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Intel Unveils Multitasking Chips, Assures No Product Delays

Posted on: Wednesday, 8 September 2004, 06:00 CDT

SAN FRANCISCO - Intel Corp. President Paul Otellini demonstrated new chips scheduled for release next year that simultaneously run tasks such as burning CDs and playing video games as he sought to allay concerns about product delays.

Intel, the world's biggest semiconductor maker, will design all of its chips with more than one processor, or core, allowing computers to perform multiple tasks at the same time, Otellini, 53, said at a conference in San Francisco.

"This is not a race; this is a sea change in computing," he said at the company's biannual Intel Developers' Forum.

Intel, which last week cut its sales forecast for the first time in two years, will release chips with multiple cores next year, Otellini said. Intel would move away from creating chips that are merely faster than their predecessors to making chips with new functions. The chips may help revive sales after design flaws that delayed or killed five projects this year, said Legg Mason Wood Walker analyst Cody Acree.

"It's a shift in mentality for the company and a critical step for Intel and the industry," said Acree, a Dallas-based analyst who rates the shares "buy" and doesn't own them. "Increasing processor speed has to some degree played out, and this could give people whole other reasons to buy PCs."

Santa Clara, Calif.-based Intel and personal-computer makers including Dell Inc. and Hewlett-Packard Co. traditionally relied on increases in a chip's "clockspeed," the number of calculations a machine makes per second, as the primary selling point for PCs.

With speed now 36 times faster than it was a decade ago, users want features such as longer battery life for notebook computers and surround sound. Advanced Micro Devices Inc., Intel's closest competitor in PC processors, demonstrated its first dual-core chip Aug. 31 at its Austin, Texas, offices.

Otellini demonstrated a weather tracking program running on a new version of its Itanium 2 server chip code-named Montecito. The new chip has 1.72 million transistors.

"Intel's strategy is they can't do what we've done for the last 10 years and get people to pay up for speed," said Daniel Morgan, who helps manage $6 billion including Intel shares at Synovus Investment Advisors in St. Petersburg, Fla. "They're trying to focus on other bells and whistles."

Intel in March said that it would classify its chips differently, adopting a method that names processors according to features instead of speed.

The company in June released Grantsdale, its first upgrade to the main chipset that runs a PC in more than a decade, and touted its ability to sharpen graphics and give users theater-quality sound on the desktop.

Intel recalled some Grantsdale chips a week after the release because a flaw caused some PCs to shut down, one of a series of design and manufacturing troubles on Otellini's watch. The company delayed the new version of its best-selling Pentium chip and three other chips this year and canceled another project in May.

Otellini is in line to replace Chief Executive Craig Barrett, 65, by the annual shareholder meeting in May. The operational problems raised concerns about his ascension.

"They've had quite a few stumbles recently, and ultimately, [Otellini] is the guy you look at," said Greg Barlage, who helps manage $7.5 billion including Intel shares at Stein Roe Investment Counsel in San Francisco.

The missteps prompted an open letter to all Intel employees from Barrett criticizing the mistakes and encouraging efforts to end them.

"I don't want to launder dirty laundry in public," Otellini said, declining to give details of the steps Intel has taken since then. "You all saw Craig's letter and I certainly read it."

Intel last week cut its sales and profit margin forecasts, citing slowing global demand for PCs.

Shares of Intel are the worst performing in the Dow Jones Industrial Average this year. The stock fell 16 cents, to $19.89, on Tuesday in Nasdaq stock market composite trading.

The new chips help solve one of Intel's biggest problems, microprocessor analyst Dan Hutcheson of Sunnyvale,Calif.-based VLSI Research Inc. said.

The Tejas chip, canceled in May, would have been the next version of the Pentium 4. It faltered partly because of technical problems such as overheating, Hutcheson said.

Advanced Micro will ship dual-core chips to customers in the second half of next year, Chief Executive Hector Ruiz, 58, said in an interview last week in Dresden, Germany.

"We should start talking about what Intel is going to do to close the gap with AMD," he said. "Our performance is higher."

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