January 31, 2011 6:57 pm

Fix for Intel’s flawed chip to cost $700m

Intel announced that a faulty chip in its new mainstream processing platform would cost it $700m to fix and would reduce revenues by $300m in the current quarter.

The news is an embarrassment to the world’s biggest chipmaker by sales – it had declared its second-generation Core i3, i5 and i7 processors would be “transformational” for the personal computer.

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Wall Street reacted by marking down Intel shares – they were at $21.24, 1 per cent lower in midday trading in New York, while those of its rival, AMD, rose 5 per cent to $7.87.

The new processor design, codenamed Sandy Bridge, which combines graphics engines with processors for the first time, was launched in consumer PCs and notebooks in January.

Paul Otellini, chief executive, had told analysts that Intel’s customers were embracing the product – it was being included in more than 500 new PC models.

“When you get your hands on a Sandy Bridge PC, you will realise that this is more than just a very fast microprocessor, it’s a visually stunning computing experience,” he said on an earnings call in January.

But on Monday, Intel announced it had discovered a design problem with a chip that supported the processor and linked to hard disks and DVD drives, potentially impacting performance over time.

Intel said it had stopped shipments of the chip, corrected the design and begun manufacturing the fixed version.

“The company expects to begin delivering the updated version of the chip set to customers in late February and expects full volume recovery in April,” it said in a statement.

Intel will work with PC makers over returns.

It said few consumers would have been affected, with systems featuring the flawed chip only shipping since January 9 and only those with second-generation Core i5 and i7 quad-core processors hit.

However, discontinuing production of the chip and beginning the manufacture of the new version was expected to reduce revenues by $300m this quarter.

Intel also announced that its acquisition of Infineon Technologies’ wireless division closed on Monday. Its technology will help Intel’s push into chips for smartphones.

The company said it expected its acquisition of security software company McAfee to close by the end of the quarter. The deal was cleared by the European Union last week.

The combined effect of the chip set problems and the deals closing lifted Intel’s first-quarter revenue forecast to about $11.7bn, up from $11.5bn, the company said.

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