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Intel Corp. is reacting to a flaw in its Pentium chip like an engineer-driven technology company, not a savvy marketer.

The company's position as it decides which personal computer owners merit a replacement chip seems to be that the customer isonly sometimes right.

"Upper management is still in denial," said Linley Gwennap, editor of The Microprocessor Report.

Many outsiders are quick to propose a total recall as a way for Intel to restore confidence, much as Johnson & Johnson did in 1982 to cope with tainted Tylenol. Recalls can build good will, as General Motors Corp.'s Saturn found in 1990 when it sent thousands of cars to the crusher because bad coolant corroded engines.

"We're not talking reality. We're talking marketing," said Arnold Huberman, a New York headhunter who's helped clients deal with crisis communications. His advice: "Fix the chip. Replace every one that's bad. Take the Tylenol approach."

It would cost Intel some $1 billion to replace the 4 million to 5 million Pentium chips now in PCs, Mr. Gwennap estimates. Most observers agree the recall cost would be far lower if Intel announced one and then used ads and public relations to convince consumers they needn't go to the trouble of getting a new chip.

"What's at stake here is their credibility," said Gerald Meyers, former chairman of American Motors and a crisis management expert. "What people think about your company is based on how you handled your last crisis. They've got to know that."

Intel has been criticized for not fully disclosing the bug until word of the flaw spread over the Internet and into mass media late last month. Intel now has staffed up phone banks, announced a lifetime guarantee and set out to replace chips for those limited users doing critical calculations.

"We're satisfied that it's addressing the real problem," said Dennis Carter, Intel VP-corporate marketing. "From a customer relations standpoint, this is clearly new territory for us." A recall would be disruptive for PC users and "not the right thing to do for the consumer."

In fact, Intel decided the technical problem is so small it plans to continue making the flawed chip into the first quarter while it phases in a modified model.

PC marketers and retailers say booming sales of Pentium-based PCs to consumers so far haven't been affected. Pentium is still likely to take off in 1995 as the mainstream PC chip because Intel dominates the chip market. Still, major PC marketers, including Compaq Computer Corp., have increasingly sought alternatives.

Unless consumers call Intel to hear the full story, they may be left with the impression from the headlines that Pentium is flawed. That doesn't mesh with a $40 million fourth-quarter Intel ad campaign from Dahlin Smith White, Salt Lake City, to pitch Pentium.

"It's clearly a major public relations problem, and they need to start treating it as such," Mr. Gwennap said.

Ray Serafin contributed to this story.

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