Intel Runs 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 as they ramp up to the end-of-year holiday sales season.

"At this time demand is stronger than our supplies," said Hisashi Nagai, a spokesperson 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 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. Intel introduced the P4 just about a year ago, in November 2000.

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.

Wanted: New PCs

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 United States, meanwhile, Dell stopped offering the 2-GHz Pentium 4 altogether for a short period in November because supplies were lacking, Dell spokesperson 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 United States did not return calls seeking comment for this story.

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

One analyst said customers may have focused 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.

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

Sales Boost?

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

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 United States, a poll of major electronics retailers conducted by investment bank Thomas Weisel Partners 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.

An HP spokesperson declined to comment on its supply of Pentium 4 chips, and other major PC makers in the United States didn't immediately return calls seeking comment.