The FDIV bug was a catastrophic design flaw in the original Pentium (P5) processor that caused certain floating point divisions to produce false results. It was a rather controversial problem and extremely rare as only one in 9 billion operations was believed to be affected by the flaw, but Intel was forced to recall and correct the issue. The company initially expected the cost to be in the neighborhood of $300 million, but ended up paying about $475 million in total.
We should note that Intel has an elaborate structure of quality control in place: there are more than 3000 engineers worldwide who are testing new chip designs usually for at least 9 months before a chip is commercially released. This structure has been created following the FDIV bug specifically to avoid scenarios such as the announced Sandy Bridge circuit design "issue." With a $700 million bill and the stock market fallout still to be seen, Intel may be looking into ways on how to improve its quality control system -- especially since the company is trying to figure how to make its way into other high-volume markets such as mobile phones and consumer electronics.
There have been some reports from the side of AMD ridiculing Intel's mistake, but we should be fair and recognize that microprocessors are highly complex marvels and engineering and AMD has made mistakes as well - such as the TLB bug in the company's first quad-core server processor - the 2007 Opteron CPU with Barcelona core.
