Whoops.

Intel Corp. (Nasdaq: INTC) has discovered a design flaw in a recently released support chip, code-named Cougar Point, that will result in total repair and replacement costs of about $700 million and cause the company to cut its first quarter revenues by $300 million.

Intel said the SATA ports on that support chip, also known as the Intel 6 Series, "may degrade over time," which could screw up the performance and functionality of SATA-linked devices like hard drives and DVD drives. (See Intel Reveals Chip Slip.)

Systems with the faulty chips have been shipping since January 9, but that was plenty long enough for Intel, as a result, to cut its revenue forecast for the first quarter by $300 million as it discontinues production on the bad batch and starts to ramp up manufacturing on a new one that, the company claims, has resolved the issue. The updated version is expected to start reaching customers in late February, with a "full volume recovery" expected in April.

Why this matters
The support chip is utilized in PCs with Intel's second-generation core "Sandy Bridge" processor that the company highlighted at this year's Consumer Electronics Show and aims to factor into the budding market for over-the-top (OTT), broadband-fed premium video services.

Among its features, the Sandy Bridge line bakes in content protection for the delivery of HD movies in 1080p format directly to PCs, tablets, TVs and other Intel-powered devices outfitted with broadband connections.

Intel, which sees Sandy Bridge contributing to about one third of total revenues this year, plans to use the added "Insider" content protection layer to enable secure, direct downloads of HD movies at the same time they are released on DVD and Blu-ray -- essentially mimicking the early release windows that Comcast Corp. (Nasdaq: CMCSA, CMCSK) and other MSOs are now getting with video on demand (VoD).

DreamWorks Animation, Warner Bros. Entertainment Inc. and 20th Century Fox are among the big studios that have already pledged to support the feature.

The support chip flaw may slow down those efforts. However, the saving grace for Intel is that the Sandy Bridge microprocessor itself is not affected by the SATA problem.

For more
Intel's new direct-to-consumer OTT play has some service providers worried, but the chip giant also wants to work with operators on next-gen gateways and set-top boxes that take advantage of broadband. Here's a glance at Intel's on-again/off-again work with the cable industry.

— Jeff Baumgartner, Site Editor, Light Reading Cable