Intel Halted As Firm Cuts Q1 Forecast On Chipset Design Error

Tyler Durden's picture

Just released PR:

As part of ongoing quality assurance, Intel Corporation has discovered a
design issue in a recently released support chip, the Intel® 6 Series,
code-named Cougar Point, and has 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.

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 stands behind its products and is committed to product
quality. For computer makers and other Intel customers that have bought
potentially affected chipsets or systems, Intel will work with its OEM
partners to accept the return of the affected chipsets, and plans to
support modifications or replacements needed on motherboards or systems.
The systems with the affected support chips have only been shipping
since January 9th and the company believes that relatively
few consumers are impacted by this issue. The only systems sold to an
end customer potentially impacted are Second Generation Core i5 and Core
i7 quad core based systems. Intel believes that consumers can continue
to use their systems with confidence, while working with their computer
manufacturer for a permanent solution. For further information consumers
should contact Intel at
on the support page or contact their OEM manufacturer.

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. 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 percent. The company will also take a
charge in the first quarter of 2011which will lower the previously
communicated gross margin percentage by 2 percentage points and the
full-year gross margin percentage by one percentage point.

Updated 2011 First Quarter and Full Year Outlook

Separately, Intel recently announced that it had completed the
acquisition of the Infineon Technologies AG Wireless Solutions business,
which will now operate as the Intel Mobile Communications group. The
company also expects to complete the acquisition of McAfee by the end of
the first quarter.

The effects of the chipset issue and these transactions are incorporated
into the company’s revised outlook. The company now expects
first-quarter revenue to be $11.7 billion, plus or minus $400 million,
compared to the previous expectation of $11.5 billion, plus or minus
$400 million. Gross margin percentage is now expected to be 61 percent,
plus or minus a couple percentage points, compared to the previous
expectation of 64 percent, plus or minus a couple percentage points.
Spending (R&D plus MG&A) is now expected to be approximately $3.6
billion, compared to the previous expectation of approximately $3.4

The full-year revenue growth percentage is now expected to be in the
mid-to high teens, compared to the company’s prior expectation of
approximately 10 percent. Full-year gross margin is now expected to be
63 percent, plus or minus a few percentage points, compared to the
previous expectation of 65 percent, plus or minus a few percentage
points. Spending (R&D plus MG&A) is now expected to be $15.7 billion,
plus or minus $200 million, compared to the company’s previous
expectation of $13.9 billion, plus or minus $200 million. Research and
development (R&D) spending is now expected to be approximately $8.2
billion, compared to the previous forecast of $7.3 billion.

All other expectations for the first-quarter and full-year remain
unchanged. With the exception of McAfee, the outlook for the first
quarter and full year do not include the effect of any acquisitions,
divestitures or similar transactions that may be completed after Jan.
31. The acquisition of McAfee is subject to customary closing conditions.

First Quarter Non-GAAP Outlook Comparison

Gross Margin Percentage     61%, +/- a couple percentage points     62%, +/- a couple percentage points1

Full Year Non-GAAP Outlook Comparison

      GAAP     Non-GAAP
Gross Margin Percentage     63%, +/- a few percentage points     64%, +/- a few percentage points1

¹Excludes the amortization of acquisition-related intangible assets and
inventory purchase adjustments arising from acquisition accounting

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Eternal Student's picture

No kidding. Couldn't happen to a nicer company. This is what you get when you hire the lowest priced engineers that you can get away with, and treat them like crap.

The blame for this is squarely on managements' shoulders. Though they will spin it.

RKDS's picture

I hope this screwup is directly tracable to one of Andy Grove's foreign suicide sweatshops.  I mean I've generally sided with Intel but I really don't appreciate the outsourcing.

AccreditedEYE's picture

What's the positive spin going to be?

Cognitive Dissonance's picture

Wonderful oppertunity to buy the fucking Intel dip.

AccreditedEYE's picture

LOL! Of course! OT- I've been on and off ZH sporadically past 2 weeks. Caught up on your "Monday Post" and Cheeky's story yesterday. Awesome stuff CD, thank you and thanks for getting us The Bastard back, even if it was only for 1 story.

LeBalance's picture

Halt selling, churn a bazillion shares, net change zero, call the dip priced in by the market, allow BTFD purchases from churned butter, open buying for all.

(selling is no longer a function [available to peons] of the market).

>I am Big Brother.

>I have shares to sell.

>You are my client.

>You have shares to buy, when I say, and for how much I say.


Oh regional Indian's picture

Intel halted? Shares not being traded, like that?

I thought Intel Halted nicely captured the State of the World.

Intel halted. Stupid, full speed ahead.

Plus, talk about an insider's insider, TBTF, monopolist company. 

Fried Chip maker? hah!



dirtydroog's picture

Why halt it, it only dropped 1.5%

SheepDog-One's picture

Because theres nothing but air below 1.5%.

Hephasteus's picture

Na. There's air, unicorns, fairy dust and worldcom corpses below 1.5 percent.

satansanus's picture

didnt somb hooka say selada intc last week

jesusonline's picture

Trading resumed, just a few minutes of hold-up to inform the PPT

doomandbloom's picture

Cougar Point....silicon fix...are you sure this was not a statement from SEC?

asteroids's picture

Hmm. Looks like market makers are real nervous these days. I guess they were asking their overloads if they could nuke INTC or save it.

carbonmutant's picture

AMD's options got a nice pop this morning...

Yancey Ward's picture

The best looking cougars all have silicon.

Sathington Willougby's picture

not the first cougar to degrade over time

Printfaster's picture

Generally these chip errors are par for the course.  This one only became an issue because it was found in longer test runs.

They issue chip revisions about 6 times a year or more often.  Intel will lose about one month of production, and may have a small recall.  Intel's quality if it were applied to the auto industry would have every car running 800,000 miles without needing service except for oil and wiper blades.

Mr Lennon Hendrix's picture

Equity is a slaughter house.  F got its throat ripped out, Intel is getting the clever, and who is next?  I would say Netflix is about to get gutted.  They had a nice run, there is no recovery, they had to use gimmicks to create their demand, they could lose huge here.  Apple too, but I have never liked apple.

dark pools of soros's picture

right but in a shit economy NFLX will soar since it is cheap entertainment..  it is bullet proof  - someone is going to buy them out/merge at some point


i bought at 45 and sold at 50..  it will not crash and haunt me forever


DavidC's picture

This'll be another reason the market's going up today, yes?


dark pools of soros's picture

no glitch..  they had to halt and issue recalls to include new facebook/twitter CIA  'enhancement' codes...

Buttcathead's picture

How many shares is Intel buying back ? 2 Billion Bernack bucks worth ? What a bunch of doo doo.  Just shut it down, folks can switch to buying lotto tickets and bail out the bankrupt cities and states.

aerojet's picture

Now the motherboard market will be filled with these "landmine" pieces of hardware untli the channel clears.

Yen Cross's picture

Ohhh Pray Tell. What about Guidance and whisper numbers? HEHE

Yen Cross's picture

 I guess those Qualcomm options were a good buy.Snap Dragons and all.