Thursday, February 10, 2011

Intel (NASDAQ:INTC) to Ship Faulty Chips - What Could Go Wrong?

Spin it any way they like, Intel (NASDAQ:INTC) is taking a huge risk in shipping the faulty chips they recently revealed.

The problem, beyond the obvious, is why are they pressing so hard to continue business at such a risk?

Intel originally said they would lose an estimated $300 million in revenue for the quarter, and it wouldn't have any meaningful impact on full-year revenue.

If that's the reality, than why would the chip-maker take the risk of infuriating customers, and even possibly opening themselves up to future lawsuits.

Something isn't making sense in this decision.

What the probable scenario is is customers are pressing them hard or major competitor AMD (NYSE:AMD) is in fact getting a lot of new business from Intel dropping the ball.

That could mean Intel is losing more business and revenue at a faster rate than they had estimated, which would decimate the share price of the stock for some time if it is much worse than anticipated.

If not, the scenario and decision to sell the faulty chips to customers, even to those who apparently wouldn't experience any potential damage from the chips, is risky.

Anyone could see the possibility of chips being mishandled and placed in the wrong hands, etc.

To ship them anyway seems to imply things are not as good for Intel as they thought with the consequences of the chip, and they are in panic mode.

If there actions don't suggest that, it's not logical or make strategic sense to take the risk.

From what AMD has said, they've received a lot of queries from Intel customers concerning using their chips in place of Intel's chips, although they said it was too early to know the extent of the positive consequences of the new orders.

AMD closed Wednesday at $8.23, dropping $0.01, or 0.12 percent. Intel closed at $21.46, falling $0.18, or 0.81 percent.


Anonymous said...

Typo: If *their* actions don't suggest that

Anonymous said...

yea... thats kind of a pathetic mistake to make...

Anonymous said...

don't know how intel is related to gold... but if the faulty portion of the chip is not used... why throw it away..

Anonymous said...

The business model for microchip is much different compared to other engineering product e.g. automobile, aircraft and etc.
Nowadays the same chips are be sold in many different configuration, e.g. frequency, power envelope and etc.

The faulty transistor on a chip is like an non-used subroutine in a software. Provided the faulty portion is guaranteed not to be used, everything should be same from the user perspective.

Somemore in chipset hardware design, it is much simpler to guarantee the transistor or the particular feature is not being used. If a customer bought a chip with lower spec and the chip is working perfectly within the spec, i don't see any issue for selling the chip.

It's just like the frequency binning. Says, all CPU are designed to run in 3GHz, but after product binning, some of them only able to run in 2G, while others may be in 2.5G. But we don't refer the 2GHz chip as "faulty"; Those chips will still be sold in market as 2GHz chips and they work perfectly fine.

Anonymous said...

Agreed, You should probably find out how microchips actually work before trying to spin your opinion on the company.

Anonymous said...

pretty shallow analysis showing pretty shallow understanding of the business strategy and semiconductor products. The defected product is defected in ports 2-5 which remotely affect the mobile skews.. This is where most of the OEMs do not mind shipping their product with the faulty chip. The chance of chip failure in the future is eliminated if OEMs used ports 0 and 1 which are very highly likely (it is almost a tradition).

Since Mobile is the big dog, the risk is minimized / eliminated.. Even if there is still a small risk, paying for a lawsuit or replacing the product is order of magnitude smaller than scrapping the product.

Pssst, by the way, no chip ever was made with no bugs, ever!

Anonymous said...

Remember how AMD decided to continue to ship Barcelona with the TLB bug but told all its customers to clock down their processor.. Was that a risk or what??