Intel Corp on Monday cut its first quarter revenue forecast by $300 million due to the costs associated with correcting a design flaw it discovered in one of its chips.
Intel said it has stopped shipments of the chip and has implemented a fix. It will begin delivering an updated version of the chip to customers in later February. Total cost to repair and replace the chip is expected to be around $700 million, it said.
Intel shares were down 1.1 percent in mid-morning trading after the chip glitch was disclosed.
The following is reaction from industry analysts and investors:
JOHN JACKSON, ANALYST WITH CCS INSIGHT IN BOSTON
Obviously it's not something any supplier wants to have happen, but the matter that they've identified it and prepared a fix at this relatively early stage of production provides some consolation. Intel can absorb a $300 million revenue adjustment and the potential $700 million total fix cost. It hurts, but the figure could have been an order of magnitude higher if volumes had ramped. The good news is that this is not a design issue with Sandy Bridge itself, which would have been a disaster given its strategic importance for Intel going forward. The bad news of course is that it negatively affects Sandy Bridge volumes in the near term and will have caused some damage to key customer relationships.
MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO., SAN FRANCISCO:
They said they've already implemented a fix for it, so it's just a matter of them taking a charge or probably recalling or repairing chips. Obviously it's going to have an impact on their revenues. This will probably knock them back down to where the Street had them. Outside of that I don't think there's a big impact. In the chip world...we've seen this a lot over the years...As much as it's a negative short-term for their earnings, I don't think anybody is going to hold it against Intel. Because they already have the fix on hand, they can move on quickly from this...I don't think it should have any real coattails for their sales long-term or the outlook for the company.
MAHESH SANGANERIA, ANALYST, RBC CAPITAL MARKETS
It's a small impact. There's no reason to think otherwise. The impact is just a few hundred million dollars, and we know exactly how many have been shipped.
It's about the chipsets possibly degrading over time, it's not like you can't use it at all anymore. The company has already corrected it.
KEVIN CASSIDY, ANALYST AT STIFEL NICOLAUS & COMPANY,INC IN NEW YORK
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. We would recommend that investors buy Intel if there's weakness in the shares today because of this.
The manufacturing process takes eight weeks so they started this production in the December quarter so it's going to take some time to recover. They have to stop all manufacturing and restart with the fixed device. This won't have the biggest impact. This chip supports Sandy Bridge so it'll slow some of their revenue.
MICHAEL JAMES, SENIOR TRADER AT REGIONAL INVESTMENT BANK WEDBUSH MORGAN IN LOS ANGELES:
It's clearly a negative but I don't think it's going to have a material impact on the stock.
BRENDAN FURLONG, ANALYST AT MILLER TABAK IN NEW YORK
This is a minor negative and not as a big issue as it seems. It's just a chip set problem so not a major problem like if it was a CPU-related issue then they'd have a major problem on their hands. It's obviously an embarrassment rather than a major problem for the company.
It could be a positive impact for Nvidia and AMD because they also make chipsets, so there's a chance someone might got to Nvidia for chipsets in the near term but that's a minor problem.
VIJAY RAKESH STERNE, AGEE & LEACH ANALYST
Looks like a little bit of a setback but they seem to be raising the top line guidance so I don't know if that has to do with their acquisition of McAfee for Inifineon that they just completed. They lowered the gross margins though.
There might be some recalls but we don't know the full extent so it would be speculative to say anything.
RALPH SHIVE, THE SOUTH BEND, INDIANA-BASED MANAGER OF THE $1.7 BILLION WASATCH-1ST SOURCE INCOME EQUITY FUND (OWNS INTEL)
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. I'll be watching the stock closely to see where the price goes, and while I'll have to see what the market dishes out, I would be more likely to be a buyer than a seller on any dips.
(Reporting by Ryan Vlastelica, Ritsuko Ando, Ed Krudy and Yinka Adegoke, Caroline Valetkevitch, and Liana B. Baker in New York and Tarmo Virki in Helsinki)