Intel Discloses Flaw In Sandy Bridge Chipset

Fixing the 6 Series chipset design error will cause a $300 million revenue drop in the first quarter, said the company.
Intel has found a design flaw in the chipset that supports its second-generation Core processors, and the company says fixing the problem will reduce its revenue in the first quarter by about $300 million.

The chipmaker said Monday it has stopped shipping the flawed 6 Series chipset, codenamed Cougar Point. The chipset supports Intel's latest Core processors, codenamed Sandy Bridge, which Intel released early this month.

The design flaw could cause the serial-ATA, or SATA, ports within the chipset to degrade over time. Such a scenario would affect the performance of hard disk drives and DVD drives within a PC.

The company started shipping the chipset Jan. 9. Intel says only people who bought systems running quad-core Core i5 or Core i7 processors would be affected. The company says the number of those PC buyers is "relatively few."

Intel plans to begin delivering corrected versions of the chipset to computer and motherboard makers in late February and expects "full volume recovery" in April.

"For computer makers and other Intel customers that have bought potentially affected chipsets or systems, Intel will work with its OEM (original equipment manufacturer) partners to accept the return of the affected chipsets, and plans to support modifications or replacements needed on motherboards or systems," the company said in a statement.

The snafu is expected to reduce revenue in the first quarter by about $300 million. The revenue forecast for the full year is not expected to be affected. Gross margin for the first quarter will fall 2 percentage points below previous estimates to 61%. For the full year, gross margin will be 1 percentage point less, or 63%. The overall cost to repair and replace the flawed chipsets is expected to be $700 million.

While the revenue impact is small, Intel may find itself having to work harder to convince computer makers that the flaw was a fluke and the company can be trusted in adding an increasing amount of functionality to chipsets, Greg Richardson, analyst for Technology Business Research told InformationWeek. Intel's strategy of adding more features in its chipsets is reflected in the recent purchases of security company McAfee and the wireless business of Infineon Technologies.

"The buy-in (by customers) to that story may by challenged a bit more," Richardson says. "It's going to face more headwind."

Intel updated its revenue forecast for the first quarter, which includes the $7.68 billion acquisition of McAfee and the $1.4 billion purchase of the Infineon unit. Intel expects to complete the McAfee transaction this quarter.

The revised revenue forecast is for $11.7 billion, plus or minus $400 million, compared to the previous outlook of $11.5 billion, plus or minus $400 million. Full-year revenue is expected to grow in the mid to high teens, instead of the previous forecast of about 10%.

The company has reported record revenue in recent quarters, because of increased spending by businesses on computers. Intel's strength in the corporate market has countered a reduction in spending by consumers.