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Watch Out For Flying Chips

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It was just another personal-computer confab until a Sept. 12 panel discussion during which Compaq Computer Corp. Chief Executive Eckhard Pfeiffer was asked for his thoughts on Intel Corp. A steely Pfeiffer stunned attendees at the Barcelona conference by condemning the chipmaker, griping that Intel CEO Andrew S. Grove's pricing and product strategies serve only its own interests, not its customers'. Intel defended its practices.

It was by far the most public blast yet in a growing rift. In January, Compaq signed a supply deal with Intel rival Advanced Micro Devices Inc.--breaking with Intel for the first time. And on Sept. 14, the AMD partnership got closer when Compaq unveiled a new line of Presario home PCs, all built around AMD chips.

RAPID MOVE. Now, the tensions are hitting prime time. Through yearend, Intel plans to spend $80 million on TV ads to persuade consumers they need PCs based on its powerful new Pentium chips. Compaq will spend $100 million on ads saying that it's the PC that counts--not the silicon inside.

Pfeiffer's main concern is Intel's rapid move away from its older 486 chip. The 486 powers an estimated 87% of Compaq's PCs, and Compaq is holding off on selling home models based on the Pentium until next year. Intel, meanwhile, has accelerated production and chopped the price of the Pentium.

Still, Intel has warned for nearly a year that it would move quickly to the Pentium. Compaq hopes to buy 40%-plus of its chips from clonemakers next year, but it still needs Intel. "Like it or not, [Intel and Compaq] are still joined at the hip," says Oppenheimer & Co. analyst James Poyner. Maybe. But that doesn't mean they get along.Peter Burrows in Dallas, with Robert D. Hof in San Francisco

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