Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, December 21, 1994 TAG: 9412220037
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: ASSOCIATED PRESS
DATELINE: SANTA CLARA, CALIF. LENGTH: Medium
Stunned by an uproar among computer users, Intel Corp. reversed course Tuesday and offered to replace its flawed Pentium chip - free of charge, no questions asked.
Intel also apologized for its earlier replacement policy, under which computer owners wanting new chips had to prove they needed them.
The dime-size silicon chips that provide a computer's ``brains'' are in an estimated 2 million machines, meaning the new policy could cost Intel hundreds of millions of dollars. The company also will pay for the labor of replacement.
The old policy had outraged many customers and led some analysts to question whether the world's leading maker of chips for personal computers really understood its market.
``We are dealing with a consumer community that was upset with us,'' Andrew Grove, Intel's chief executive, said in an interview. ``That they were upset with us - it has finally dawned on us - is because we were telling them what's good for them. I think we insulted them.''
He said Intel would run the apology and an explanation of the new policy in newspapers.
It costs Intel an estimated $50 to $150 to manufacture each chip, not counting the cost for development. The labor for replacing a chip runs $30 to $200, depending on the type of computer and who does the work.
Compaq, Gateway and Packard-Bell are among the computers that carry the flawed chip.
Intel said it would take an unspecified charge against earnings to pay for the replacements.
Word of the plans caused Intel's stock to jump more than $3 a share to close Tuesday at $61.25 after more than 10.5 million shares were traded on the Nasdaq stock market. Investors hoped the chip problem quickly would fade into history.
The flaw generally changes a digit four to 19 spaces to the right of the decimal point when a division problem is done. It happens with about 1,700 combinations of numbers and does not affect other math functions, word processing, games or communications.
Intel has said a typical user wouldn't come up with a wrong answer because of the flaw any more than once in 27,000 years. But critics said the problem could occur more frequently.
``We were motivated by a belief that replacement is simply unnecessary for most people,'' Grove said of the earlier policy. ``We still feel that way, but we are changing our policy because we want there to be no doubt that we stand behind this product.''
Industry analysts welcomed Tuesday's move as long overdue.
``It's about time. It's very clear they were fighting a losing battle, both in public relations as well as user confidence,'' said Tim Bajarin, president of Creative Strategies Research International in San Jose.
by CNB