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Intel finds chip error, but raises revenue outlook

Jan. 31, 2011 05:41 PM

Associated Press

SANTA CLARA, Calif. - Intel Corp. on Monday said it found a design flaw in a recently released chip, and is working with laptop makers to replace affected computers.

Sales lost while the company rushes out a replacement chip, and the cost of replacing computers with the flawed chip, will cost the company $1 billion, it said.

Intel said it's shipped 8 million of the defective chips, but complete PCs with those chips have only been on sale since Jan. 9. The main processing chips in these computers are branded "Core i5" and "Core i7."

Dawn Jones, an Intel spokeswoman for the southwestern United States, said chipsets were made in the company's 65-nonometer manufacturing plants, called "fabs."

One of those 65-nanometer plants, Fab 12, is in Chandler. It was making 65-nonometer chips as late as 2009. Jones said she didn't have a breakdown of which specific factories were making the defective chips and did not provide more detail by press time Monday.

Intel announced in October that two plants, including Fab 12, would be upgraded to manufacture the next-generation 22-nanometer process technology. Intel said the upgrade would be completed by 2012.

The recalled chips aren't the main processors, which are based on the so-called "Sandy Bridge" technology that Intel announced in January, but a support chip. The flaw means it may degrade with use over a period of months or years, slowing down the transfer of data to and from the computer's hard drives and DVD drives.

Intel said consumers can "continue to use their systems with confidence, while working with their computer manufacturer for a permanent solution."

Intel shares slid 25 cents to $21.21 in early afternoon trading.

The Santa Clara, Calif., company said it has already started making a new version of the support chip, and hopes to start delivering it to PC makers in late February. While they wait for the new chip, production of computers using Intel's "Sandy Bridge" chips will be on hold.

The delay will reduce revenue by about $300 million in the first quarter, Intel said. It put the repair and replacement cost at $700 million.

Despite the setback, Intel raised its overall revenue outlook for the first quarter because of the recent acquisition of the phone-chip business of Infineon Technologies AG. It also expects to complete the acquisition of McAfee by first-quarter end.

Intel now expects $11.7 billion in revenue in the first quarter, plus or minus $400 million. Its prior outlook was for $11.5 billion, plus or minus $400 million.

Intel also said it expects revenue to grow by a mid- to high- teens percentage in 2011. It previously expected a growth of about 10 percent.

For the full year, gross margin is now expected to be 63 percent, compared to the previous expectation of 65 percent.

Staff writer John Yantis contributed to this article.