$1-billion cost for Intel as flaw in newest computer chips emerges

At a point in which the demand for PCs is under threat like never before, a defect found on one of global manufacturer Intel’s chips has hit the firm’s credibility in the midst of a major product launch. The world’s largest manufacturer of semiconductors will lose an estimated US$1-billion in missed sales and added expenses.   

The company confirmed on Monday that has it called off all shipments of the chip used in personal computers with its most advanced Sandy Bridge line of processors, according to a Reuters report. Production on a new version has now begun.

Slow computer sales are attributed to the increasing popularity of mobile, especially in emerging markets, where growth has seen PCs sidelined in favour of cellular internet access. That makes errors like this one all the more costly.

Had the chip’s defect gone undetected, as many as 5% of new PC’s may have failed within a 3-year period according to Intel’s management in a discussion with the media yesterday.

The flaw was detected last week after tests with high voltage and temperatures concluded the problem would possibly prevent computers from being able to communicate with their hard disks or DVD drives.

Reactions from the market have not been overly bearish. “It’s obviously a negative and a surprise. We think they can recover from this very quickly. This product was just being introduced and there’s not many in the field,” said Kevin Cassidy, an analyst at Stifel Nicolaus who comments were reported on FoxNews.com.

The company’s share value declined 0.6 percent on the Nasdaq shortly before the close of trade following the news. The company will spend US$700-million to replace potentially faulty chips and systems, according to the San Francisco Chronicle.

However recent deals by Intel, including the recently completed acquisition of German chipmaker Infineon Technologies AG’s wireless unit, are expected to see first-quarter revenue of US$11.7-billion, “give or take $400-million”. This is compared with its previous expectation of $11.5-billion. The purchase of security software firm McAfee is expected to close in this quarter adding to revenue in the second quarter.

“As a long-term investor in the stock I won’t be changing my perspective on the shares, but in the short term this is a surprise,” noted Ralph Shive, who manages the $1.7 billion Wasatch-1ST Source Income Equity Fund which owns shares in Intel.

To date Intel has not received a single customer complaint. The world’s largest PC maker, Hewlettet-Packard and Dell, the second largest globally, declined to comment on the latest developments to befall their competitor.