Archive: The perils of the Pentium II

Stock markets around the world were reeling Friday when Intel reduced its second-quarter estimates based on weak demand for personal computer sales, but that’s nothing compared to the poor outlook it faced on the launch of the Pentium II.

“”Intel blames slump on build-to-order strategies,”” CDN reported in 1998, when Intel said it would cut 3,000 jobs in the wake of dismal first-quarter revenues. Though an executive told us Pentium sales were up, he said Intel’s OEMs were having problems creating build-to-order strategies that created a drop in PC shipments.

At the time, Piper Jaffray analyst Ashok Kumar said Intel would have been better of changing its own products and services than shedding employees.

“”You can’t put a hatchet to the workforce,”” he said. “”You have to use a scalpel and remove the fat later. The past few years have been the fat years, and with a more malignant PC environment going forward, they’re going to have to re-align the cost structure to be fit for that landscape.””

The Pentium II launch was mired with problems. Earlier that year, both Digital Equipment Corp. and Cyrix Corp. launched lawsuits alleging that Intel infringed on their patents. Despite the negative publicity, a senior executive said the chips would change the way users interact with computers.

“”We’re going to move from the era of multimedia to the era of visual computing,”” said Intel vice-president Paul Otellini, who later went on to become president of the chipmaking giant.

The Pentium II launch also saw Intel differentiating its product line with the introduction of the low-end Celeron processor. This marked a change in direction whereby Intel decided to offer a socket version of the chip similar to that favoured by AMD and Cyrix. Altering the traditional Slot 1 design of the Pentium II allowed Intel to cut costs as well, the company said.

“”What we’re doing now, is we’re developing different processors, completely different from each other for each market segment. So you will have the Celeron line evolving on its own, separate from the different evolution that we’ll have on the Pentium II line,”” said a spokesman.

By January of 1999, however, Intel was already moving on, saying that manufacturing efficiencies would allow it to speed up its product roadmap and launch the Pentium III ahead of schedule. At least one analyst worried that Intel was now moving too fast. “”When you buy a PC, you don’t expect that in three months it’s going to be obsolete,”” she said.

Given Intel’s position as a bellwether for the industry, it’s hard to imagine many of the people searching for signs of an economic recovery in 2002 making a similar complaint today.

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