Intel Corp. (Nasdaq: INTC) lowered its gross profit margin forecast for the ongoing quarter by several percentage points and slashed sales outlook for the period by $300 million because of a design flaw identified in one of its chipset circuit.
The company said it has started working on a fix for the problem but noted that the solution could cost up to $700 million. Intel said the chipsets affected by the flaw began shipping in the second week of January, adding that personal computer OEMs had been notified and were working with customers to correct the error.
The Intel statement read, in part:
The chipset is utilized in PCs with Intel's latest Second Generation Intel Core processors, code-named Sandy Bridge. Intel has stopped shipment of the affected support chip from its factories. Intel has corrected the design issue, and has begun manufacturing a new version of the support chip which will resolve the issue. The Sandy Bridge microprocessor is unaffected and no other products are affected by this issue. The company expects to begin delivering the updated version of the chipset to customers in late February and expects full volume recovery in April.
Intel said the problem it had with the chip design would not affect total 2011 sales although gross profit margin for the year would be down slightly. The company said it would take a hit on gross margin for the fourth quarter of 2010 "by approximately 4 percentage points from the previously reported 67.5 percent."
Read Intel's complete statement on the subject here.
I don't believe the fact that this was not the main microprocessor is the reason behind this problem. Who wants $700 million as the cost of not paying enough attention? As others have said here, this was a problem that was not that unusual but the cost is obviously enormous and it's difficult for Intel to defend this especially since OEM customers were negatively impacted.
The McAfee acquisition enables Intel to take security to another level in its operations. This is another addition to the company's offering and I think it offers Intel the opportunity to integrate software security into its products. I am equally looking forward to how it plans to do this and the effect on customers.
I noticed that the press release refers to the product having the issue as a "support chip". Does the fact that this is not their flagship microprocessor mean there has been cutting of corners in the design process? True, this year's cost hit is only 4% of the year's profits, but it adds up to a large percentage of the $3.6 billion in R&D and MG&A spending.
I'm curious about Intel's purchase of McAfee, the makers of security software. How would that fit in with their long-term growth strategy?
Intel has been the leader in the chip industry for as long as I can remember and continues to spend billions on R&D to continue its leadership position.Things like this will continue to happen, especially as the technology expands exponentially.As Moore’s Law(based on Intel’s co-founder Gordon Moore) states that the number of transistors on a chip will double every two years.And this law has pretty much geld true for over 40 years.At some point in the near future (5-10 years) Moore’s Law will evolve and the industry will have to move beyond the conventional CMOS chip technology, like muti-dimensional and nanotechnology chip technology and who knows what else.
For sure Intel will be at the forefront on these new innovations and with 100% certainty there will continue to be flaws that are found and fixed.
Bolaji, see how a small or minor negligence in design and testing part cost Intel, a loss of nearly $700 Million. This loss showing an insight about, how much one should careful, about designing and verification process, before anything going to the production mode. Luckily Intel had traced the fault before shipping and saved their face in the competitive market. Otherwise recalling the damaged chips and replacement may cause more burdens for them. Intel is a multi billionaire company and they are capable for afford loses up to a certain extend. Moreover, if once some black or bad mark comes for a brand, it affects the future marketing and share value too.
Tony, Again, thanks for shedding more light on what is obviously a difficult subject. Could you address some of these technological and supply chain challenges in your next blog? I believe this is the one area where EBN readers can benefit from your experience and also suggestions on how to deal with situations like this in their manufacturing operation.
Chip design is very complicated, In a previous lifetime I was an applications engineer working on PC chipsets. Over twenty years ago and even today I doubt there is a perfect chip set. All chip sets have an erratta list. If an erratta is a show stopper, you fix it before going to production. Otherwise there are work arounds so you can go to production. These could involve board layout or SW fixes.
Some problems do not crop up until you go into volume production and customers put the product through its paces. Remember that when you look at a datasheet there are min-max specs. These are due to variances in manufacturing. The goal is to stay within these specs. I have seen where prototypes work fine in a test system. Then you start getting wider spreads in full production and problems crop up.
Find problems and fixing them is a never ending job in this business. The main point is how will a company handle these problems. In this case, as soon as Intel heard about a problem, regardless of how small it may have seemed at the time, they took nothing for granted and dove into it. Better to catch it early than after you have been in volume production for a year or more.
$700m is huge but again its nothing compared to brand Intel. As Tony pointed out in his previous comments Intel has suffered a lot in infamous Pentium FPU bug. I guess Intel has learnt lesson from this FPU bug and hence didnt want to take risk this time around, thought the bug seems to small.
Tony, Thank you for the historical perspective. As you noted, Intel has become more aggressive in recent years and months with actions to burnish its reputation and fix problems either in its relationship with regulators or with companies like AMD and Nvidia.
I wonder though if you can clarify why the design flaw was only identified after production and not before. I imagine various tests were done over months. How did such a problem evade diagnosis and what do you think the company has in plan to avoid a future occurrence? Good to hear from you as usual.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
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