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Intel Bedfellows Are Unhappy With the High Costs of Rambus Technology

Some chip industry executives say the costs of Intel's Rambus initiative are running in the billions of dollars, and the orders aren't materializing.

SAN FRANCISCO -- For the past few years,


(INTC) - Get Intel Corporation Report

has handled its


(RMBS) - Get Rambus Inc. Report

strategy like


, the Greek mythological figure who forced travelers to fit into a bed by stretching their bodies or cutting off their legs.

Now the companies that Intel has invited into its Procrustean bed are steamed as they count the ever-increasing costs of Intel's Rambus initiative -- costs that some executives estimate in the billions of dollars. And it's becoming more apparent that Intel is also finding it not so comfy in the Rambus bed it made.

For Rambus chips to work requires not just a processor but a dynamic random access memory chip (DRAM), a chipset connecting the two motherboards, and testing equipment, all of which need to configure with Rambus' radical technology. Interviews with executives and representatives from 12 companies that make these devices and machinery indicate frustration at Intel for

driving the industry to spend huge sums of money on a speculative and problematic technology that may have been unnecessary.

"Our customers wanted Rambus, but due to technical difficulty, we can't sell the parts," says Farhad Tabrizi, vice president of strategic marketing and product planning for

Hyundai Electronics

, one of the top DRAM suppliers. "We have inventory of Rambus product that we can't sell," he says. "We have a loss of opportunity. Our revenues have been affected."

For DRAM makers, the timing couldn't have been worse. "If you miss one Christmas, you pretty much have to wait for another," says one consultant who represents DRAM companies. Demand has meanwhile pushed the prices for standard memory to an all-time high of about $20 per 64-megabit chip, four times its price in June. For memory companies like Hyundai that prepared for a big Rambus launch, every wafer that went into Rambus is a lost sale. One DRAM maker,

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, said on Oct. 12 that it put all its Rambus production on hold.



bug is causing problems for others, too. Five chip-equipment makers --








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(TER) - Get Teradyne Inc. Report

-- have invested more than $500 million together to develop high-volume Rambus testers, according to Gary Fleeman, memory product manager at Advantest.

"The forecast from the industry -- from Intel really -- has always been aggressive," Fleeman says. "But the orders didn't materialize."

Equipment maker Teradyne was the earliest entry in the market for high-volume Rambus testers, which should be selling at a tidy price of several millions of dollars apiece. But now company executives fear their competitive lead is evaporating.

"The reality is that no one has bought a lot of them," says Tom Newman, Teradyne's vice president of corporate relations. "The longer the delay, the bigger the chance that the requirements will change and the advantage we have over our competitors will disappear."

In addition, motherboard makers have been left with an estimated 1 million boards worth a total of $150 million that cannot be sold, according to one consultant who works with DRAM makers and who requested anonymity.

And among boxmakers,


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expected to sell high-performance Rambus-based computers in time for the booming Christmas season. Intel told Dell about the delay only three days before the scheduled Camino launch, says Dell technology strategist Jay Bell. By that time, Dell had mailed out reams of print catalogs featuring Rambus systems.

"It is a rarity for Dell to be out there marketing products that we can't deliver on," says Dell spokesman Tad Druart. Because Dell's reputation depends on the ability to deliver orders, "we hate the inconvenience it is causing some customers," Druart says.

Not everyone has been hit hard. Companies like





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that were leery of the Rambus product and waited to produce parts have actually benefited. The shift of production to Rambus by Samsung and Hyundai tightened the SDRAM market and helped raise prices higher than they would have been.

Intel itself has invested heavily in the technology: An undisclosed amount on chipsets and motherboards it has made for Rambus chips, and more than $600 million in investments in Micron, Samsung and


to woo those companies onto the Rambus bandwagon.

Intel's long-term costs could run even deeper, in the erosion of the chip titan's reputation in the computer industry. "Part of this is a credibility thing," says one longtime industry executive who now consults with DRAM makers and who requested anonymity. "Intel has been saying all along, 'Trust us. Don't worry.' "

This isn't the first time that Intel has tried to push through a standard. In the early '90s, it embraced a memory standard called burst EDO, and Micron invested heavily in the technology. But in 1996, Intel switched support to the current standard, synchronous DRAM, which left Micron scrambling to make the change.

The industry has now learned a hard lesson, the memory-chip consultant says. The next time Intel needs to prod DRAM and equipment makers, it may have to pay far more money in incentives and guarantees. This all puts Intel in a position where no industry leader wants to be, because from now on its efforts to set standards may be second-guessed by the herd.

"If Intel called us today and says everything is OK," says Jeff Mailloux, DRAM marketing director at Micron, "Micron would have to do some of our own testing as well."

-- Staff reporter

Eric Moskowitz contributed to this story.