Intel Assesses Damage Of Cougar Point Chipset Flaw

Intel on Monday reviewed the fallout from the recall and delay of a chipset for its new Sandy Bridge processors, offering details including an updated revenue forecast that reflects the impact of the error and the cost of solving it.

Intel in a conference call on Monday said it had identified a circuit design error in its Intel 6 series chipset, code-named Cougar Point, and that it had fixed the problem.

Intel expects the recall to cause a shortfall of approximately $300 million in its first quarter, 2011 revenue as it brings production of the defective chipsets to an end and begins producing the newer version. In addition, the total cost to repair and replace the affected hardware is approximately $700 million, according to Intel, bringing the total cost of Intel's mistake to $1 billion.

"We wanted to move quickly before any of these end up in the hands of a consumer, because they weren't meeting our quality expectations," Stacy Smith, chief financial officer at Intel, said in the call. "We will work with OEMs downstream and support them, and we can help the PC customer resolve the problem."

As for customers who have been affected, Intel said it will contact the system builders and customers who purchased potentially flawed chipsets or systems in order to replace or modify them. Intel said it expects to begin offering the fixed chipset to customers in late February and expects to recover the entire volume of sales from the chipset by April.

Intel said that the error in its Cougar Point chipset in will cause SATA ports in some chipsets to degrade over time, affecting the performance of attached SATA hard disks and DVD drives in PCs using Intel’s latest second generation "Sandy Bridge" Core processors. Intel said that Cougar Point is more or less the only chipset that runs alongside Sandy Bridge as it gets integrated into a system.

Although the latest generation's 16 ports are not affected, older processors include an architectural flaw that could lead to problems with the bit-error rate over time, Intel said. Of the six SATA ports on the Cougar Point chipset, four are potentially affected, Intel said.

"We're continuing to ship Sandy Bridge processors; that hasn't changed, the 32-nm process continues to be robust," said Steve Smith, vice president and director of PC client operations and enabling at Intel. "We are temporarily holding the shipment of our support set, cougar point, and we expect to resume shipment very quickly."

Next: The Impact On The End User

Intel says the systems with the Cougar Point chipset have only been shipping since January 9 and that relatively few end users have been affected, all of them Sandy Bridge customers.

"We believe there will be about 200 million fewer processors sold due to supply line disruption," said Stacy Smith. "All we needed to do was make a change to one of the metal layers. Hence here we are saying we can have our initial volume shipping to customers."

Stacy Smith said Intel was confident it had understood the issue quickly and that its engineers had been able to identify it and make a change.

As for how the mistake went unnoticed before the launch of Sandy Bridge earlier this month, Intel said the chipset had passed many stages of rigorous testing before its release and that of the overall shipments of Cougar Point, a few percent may have SATA ports that degrade inside notebooks over a few years.

"As the number of samples shipped increased to well over 100,000, and as some OEMs tested their system with voltage and temperatures high, and we reviewed it with a very focused team that found the circuit issue," Stacy Smith said. "It took us a few more days to characterize it and understand what it means to an end user. We concluded yesterday that the decision warranted the action we're taking."

Stacy Smith said Intel decided yesterday to hold the chipsets and pointed out that Intel had been quick to act since confirming the failures in the Cougar Point chipset.

"No other chipset besides Cougar Point is affected right now," he said. "Our roadmap hasn't changed. We have an aggressive Sandy Bridge and Cougar Point roadmap for back-to-school sales in the second quarter. The same quantities and SKUs are in place for a really robust brand in the second quarter."

In addition, Stacy Smith said the launch date for the Cougar Point chipset may change by a matter of weeks, but Intel expects to fully recover from the shortfall in revenue caused by the recall and the delay of Cougar Point by April, or perhaps even March.

"I think the impact on shipments is going to be subtle, since it's not an issue with the 32-nm Sandy Bridge process," Smith said. "It's a chipset issue on older technology that we think we can recover from quickly. We expect to be caught up by early second quarter, plus or minus a little bit."

Next: Intel's Revised Forecast

During the call, Intel said it 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. Smith said he did not see much of a change in Intel's overall market for the first quarter and that only the launch date has changed by a few weeks.

"It's still a great product," Stacy Smith said. "There may be some supply line disruption a bit, but we're still stocking for the Sandy Bridge launch, it's just going to be a bit later than expected."

Intel offered a revised outlook for its expected 2011 results, taking into account the effect of the chipset issue, along with the close of Intel's acquisition of Infineon's Wireless Solutions Unit on Monday and Intel's pending acquisition of security vendor McAfee.

Intel does not expect its revenue for the whole of 2011 to be affected by the error, despite the immediate $300 million shortfall. Intel does expect, however, that its first quarter, 2011 gross margin will decrease by 2 percent and its 2011 annual margin will decrease by 1 percent.

"We've shipped cumulatively slightly less than 8 million units of the affected shipments, most of which have been integrated onto a motherboard," said Stacy Smith. "But the number of units shipped to an end customer is relatively small, and we do have some older inventory that will help offset some of that shortfall."

Intel also said during the call that intends to work with OEM partners and others down the supply line, and will accept the return of the affected chipsets. Intel says it plans to support modifications or replacements needed on motherboards or systems.

"We were planning to launch those mainstream systems with dual-core Sandy Bridge processors in a few weeks," said Steve Smith. "The window of the launch will likely be pushed out by a few weeks relative to our plans. We need to talk to our OEMs about how quickly it will take to re-design the pipelines in those systems. "