Intel chipset flaw causes recall and reduced sales

1 Feb 2011

A design flaw in a support chip, used with Intel’s Sandy Bridge, has forced the company to delay production, costing it US$1bn in lost revenue and replacement costs.

The flaw in the Intel 6 Series, code-named Cougar Point, which is utilised with the Sandy Bridge microprocessor, was seen in the Serial-ATA (SATA) ports.

These SATA ports may degrade over time, which could impact the performance of SATA-linked devices, such as hard-disk drives and DVD drives.

Affected chips started shipping from 9 January and the Second Generation Core i5 and Core i7 quad core-based systems were potentially affected.

Intel was forced to stop shipment of the support chip and has corrected the design issue. It has now begun manufacturing a new version of the chip which will be sent to customers in late February.

The company will work with OEM partners to accept the return for the faulty chip sets. Intel also said the Sandy Bridge microprocessor itself was unaffected.

The US$1bn problem

As a result of this flaw, for the first quarter of 2011, Intel expects reduced revenue by US$300m due to discontinued production of the current version of the chip set and the manufacturing of the new version.

It also expects the total cost of repair and replacement to hit US$700m, bringing the grand total of the cost of the issue at a whopping US$1bn.

Intel also acknowledged that, as this flaw affected some chip sets produced in late 2010, it will have to pay for costs, which will reduce the fourth-quarter gross margin percentage by 4pc from the previously reported 67.5pc.

The gross margin percentage of the first quarter of 2011 will be lowered by 2pc. Intel doesn’t expect full-year revenue to be impacted by this issue.

In the same announcement, Intel also said it completed the acquisition of Infineon Technologies’ wireless solutions business and it will complete the US$7.6bn acquisition of McAfee by the end of the first quarter.

Thanks to this, Intel forecasts for the first quarter include two months of revenue from Infineon and one month from McAfee.

As a result, Intel expects first-quarter revenue to hit US$11.7bn, which is actually up from its previous expectation of US$11.5bn, plus or minus US$400m. However, gross margin percentage is expected to be 61pc as opposed to its previous expectation of 64pc.