SANTA CLARA, Calif. – Despite acknowledging it has discovered a costly design error in a processor support chip, Intel has raised its revenue predictions for both the first quarter of 2011 and the full year.
At the same time Intel announced it had completed the acquisition of the Infineon Technologies AG Wireless Solutions business, which will now operate as the Intel Mobile Communications group, and the company expects to complete the acquisition of McAfee by the end of the first quarter.
The acquisition of Infineon's wireless business unit is expected to add about $500 million of revenue to the 1Q11 aided by high levels of iPhone production, according to analyst Craig Berger, with FBR Capital Markets.
Although Intel acknowledged the hiatus caused by discontinuing the faulty chip and ramping its replacement could reduce revenue by $300 million Q1 the company now expects first-quarter revenue to be $11.7 billion, plus or minus $400 million, compared to the previous expectation of $11.5 billion, plus or minus $400 million.
However the S-ATA bug in its series 6 support chip is expected to incur $700 million of additional costs and this will manifest itself in reduced margins. Intel's gross margin percentage in 1Q11 is now expected to be 61 percent plus or minus a couple percentage points, compared to the previous expectation of 64 percent, plus or minus a couple percentage points. Spending (R&D plus MG&A) is now expected to be approximately $3.6 billion, compared to the previous expectation of approximately $3.4 billion.
The full-year revenue growth percentage is now expected to be in the mid-to high teens, compared to the company's prior expectation of approximately 10 percent. Full-year gross margin is now expected to be 63 percent, plus or minus a few percentage points, compared to the previous expectation of 65 percent, plus or minus a few percentage points. Spending (R&D plus MG&A) is now expected to be $15.7 billion, plus or minus $200 million, compared to the company's previous expectation of $13.9 billion, plus or minus $200 million. Research and development (R&D) spending is now expected to be approximately $8.2 billion, compared to the previous forecast of $7.3 billion.
I wonder if cutbacks in experienced engineers contributed to this problem. I don't think Intel has had any massive layoffs, but I would be surprised if they weren't running lean like the rest of the industry. Maybe this chip design was outsourced to a design center in another country to reduce costs. Did it really save enough to outweigh the 700 million? Just a thought.
David Patterson, known for his pioneering research that led to RAID, clusters and more, is part of a team at UC Berkeley that recently made its RISC-V processor architecture an open source hardware offering. We talk with Patterson and one of his colleagues behind the effort about the opportunities they see, what new kinds of designs they hope to enable and what it means for today’s commercial processor giants such as Intel, ARM and Imagination Technologies.