Update, February 8, 2011 — Intel is resuming shipments of the Intel 6 Series Chipset for use only in PC system configurations that are not impacted by the design issue.Only computer makers who have committed to shipping the Intel 6 Series Chipset in PC system configurations that are not impacted by the design issue will be receiving these shipments.
This resumption of shipments of the Intel 6 Series Chipset is not changing the company’s updated first quarter 2011 and full-year financial Outlook published on January 31st.
In parallel, Intel has started manufacturing on a new version of this support chip. Intel now expects to begin shipping the new parts in mid February.
February 4, 2011 — Intel’s recall of its new and highly touted Sandy Bridge chipset due to a design issue has created ripples for the DRAM market, PC sellers that now are recalling products, and Intel itself. The Sandy Bridge chipset was scheduled for integration into 500 devices, though the error was caught less than one month after shipments started. Still, a silicon fix rather than software patch will drive up the cost of the blunder.
The INTC chipset problem
Intel Corporation (INTC) discovered a design issue in a recently released support chip, the Intel 6 Series, code-named Cougar Point, and implemented a silicon fix. In some cases, the Serial-ATA (SATA) ports within the chipsets may degrade over time, potentially impacting the performance or functionality of SATA-linked devices such as hard disk drives and DVD drives. 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.
Intel expects to begin delivering the updated version of the chipset to customers in late February and expects full volume recovery in April.
Recalled products
Intel chief executive Paul Otellini called the chip with processor-based graphics ‘the best product we’ve ever built,’ and it was featured all over the Consumer Electronics Show (CES) in Las Vegas, December 2010. The systems with the affected support chips have only been shipping since January 9, 2011. The only systems sold to an end customer potentially impacted are Second Generation Core i5 and Core i7 quad core based systems. HP is offering refunds for computers sold with the recalled Intel chipset, while other of its products will be delayed. Samsung has a refund program as well. There is speculation that Apple’s MacBook Pro will also be stalled due to the recall.
Impact on Intel
For the first quarter of 2011, Intel expects this issue to reduce revenue by approximately $300 million as the company discontinues production of the current version of the chipset and begins manufacturing the new version. Full-year revenue is not expected to be materially affected by the issue. Otellini predicted that Sandy Bridge will account for more than one-third of the chipmaker’s revenue in 2011, so a smooth recall and fix will be crucial.
Total cost to repair and replace affected materials and systems in the market is estimated to be $700 million. Since this issue affected some of the chipset units shipped and produced in the fourth quarter of 2010, the company will take a charge against cost of goods sold, which is expected to reduce the fourth quarter gross margin percentage by approximately 4 percentage points from the previously reported 67.5%. The company will also take a charge in the first quarter of 2011, which will lower the previously communicated gross margin percentage by 2 percentage points and the full-year gross margin percentage by one percentage point.
Impact on the DRAM market
Mike Howard of IHS iSuppli says that Intel’s recall of 8 million Sandy Bridge chipsets could have significant implications for DRAM makers. IHS iSuppli predicts that, initially, there will be near-term additional availability of DRAM as PC OEMs reduce shipments. This will be short-lived as other CPU options fill the void left by the Sandy Bridge recall. Once Intel is able to ship its fixed chipsets, then there will be a slight swelling in demand as PC OEMs play a little catch up — this will lead to a tighter DRAM market. Some Q1 PC sales will be lost as customers forestall their purchase for the Sandy Bridge fix, effectively lengthening the lifespan of their PCs. The net result will be slightly lower revenues (<1%) for DRAM makers but the timing of those revenues will be disrupted.
Visit www.intel.com for more information on the recall.
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