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New York, N.Y. — Ian Fried reports that Intel has recalled its fastest chip – the 1.13-GHz Pentium III – saying the chip could cause system errors when running certain programs and at a particular temperature.

The problem is with certain circuits of the chip that have been shown to malfunction in laboratory tests under certain conditions, said Intel spokesman Howard High. Intel said it has not received reports from customers of any problems, but the glitch has been noted by some hardware review sites in recent days.

Intel Corp’s Chief Executive Craig Barret said that the company had fallen short in the development of its newest and fastest chip. “We should have done a better job,” he said, speaking to Reuters in Buenos Aires on Tuesday, during his tour of South America. “We know what the problem is and are in the process of fixing it to ship new product.”

“While the financial impact is negligible it makes Intel look bad to their customers,” U.S. Bancorp Piper Jaffray analyst Ashok Kumar wrote in a note to clients. “The company is announcing products they cannot ship, and it turns out, do not even work properly.”

As reported by CNET News.com, Dell Computer and IBM have stopped shipping PCs with the processor. Intel said it will work with those companies to satisfy existing customers.

“Clearly if they want a replacement, then we will replace (it),” High said. “If they want a refund, we’ll accommodate them.” The 1.13-GHz chip began shipping July 31 in limited quantities.

An Intel spokesman said the chip had only shipped to “a handful of customers,” including International Business Machines Corp. and Dell Computer Corp., but declined to comment on exactly how many chips had been shipped.

“We estimate that the company has shipped less than 10,000 units and, as such, the financial toll is negligible,” said Kumar. “Also, given that these products populate high-end systems priced at about $3,000, the opportunity cost is minimal.”

“There can’t be very many – tens of thousands at most,” said Linley Gwennap, principal analyst at The Linley Group. “I wouldn’t be surprised if it was under 10,000.”

Word of the glitch came on the same day that rival Advanced Micro Devices announced shipments of its 1.1-GHz Athlon.

Analysts say competition with AMD may have caused Intel to release a chip that wasn’t ready. “It sounds like Intel may have pushed a little too hard,” said chip analyst Peter Glaskowsky of MicroDesign Resources. “It shows the Pentium III is not really capable of reaching these levels.”

Gwennap noted that Intel did not originally have the 1.13-GHz chip on its road map and has struggled to produce the 1-GHz chip in enough quantity to satisfy customers.

“When you push the clock speed beyond what it was designed to do, you run into problems,” Gwennap said. “They rushed to get the 1-GHz chip out, and they couldn’t produce enough of them.”

Intel said it has identified the cause of the problem and will fix it by redesigning the circuits in question. “It’s probably a couple of months before we get units back into the marketplace,” High said.

Although other Pentium III processors have the same design, Intel said it has not found the same problem in other chips. “We’ve done quite a bit of testing, and we haven’t seen anything,” High said.

Intel said the fact that it had not shipped many of the processors will make the problem easier to remedy than past glitches, such as the bug with the 820 chipset. In that case, computer motherboards with the defective chipset were sold through distributors and available in computers from many retailers.

“We’re kind of early in the process, which is a benefit with something like this,” High said.

Only Dell, IBM and a few European companies had been selling systems with the 1.13-GHz chip. Intel said it is recalling chips that have not yet been sold and has halted its shipments of the processor.

High said various computer hardware review sites began noting a problem with certain kernels of the Linux operating system. Intel at first could replicate the problem only when the chips were operated outside recommended temperature specifications. Over the weekend, it began noticing problems even within the chip’s specifications.

Intel executives said it was too soon to say how much the bug might cost, but the cost will not be material to Intel’s earnings.

While the recall was small in size, it was not the first. In 1995, Intel recalled its first Pentium due to a flaw, in what was cited by then-chief executive Andrew Grove in his book “Only the Paranoid Survive” as a defining event for the company as it became a household name.

Last year, Intel recalled its Intel 820 chipset due to a design flaw in technology provided by Rambus Inc. In May, Intel recalled defective motherboards – the internal chassis that hold memory components in personal computers.

Salomon Smith Barney analyst Jonathan Joseph said that the small size of the current recall made it “no big deal.” “This is not a black eye, this is a nit,” he said. “The magnitude of this recall is infinitesimal. It is in no way comparable to the 1995 Pentium recall.”

But Kumar said the implications of the recall were more serious than its size would suggest. He blamed Intel’s race against AMD to the claim to the fastest chip as part of the problem.

“This is another sign that the 1.13 gigahertz chip is pushing the envelope for an architecture developed for 2 gigahertz speeds,” he said, noting that Intel had missed the transition to copper interconnects on its 0.18 micron process, and was using a core that was five years old.

“Essentially they are pushing an aging architecture to keep pace with AMD’s Athlon, to have bragging rights to the fastest processor,” he said. “Intel should have introduced the P4 a long time ago. Their research and development budget is much larger than AMD’s. That they can’t keep pace with such a small competitor as AMD speaks volumes about the company.”

Intel’s Barret, however, said that the chip’s trouble was not due trying to pace AMD. “I don’t think it was an issue of getting it out before the competition,” he said, adding that the company’s Pentium 4 would be available in October or November.

But Kumar warned Intel’s flawed chip could test the patience of its customers. “Intel having this reoccur on a constant basis is just stretching the relationships with OEMs,” he said, referring to original equipment manufacturers such as IBM and Dell.

However, those computer makers, which both received shipments of the faulty chips, said they did not yet see cause to alter their relationships with Intel.

IBM had begun shipping some Aptiva desktop computers with the chips, a spokesman said. “We don’t know exactly what we are going to replace these chips with right now,” said IBM spokesman Tim Blair, adding that IBM was working on how to get parts back from customers.

Dell Computer Corp. had planned to ship products with the new chip last Friday, and was told by Intel to hold off, a Dell spokesman said.

“We were taking orders starting July 31 and anticipating shipment on August 25, when some of issues began to come up,” said Dell spokesman Tom Kehoe. “We found out on Monday we would not able to ship them at all, so we will be offering a one-gigahertz system to those who have placed orders.”

Dell, which relies solely on Intel for its processors, would not have any material impact on sales or earnings, and was not considering a change in their relationship with Intel, Kehoe said.

In addition to the glitch that forced the recall of the 820 and the delay of the low-end Timna chip, Intel has had delays and performance issues with its forthcoming Itanium chip, which is aimed at high-end servers.

Gwennap noted that Intel’s manufacturing woes over the past year – and AMD’s success – reverse what had been the trend.

“For a long time, Intel was this machine that couldn’t break and AMD couldn’t take two steps without tripping,” Gwennap said. “For the past year, Intel has been having problem after problem, and AMD keeps cranking out more and more chips.”

Gwennap said that while the Pentium III may have hit its limit, Intel will be able to introduce chips at much faster speeds when it debuts the Pentium 4 later this year.

The Pentium 4 design “clearly allows higher clock speeds,” Gwennap said. “That’s one of the reasons they are moving to a new architecture.”

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