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Intel Corp. (INTC-Q) cut its first-quarter revenue forecast by $300 million US on Monday because of costs associated with correcting a design flaw it discovered in one of its chips.
Intel said it had stopped shipments of the chip, which is used in PCs with the company's latest generation Sandy Bridge processors, and had implemented a fix. It estimated the total cost to repair and replace the chip at about $700 million.
The world's largest chipmaker said it did not expect the problem to have a material effect on full-year revenue. It will begin delivering an updated version of the chip to customers in late February.
But since the flaw affected some of the chipset units shipped in the fourth quarter, Intel plans to take a charge that will reduce its gross margin by roughly 4 percentage points for that period.
It will also take a first-quarter charge that will cut its gross margin by 2 percentage points.
Analysts said the financial impact would be muted, but added that the issue would ding the company's reputation, at least temporarily.
"This is a minor negative and not as big an issue as it seems," said Miller Tabak analyst Brendan Furlong. "It's obviously an embarrassment, rather than a major problem for the company."
The chip issue, along with the two acquisitions that are closing, including the purchase of security software firm McAfee , which is due to close in the first quarter, prompted Intel to revise its overall outlook.
Helped by the deals, it now expects first-quarter revenue of $11.7 billion, give or take $400 million, compared with its previous expectation of $11.5 billion, give or take $400 million.