Intel Back in Black After 18 Months : But Chip Maker Reports Flaw in Key New Product; AMD Narrows Loss in Quarter
Intel Corp. returned to profitability in the first quarter of this year, ending an 18-month-long string of losses, and recorded a “substantial” improvement in orders, the company said Friday. Another semiconductor maker, Advanced Micro Devices, showed strong gains on its balance sheet, adding to signs of an improving climate for American chip makers.
But the news was not all cheery Friday as Intel reported a flaw in its 80386 microprocessor--a chip that it spent three years and about $100 million to develop. And Intel said it was canceling a technology exchange agreement with Advanced Micro Devices that in the past has been a boon to AMD’s product line and revenue.
Intel, based in Santa Clara, Calif., said it had profits of $26 million for the quarter ended March 29, compared to a loss of $22 million in the year-ago quarter. Revenue increased 40% to $395 million. Contributing to income was a $17-million extraordinary gain from the sale of a building and a $6-million credit for tax loss carryforwards.
But Intel also said it took a charge against first-quarter earnings related to the problem with its “386” chip. The company said it discovered during extensive testing that certain of the chips were unable to properly perform certain 32-bit math calculations.
Intel said that it has found and corrected the problem and that it will still meet its goal of shipping between 500,000 and 1 million of the chips this year.
Stock Price Seesaws
Intel’s stock was the most active issue in the over-the counter market Friday, bobbing up and down before it closed at $44.875 a share, up 87.5 cents. Investors were heartened by signs of improving orders and sent AMD shares up 75 cents to close at $21 on the New York Stock Exchange.
Both Intel and AMD credited the personal computer industry for the growth in semiconductor orders in recent months. Industry analysts, despite having been proven woefully wrong in earlier predictions of a rebound, said on Friday that they believe the long-awaited turnaround in the chip industry is occuring.
Ironically, the problem with Intel’s 80386 chip may be most acutely felt by one of the personal computer makers credited with spurring that market--Houston-based Compaq Computer. Compaq so far has been the biggest customer for the 80386 chip, using it in its Deskpro 386 model. Compaq said it will disclose by early next week its plans for coping with the possibility that its customers’ machines contain flawed chips.
Intel said that the problem does not affect all 80386 chips and that it will present no burden to most users of 80386-based machines. That’s because, in all but a few applications, the chips are not yet being used to perform 32-bit calculations--that is, processing 32 “bits” of information concurrently. The chips properly perform 16-bit functions.
Binding Arbitration
Software to use the 32-bit characteristics of the 80386 is still being developed; a new operating system being developed by Microsoft for IBM’s next generation of personal computers won’t be ready until next year.
Advanced Micro Devices, meanwhile, said it was taking Intel to binding arbitration in a dispute involving a technology exchange agreement. AMD said the agreement gives it the right to manufacture Intel’s 80386 chip and its math co-processor, but Intel has refused to allow AMD to make the chip.
Intel said it gave AMD the one-year notice required in the agreement and was canceling the pact effective April 1, 1988.
In its financial report, Advanced Micro Devices said its losses narrowed to $3.3 million in its fourth fiscal quarter ended March 29. For the year, the Sunnyvale, Calif., company reported losses of $95.8 million.
Sales in the quarter rose to $170.1 million from $153.4 million in the year-ago period. For the year, sales were $632 million, up 9.7%.
W. J. Sanders III, AMD’s chairman and chief executive, said of the final quarter: “Increased revenues, coupled with the full benefits of previously initiated cost-reduction programs, produced essentially break-even performance at the operating level.”
AMD’s last profit was for the quarter ended June, 1985. “We’ve only been hanging by our thumbs for seven quarters now,” AMD spokesman Elliot Sopkin said.
But he added that the company expects to be “solidly profitable” by the end of the current quarter.
