Intel Acknowledges Spot Shortages of Cheaper Chips

Intel Corp. confirmed on Wednesday that there have been spot shortages of some of its more affordable processors, causing a shortage of cheap personal computers for corporate users.

Computer dealers and distributors are reporting scant supply of PCs with 266 megahertz and 300MHz Pentium II chips, as Intel pushes its faster and more profitable 333MHz, 350MHz and 400MHz processors. Hewlett-Packard Co. and International Business Machines Corp. have the fewest of the cheap PCs in inventory, the dealers said.

Intel is pushing its top-of-the line processors while demand from corporate buyers for less-expensive PCs built with cheaper chips is picking up.

“Corporate customers don’t move as fast as Intel,” said Eric Walton, vice president of product management at Entex Information Services Inc., in Rye Brook, N.Y. He reports that Entex, which sells PCs to large corporate customers, has a larger-than-normal four-week backlog of orders.

Intel shares rose $1.06 to close at $85.63 on Nasdaq.

“There are some spot shortages of Pentium IIs,” said Intel spokesman Tom Waldrop. He said the shortages are temporary but declined to say which specific chips are in short supply. “We are working on increasing processor production. We expect supply to be tight until late this quarter.”

As Intel improves manufacturing, the company cuts prices and moves faster chips into cheaper computers. The chips that are in short supply are made with an older process, so Intel is working to phase them out.

“They are attempting to kill off” the low-end Pentium II chips, said analyst Kelly Henry of International Data Corp. “It makes perfect sense that they would be making fewer.”

Distributors, who buy PCs from manufacturers and sell to large corporate customers, said the shortage is a result of Intel’s cutting its production too soon.

Many corporate buyers are looking for cheaper machines that can cost as little as $1,400 when they’re powered by the less-expensive chips. The higher-end chips cost $316 to $589, which can boost the price of a computer to more than $2,500.

IBM declined to comment on the shortage, and HP representatives could not be reached to comment.