Intel Halts Shipments of Chip Over Design Flaw and Revises Its Outlook

Intel is halting shipments of its recently released Intel 6 Series chipset, citing a design flaw that could reduce the performance and functionality of certain hard disk and DVD drives over time, the company announced Monday.

Intel (INTC) expects the halted shipments of the support chip, code-named Cougar Point, and the lag time to deliver an updated version, will reduce first-quarter revenue by $300 million. The company noted it will take a charge against goods sold in the recently reported fourth quarter, as well as the first quarter. Intel's fourth-quarter results will be revised down to a gross margin of 63.5% from its previously reported 67.5%, while its first-quarter gross margin will come in lighter by 2% and full-year results by 1% because of the halted chip shipments.

Although Intel says stopping shipments of its Cougar Point will affect its financial results, the net effect appears to be less damaging. Intel says it has corrected the design flaw and expects to deliver an updated version of the chipset in late February and to be pumping out the new version in full volume by April.

The chip giant also used the announcement as an opportunity to deliver an update to its first-quarter and full-year outlook.

Despite the problems with Cougar Point, Intels says it expects first-quarter revenues to come in higher, at $11.7 billion compared to its previous guidance of $11.5 billion -- give or take $400 million. Gross margins are anticipated to come in lower, at around 61%, compared to the company's previous forecast of 64%, plus or minus a couple of percentage points. And Intel says research and development, as well as general administrative costs, will likely run higher at $3.6 billion, compared to Intel's earlier guidance of $3.4 billion.

Intel's revenue results for the year are now expected to post percentage growth in the mid to high teens, compared to its previous expectation of roughly 10% growth. Gross margins, however, are expected to be less at approximately 63%, versus its earlier forecast of 65%, plus or minus a few percentage points. Research and development, along with administrative costs, are expected to run higher at $15.7 billion, compared with $13.9 billion, give or take $200 million.

Intel noted it will work with computer makers to return the flawed chipsets and support modifications and replacements on motherboards or systems. The chipset flaw specifically affects the Serial-ATA (SATA) ports within some Cougar Point chipsets and those devices that rely on SATA links. The Cougar Point chipsets support Intel's second-generation Intel Core semiconductors, code-named Sandy Bridge, but the Sandy Bridge chips themselves remain unaffected by the flaw, Intel says.

Shares of Intel were down more than 1.5% at one point in morning trading. Intel rival Advanced Micro Devices (AMD), however, appears to have benefited from the news. Its shares climbed over 5%.