The Hidden Cost Of Intel's $700 Million SB Recall

I don't want to dive into conspiracy theories and assume the worst, but I just don't think we have heard everything from Intel yet and I doubt that we will get to hear much more than the company revealed yesterday. The bottom line: 5-15% of Cougar Point chipsets, which are tied to Sandy Bridge chipsets can ultimately fail to recognize connected SATA devices -- under extreme conditions and down the road, in about 2 to 3 years.
    
I had to scratch my head when Intel announced the issue yesterday. Intel claims it shipped roughly 8 million chipsets when it discovered the issue and that a new revision of the chipset that fixes the issue is already in the works. But then you look at the expected $700 million charge, which could turn out to be twice the (absolute) cost of the famous FDIV bug in 1993. When you break it down, this number values each chip and processor at $80 and change, which would include the cost to find the boards that carry the chip, ship them to Intel and provide replacements and labor reimbursements as well as some extra cash for damage control and lost revenues.  

Is it just me or is that high for a $5-or-so chipset?

If you think about it, it may actually be a realistic number that is most likely, too low. And I would argue that the reason for the replacement is not because Intel wants to be nice to you, the consumer, but the stock market and our creative lawyers.

Almost three years ago, Nvidia revealed that it has found material defects in some of its GPUs (it turned out that up to 75 million GPUs were affected) and decided to replace the GPUs, supported by a $196 million fund. However, the company spent (FY2010 PDF file) $189.3 million as part of the warranty program in FY2009, 95.8 million in FY2010 and recorded an extra charge of about $164.4 million in "related" cost. The cost so far? $449.5 million. And Nvidia isn't done yet. Most notably, there are three related punitive class-action suits pending against Nvidia at this time. This could get rather expensive. Lesson learned. Take class-action suit lawyers seriously. A little birdie told us that the usual suspects are already in talks with the usual tech consultants to evaluate how a class action lawsuit could work against Intel and break down Sandy Bridge. Expect a suit to be pitched within two or three weeks.

So, in all common sense, Intel's Sandy Bridge chipset issue could be a minor issue as the company claims and common sense suggests that Intel should have just placed the issue under an errata, put a warranty program into place for those rare cases when the chipsets in fact fail. Even if the possible replacement of at least 400,000 boards could have turned into a logistic nightmare. Like it or not, that's just business. However, Intel would be extremely vulnerable from a legal perspective in such a scenario and taking care of the problem right now is painful PR, but it defends the company from greedy lawyers. The coming lawsuit could end up in court, but I guess it will be settled out of court so both the lawyers and Intel are happy and close the matter. But is that cost is already included in the $700 million estimate? 

I spent some time with Intel on the phone yesterday and noticed that the company is focusing very much on the fact that it really isn't a big deal and that it has caught the issue early on and is taking care of the issue right now. However, the answers get somewhat thin when the company is asked about the validation process, which involves more than 3000 Intel engineers globally.

They take new silicon through a grueling testing process for several months and into environments the typical user will never see. Kinda like a new convertible that is stress-tested in the very north of Finland. If it is a minor issue, and if it is a failure of a trivial component like an SATA port, which is somewhat a carryover from a previous-generation device, why didn't Intel's validation team catch this problem? I was told by Intel that the issue was discovered by partners, when many more platforms are put under stress tests. That may be true, but it may also point, if true, to a problem with Intel's validation process. Imagine the same problem in cell phones or smart TVs. If you think $700 million is a lot, think again.   

Intel may not be revealing everything it knows about this issue. Either that, or Intel is conservative in its estimates.

The good news, of course, is that it seems that Intel is taking care of the issue thoroughly and that ends up to be a good thing for the consumer. It is tough finding any Sandy Bridge boards on the market one day after the recall was announced. For example, NewEgg has pulled all boards and even Sandy Bridge CPUs from its website already.

Editor's note and correction: A previous version of this article incorrectly stated that the replacement cost of each affected chip was $880. We apologize that the extra zero accidentally slipped in.