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Good news, bad news for Intel

It was a case of good news, bad news for Intel (Nasdaq: INTC) Monday. The company announced a new, higher-margin chip and said sales were booming in Asia. However, the company also talked down estimates on Friday.

Shares in the chip-making giant slipped 6 1/16 to 117 just ahead of market close Friday. Intel revised its fiscal first-quarter earnings by a penny a share, and sales by $28 million. The revision was due to a defective chipset that went into distribution before the flaw was discovered.

Shares were down 1/16 to 117 13/16 Monday. Until the defect announcement, Intel's biggest problem was just keeping up with demand.

The defect in the chipset could cause crashes and other symptoms. Intel reported the chip defect earlier this month and gave assurances to customers it would replace the motherboards, on which the chips are mounted.

Intel spokesman Tom Waldrop told Reuters that the revision, which was disclosed in a filing to the Securities and Exchange Commission earlier in the week, did not include the financial impact of replacing the motherboards. The company has said the replacements could cost as much as a few hundred million dollars. The pretax impact of this week's revision on profit was $53 million, the company confirmed.

"This was reversing some revenue for product still in distribution, through our direct customers which include computer makers and motherboard makers and in the distribution channel itself," said Waldrop.

Reuters reported Monday that Intel president and chief executive officer Craig Barrett said Intel has yet to make a firm estimate on the cost for replacing defective chipsets.

Among other Intel news Monday:

  • Intel said it will introduce on Monday two much-anticipated upgrades to its Xeon computer chip family.

    The new chips will provide Intel with a higher profit margin potential, because of their cost-saving design. The new processors are the first upgrade to Intel's Xeon line since August. The chips also integrate cache memory as part of the processor, instead of as separate, more costly cache memory chips.

    Intel said the new Xeon chips will boost overall system performance anywhere from 13 to 46 percent, depending on the applications and system configurations.

    The Xeon processors target the server market, where servers are used to run data centers, Internet service providers and host applications for application service providers (ASPs), a market also targeted by Sun Microsystems Inc. (Nasdaq: SUNW).

    Analysts said that while Intel-based servers are becoming more of a competitive threat to Sun in the low-end of the market, Sun still reigns at the high end.Sun has a new server chip, called UltraSPARC III, in the works, but the chip is not shipping yet in volume.

    According to market research firm International Data Corp., Intel-based server shipments jumped 33 percent in the first quarter, up from the same period a year ago.

  • Intel also announced Monday it expects Asia, excluding Japan, to be its second largest market after the Americas by the end of the year.

    In 1999, the Americas accounted for 43 percent of Intel's market, Japan seven to eight percent, Europe 27 to 28 percent and Asia the rest. Asia's large population, fast economic growth and government support of the knowledge-based economy should make it surpass Europe by the end of this year, the company said.

    Intel said it is investing $100 million to expand its Malaysian facilities this year.

    Reuters contributed to this report.