SANTA CLARA, Calif. -- What started out as a product recall Wednesday may end up as a Direct Rambus DRAM (RDRAM) giveaway program that could prove exceedingly costly for Intel Corp. here.
According to Intel estimates, the recall affects fewer than a million motherboards. But if every customer were to trade in defective boards for Rambus-equipped devices, the glitch could cost the company as much as $300 million, according to Drew Peck, analyst with SG Cowen Securities Corp. in Boston.
Following customer complaints that certain motherboards equipped with the Intel 820 chip set were intermittently rebooting or locking up, the chip giant today offered to replace each of the defective devices (see May 10 story). Optimized 820 boards are designed to support Direct Rambus memory, but the product failure occurred in boards using a so-called Memory Translator Hub (MTH), which allows the chipset to connect to lower-performance SDRAM memory chips.
The MTH option was included because a lack of Rambus parts and the interface's three- to four-fold price premium over SDRAM has kept Intel from shipping as many Direct RDRAM-enabled 820 chipsets as it would have liked. Now, with the defective MTH components effectively forcing Intel to adopt an all-Rambus product plan for its 820 chipset family, customers who had previously purchased the slower boards will receive what amounts to an automatic upgrade.
"This would be a very high price for Intel to pay, depending on the number of boards to be replaced," said Bert McComas, an analyst with InQuest Research Inc., of Gilbert, Ariz. "The 820 board itself isn't cheap, and if Intel is forced to replace lower-cost SDRAM DIMM memory with Direct RDRAM at three to four times higher prices, this could be significant."
However, SG Cowen's Peck estimated that the return rate would amount to only about 10% to 20% of users -- though he said there would be an unknown added administrative cost associated with processing the recall. Also unknown was whether the return rate might rise, if customers begin viewing Intel's offer less as a recall and more as a chance for a free memory upgrade.
"It's not clear how Intel is going to work this," said Dean McCarron, analyst with Mercury Research Inc., in Scottsdale, Ariz. "There are a couple of scenarios. One is that end users return the system to where they bought it, and they could get a new system or perhaps a new motherboard, probably from Intel. . . The real problem is when you've got six or seven white-box systems within a dentist's office [that need to be replaced]. That gets complicated."
As an alternative, customers also will be able to request non-Rambus boards to replace their defective parts, included motherboards that use conventional 440BX and Intel 810 chip sets, both of which connect directly to SDRAM. Although downplaying such a swap, an Intel spokesman Wednesday confirmed that the company "will work with customers to meet their needs."
While Rambus offers the potential for higher performance, McComas cautioned buyers that they may not receive top-of-the-line Direct RDRAM chips in trade. The highest-performance 800-MHz parts are suffering from low yields and are not readily available. More likely, he said, customers will receive lower-speed 600-MHz Direct RDRAM, which are in a state of overstock as suppliers attempt to meet demand for the faster parts.
Perhaps the biggest question on the minds of procurement professionals, however, is whether they will be entitled to the same discount on Rambus chips when they place new orders. "Not if the price differential between Rambus and SDRAM doesn't come down drastically," said Bob Merritt, analyst for Semico Research Corp., based in Redwood City, Calif.
Intel did not comment on the pricing status of new Rambus-enabled motherboard orders.
The company said it has designed an upgraded MTH that corrects the current flaw, and is in the process of testing and qualifying the new MTH. No timetable has been set for its release. Representatives for Intel and Rambus Inc. in Mountain View, Calif. claimed the defect was limited to the MTH component and did not occur in 820 motherboards that natively support Direct RDRAM.
Likewise, Intel said there has been "no issue" with motherboards containing the Intel 840 chip set, which uses a Memory Repeater Hub similar to the MTH. The Intel spokesman added the present trouble won't affect the introduction of the highly-integrated Timna microprocessor, which initially uses a translator hub to connect to SDRAM. He said by the time Timna is introduced, an upgraded MTH will be available.