IBM's chip business was profitable in the second quarter, but its major customer is still plagued by delays in obtaining a sufficient quality of the company's new 90-nanometer processors, signaling that IBM isn't all the way out of the woods just yet.
For the second straight quarter, Apple Computer used its earnings conference call to testify to IBM's inability to deliver enough PowerPC 970FX processors to meet demand. Due to chip supply problems, Apple was forced to delay the introduction of a new iMac system until September, months after Apple had hoped to have the system available and too late for the important back-to-school shopping season.
Earlier supply problems with the PowerPC 970FX chip forced Apple to delay shipments of new XServe servers and the new Power Mac G5 systems, the company said in April.
IBM combined the Microelectronics Group with its server business to create the Server and Technology Group in January.
Then, on its own first-quarter conference call in April, IBM acknowledged that it was suffering from yield problems at its new 90-nanometer manufacturing facility in East Fishkill, New York. Yield is a measure of how many working processors can be cut from a silicon wafer.
The company broke out the former chip group's results separately in its first-quarter financial report, which showed the former chip group lost money.
Overall yields improved substantially in the second quarter at the East Fishkill plant, IBM said last Thursday. The chip group was profitable on a pro-forma basis, using accounting rules not certified by the U.S. Federal Accounting Standards Board, more commonly known as FASB.
However, second-quarter yields did not appear to be enough to satisfy Apple's demand for both Power Mac systems and new iMac systems. Apple had hoped to have new iMac systems based on the PowerPC 970FX chip available around the time it announced the delay in early July. Apple blamed IBM, citing manufacturing problems for delays in the new iMac introduction as well as the availability of Power Mac systems that were announced in June.
An IBM spokesman declined to comment on Apple's remarks during that earnings conference call. In May, IBM held a conference call to proclaim that its yields were improving and that it believed the company had "turned the corner" on the yield problems.
The transition to new 90-nanometer technology has hit a few snags across the industry, as most process technology transitions have done over the last decade. The 90-nanometer designation refers to the average size of the structures on a given chip. A nanometer is one-billionth of a meter.
The launches of Intel's first 90-nanometer desktop and notebook chips were delayed a few months, but the company appears to have ironed out its transition issues. Intel is actually yielding more 90-nanometer Prescott desktop processors than it had expected, forcing the company to cut back on production, it said last week.
Advanced Micro Devices's 90-nanometer Opteron processors are expected in the third quarter. Company executives claim they have not seen any problems with the move to 90-nanometer technology, attributing the smoothness of the transition to its use of silicon on insulator (SOI) technology in its manufacturing processes.
But IBM has struggled with the jump to 90 nanometers. It also uses SOI technology, a process in which chip makers add a thin layer of silicon oxide to their silicon wafers and then build the transistors over that layer. This is supposed to reduce leakage current from the transistors.
Power leakage has been a primary concern in the 90-nanometer transition. Transistors are getting so small that electrical current can leak out of the transistors as heat, which creates problems for system designers. In previous process technology transitions, chip makers have been able to reduce power consumption, but many 90-nanometer chips consume just as much power as their predecessors. Intel's Prescott chip actually consumes more power than its older counterpart at similar clock speeds.
Apple was forced to use a liquid cooling system to deal with the heat generated by the 2.5GHz PowerPC 970FX introduced this year. The 2.5GHz G5 processor, Apple's name for the 970FX chip, consumes about as much power as its slower predecessor but it is much smaller, according to Apple product managers. This means the heat arising from the processor is more concentrated, and a more sophisticated system was needed to control that heat, Apple said when launching the new Power Mac systems.
IBM told Apple that it expects the yield problems to disappear by the first quarter of 2005, Apple said on its earnings call. The spokesman declined to confirm that statement, and also declined to comment about specific manufacturing issues that contributed to the poor yields.