because supplies were lacking, Dell spokesman Tom Kehoe said. The disruption lasted only a few days, he said, and he wasn't aware of any ongoing supply problems.

Intel representatives in the U.S. did not return calls seeking comment for this story.

While the shortage of chips may be bad in the short-term for PC makers and buyers, the good news is that the problem was caused by stronger than expected demand. After slumping for much of 2001, an uptick in sales of personal computers is badly needed by many manufacturers to help turn around sinking business.

One analyst said customers may have focussed on buying higher-end PCs, choosing systems that they think will last for the longest amount of time. "If more people did that than usual, that would throw the forecast (for Pentium 4 orders) out of balance," said Dean McCarron, principal analyst at Mercury Research Inc.

"It does seem apparent for both Intel and AMD (Advanced Micro Devices Inc.) that their higher-end products are in greater demand than had been expected," he said.

The supply issue could signal a strong quarter for Intel financially, he added. "It looks like there's quite a bit more demand at the top end than anybody had really expected."

Typically, chip makers ask their biggest customers how many products they expect to sell in the coming quarter, and if customers sell more than expected, that can cause a shortage, he said.

In the U.S., a poll of major electronics retailers conducted by investment bank Thomas Weisel Partners LLC showed that sales of PCs have been better than expected.

"Driven by Windows XP and aggressive pricing, most of the stores we spoke with are selling more PCs than expected," wrote Eric Ross, research principal at Thomas Weisel, in a research note published on Monday.

A spokeswoman for HP declined to comment on its supply of Pentium 4 chips, and other major PC makers in the U.S. didn't immediately return calls seeking comment.

(Sumner Lemon of the IDG News Service in Taipei contributed to this report.)

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