Pentium - IBM stopped shipment

[Antonin Novotny]

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A. Novotny, FJFI CVUT
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AP Online
AP 12 Dec 94 17:35 EST V0519

   SAN JOSE (AP) -- IBM stopped shipments Monday of personal computers with
Intel's flawed Pentium chip, dealing another blow to Intel as it struggles to
cope with the problem in its flagship product.
   International Business Machines Corp., the world's largest PC maker and
co-developer of a rival processor, said Pentium's problems are worse than
earlier believed.
   Analysts said it remained to be seen whether IBM's move would hurt Intel,
the world's biggest manufacturer of computer chips. Most still consider the
bug a minor problem, and sales have not suffered despite the public relations
nightmare for Intel.
   "It's potentially serious," said Mark Edelstone, an analyst with Prudential
Securities Research in san Francisco. "It's the first indication we have had
that demand ... could be adversely impacted by the Pentium flaw. And from here
we will have to see how significant change in demand ... becomes."
   Analysts didn't think IBM's decision was intended to boost the PowerPC
microprocessor the company developed with Apple Computer Inc. and Motorola
Inc. The chip -- powering a new line of Apple Macintoshes and future IBM PCs
-- is intended to rival the Pentium.
   Intel, based in Santa Clara, Calif., called IBM's decision unwarranted and
stood by its studies showing that the mathematical flaw causes errors very
rarely in certain calculations used by serious number crunchers.
   "Based upon the work of our scientists analyzing real-world applications,
and the experience of millions of users of Pentium processor-based systems, we
have no evidence of increased probability of encountering the flaw," said
Andrew Grove, Intel's president and chief executive officer.
   Gateway 2000 and Dell Computer Corp., among the leading users of the
Pentium, said it had no plans to halt shipments of its PCs based on the chip.
The companies said while customers and people interested in buying computers
expressed concerns, no one has reported any problems.
   The IBM announcement pushed down Intel's stock price. Intel shares closed
down $2.37 1/2 at $60.37 1/2 on the Nasdaq Stock Market. IBM closed at $70.62
1/2, down 87 1/2 cents, on the New York Stock Exchange.
   Intel spent hundreds of millions of dollars developing the Pentium, a
high-end microprocessor that serves as the "brain" of personal computers. It
expects to sell nearly 6 million Pentiums by the end of the year; about 2
million flawed chips had been shipped by the time Intel discovered the error
last summer.
   Intel maintains the error is minor, occurring once in every 9 billion of
certain kind of division calculation. The likelihood of a Pentium user
encountering the error is only once in 27,000 years.
   Intel said it would replace the chip for customers who can show they use
their Pentium-based PCs for complex calculations that could be affected by the
flaw. Intel expects to have new, bug-free Pentiums on the market early next
year and is working on software to work around the error.
   Critics, however, have accused Intel of being less than forthright about
the problem, and some demanded a recall. The company became the butt of jokes
on the Internet.
   IBM also said Monday that its own tests showed that there are many cases in
which the risk of error may be significantly higher.
   Tests indicated that Pentium customers using common spreadsheet programs
could encounter errors as often as once every 24 days, the company said.
   "We believe no one should have to wonder about the integrity of data
calculated on IBM PCs," G. Richard Thoman, an IBM senior vice president, said
in a statement. The company, however, said it would ship Pentium PCs to
customers who wanted them.
   Industry observers pointed out that IBM ships relatively few PCs powered by
the Pentium. Sam Albert, president of Sam Albert Associates in Scarsdale,
N.Y., said only about a fifth of the PCs IBM sells are powered by Pentium
chips.
   Still, he said, the development could hurt IBM as well as Intel.
   "I don't think IBM did this lightly. ... I don't think any vendor would
want to hold back shipments in the fourth quarter of the year," Albert said,
referring to the traditionally busiest sales season.
   Jerry Banks, an analyst with Dataquest Inc. in San Jose, said customers who
want Pentium systems are buying them regardless of the flaw. But others
believe IBM's move could increase doubts in the public's mind about the chip.
   "The customer will be a little leery to buy a machine until (the problem)
is rectified," Albert said.