Intel Chipset Design Flaw for 'Sandy Bridge' Chips Will Cost Time, Money

A design flaw in a chipset that supports Intel's new "Sandy Bridge" Core-i chips will cost the company almost $1 billion in lost revenue and repair expenses.

Intel is recalling a support chip for the highly-touted new "Sandy Bridge" processors in a move that should have little technological impact but a significant financial effect on the company.

Intel officials announced Jan. 31 that a design flaw found on its 6-Series chipset-dubbed "Cougar Point"-is forcing them to recall the support chip, a move that could cost the giant chip maker upwards of $1 billion in lost revenues and repair and replacement expenses. It also could mean a reduction in sales this quarter of the number of systems featuring the new Sandy Bridge processors, and gives rival Advanced Micro Devices some momentum in the competition for the growing SoC (system-on-a-chip) market. It also gave AMD a quick stock boost soon after the announcement came from Intel, which saw trading on its stock briefly halted.

However, Intel officials said they had found the problem with the support chip, had designed a fix and is beginning to manufacture new chipsets with the fix in place. The company intends to begin shipping the new chipsets later in February, and be back at full production by April, executives said in a conference call Jan. 31 with journalists and analysts.

They also stressed that the problems with the chip set have no impact on the Sandy Bridge processors themselves.

"It doesn't change any aspect of Sandy Bridge," Intel Chief Financial Officer Stacy Smith said.

The design flaw revolves around the SATA (Serial-ATA) ports within the chipset, according to Intel. Because of the error, some of the SATA ports could degrade over time to the point that it would effect the operation of a computer's hard disk drive or DVD drives. Intel is fixing the flaw by changing a metal layer in the chipset.

Stacy Smith and Steve Smith, vice president and director of Intel's PC Client Operations business, said during the conference call that the chipset initially pass Intel's internal testing, and then qualification tests with PC makers. The tests put the chipsets through the paces under conditions involving temperature, electrical voltage and time.

Intel had shipped about 100,000 of the chipsets, and began hearing complaints about a few of them, Intel executives said. Last week, Intel tested the chipsets again and began finding problems in a few of them. Over the course of the next few days, Intel gathered a team of engineers to find the problem and devise a fix for it. On the night of Jan. 30, Intel decided to stop shipment of the chipsets and send out new ones later in the quarter, Stacy Smith said.

Intel began talking to OEMs about the issue Jan. 31 and devising strategies for handling consumer concerns, he said. Both officials said the problem will mean that a older Intel products will make up a larger mix of overall first-quarter sales than anticipated. However, they didn't expect many problems among end users-a relatively small number of PCs sporting the second-generation Core-i  chips have reached consumers, and the chipset design flaw primarily impacts systems powerd by the quad-core Core i5 and i7 chips, they said.

Overall, Steve Smith said the problem could hit between 5 and 15 percent of the chipsets, depending on usage. End users wouldn't see problems immediately, but they would start occurring over time.

"We believe relatively few consumers ... are effected," he said.

Roger Kay, an analyst with Endpoint Technology Associates, said that the issue should be a short-term one for Intel, impacting primarily its bottom line and its competition with AMD.

"It's a very technical thing that has a very direct financial effect," Kay said in an interview with eWEEK.

However, that financial impact could be lessened by other factors. During the conference call, the Intel executives also talked about the company closing its acquisition of Infineon's wireless business-which also was announced Jan. 31-and the expected close of its $7.68 billion deal to buy security software maker McAfee, also in the first quarter. With those acquisitions in pocket-and despite the costs associated with the chipset problem-Intel officials said they expect first-quarter revenue to come in at about $11.7 billion, up from an expected $11.5 billion. In addition, sales for all of 2011 are expected to grow in the mid- to high teens, up from a previous estimate of 10 percent.

Kay argued that while some may look at the design flaw as a problem Intel execution, the company's quick response in finding the problem, developing a fix and stopping shipments shows a strong level of execution. In addition, Kay didn't expect the design flaw itself or any road map delays to effect Intel greatly. The design problem impacted only the four 3 Gb/sec SATA ports in the chipsets, and not the two 6 Gb/sec ports that are most often used by consumers, he said.

In addition, echoing what Intel executives said on the call, Kay pointed out that the company expects sales of Sandy Bridge-based PCs to take off later in the year, when consumers are buying back-to-school  items, by which time Intel will be producing at full speed.

"This is not the juiciest time of year, so being late to the market [now] is not so bad," he said.

It does give AMD a boost, however. The company at the 2011 Consumer Electronics Show introduced the first of its long-awaited Fusion APUs (accelerated processing units), which combined high-end, discrete-level graphics on to the same piece of silicon as the CPU. It was at the same show that Intel rolled out the first of its second-generation Core-i chips, which also integrated the GPU (graphics processing unit) and CPU on the same die.

"The effect of [Intel's chipset problem] is short-term, but in this race for SoCs, it helps AMD," Kay said. "Fusion is already out there. ... Its effects its momentum in the close race with AMD."