Intel has discovered a design flaw related to its new Sandy Bridge chip, the company said today.
The flaw has forced the chipmaker to stop shipments of a chipset, though Intel also announced that it has a design fix in place. Intel expects the cost of repair and replacement to be around $700 million, forcing it to cut its sales forecast for the first quarter by $300 million.
Prior to the announcement, trading of Intel's stock was halted on the New York Stock Exchange for about 25 minutes. Since trading resumed around 7:20 a.m. PT, investor reaction has been mild with the stock down by about 1 percent.
The flaw, which is found in the company's recently released Intel 6-series "Cougar Point" chipset, could cause the Serial-ATA (SATA) ports within the chipset to degrade over time, according to Intel. This could potentially affect the performance or functionality of any hard drive, DVD drive, and other device connected to the SATA port.
Chipsets are the array of chips on the motherboard that link directly with the processor, allowing it to communicate with other components. The Cougar Point chipset is used in Intel's new Second Generation Core processors, code-named Sandy Bridge.
Intel has already started manufacturing a new version of the affected chipset that resolves the issue, the company said. The Sandy Bridge processor itself is not affected by the flaw, according to Intel.
The company said it expects to start shipping the corrected version to customers in late February, ramping up to full-volume shipments in April. Intel will help its manufacturing partners return the affected chipsets and will support any fixes or replacements required by PC makers on motherboards or entire computer systems, the company said.
Looking at it from the consumer's end, Intel said that PCs with the flawed chipset only started shipping January 9. As a result, it believes that relatively few consumers should be impacted. The systems affected by the flaw are Intel's Second Generation Core i5 and Core i7 quad-core based systems. Intel is advising buyers of these systems to continue to use their PCs but to contact their computer vendors for a permanent fix.
Although Intel is looking to take a sales hit in the current quarter as a result of the flaw, it doesn't expect revenue for the full year to suffer a major impact. In fact, the company is projecting even higher first-quarter sales than it previously anticipated, in part due to two acquisitions: the just-completed one of Infineon Technologies' wireless solutions unit and the expected acquisition of McAfee. For the first quarter, Intel is now looking for sales of $11.7 billion, plus or minus $400 million, up from its prior estimate of $11.5 billion, plus or minus $400 million.
Since some of the affected chipsets were made and shipped in the fourth quarter of last year, Intel will take a charge that will cut into its fourth-quarter gross profit margin by 4 percentage points from the previously reported amount of 67.5 percent. Further, it will also take a charge in the current quarter that will lower its gross profit margin for the quarter by 2 percentage points and for the full year by 1 point.
Intel has been touting its Second Generation Sandy Bridge product for the past several months.
Officially launched at this year's CES, the new chip lineup has been geared up to offer greater power and energy efficiency over previous chips. By combining the CPU and GPU (graphics processing unit), Sandy Bridge is also designed to better handle high-definition video and games without the need for a separate graphics processor. That integration positions Sandy Bridge as an ideal architecture for laptops, though it's been making its debut on desktops as well over the past few weeks.
Beyond any drag on sales, how big a deal is this for Intel and its customers? Analysts so far don't see it having any major long-term impact.
"Is it going to be a near-term distraction and something for investors and customers to gripe about? Absolutely," Craig Berger, an analyst at FBR Capital Markets in New York, told Bloomberg. "But the stuff is relatively new. There are probably not many of them out. That's helping them mitigate losses."
"This is a minor negative and not as big an issue as it seems," an analyst at Miller Tabak, Brendan Furlong, told The New York Times. "It's obviously an embarrassment, rather than a major problem for the company."
In related news, Intel also announced today that it expects to complete its acquisition of McAfee by the end of the first quarter.
Updated at 9:05 a.m. and 9:55 a.m. PT with more details throughout.