Intel today said it would take a charge of $200 million in the second quarter to cover costs associated with a motherboard recall, bringing the total cost of the recall to approximately $253 million.
In addition, the company announced it will report a massive amount of capital gains and income from outside investments this quarter, including shares in memory maker Micron Technologies. Intel said income from interest and other sources will come to approximately $2.3 billion in the second quarter, more than $1.5 billion above the $725 million in outside income the company said it expected for the quarter in April.
The motherboard recall stems from a flaw with a chip called the memory translator hub (MTH), which allowed computer makers to combine a Pentium III and Intel's 820 chipset with standard computer memory rather than costly and scarce Rambus-based memory. As part of the recall, Intel is eliminating the MTH entirely and giving users a new motherboard stocked with more expensive Rambus memory.
Earlier, Intel reduced its first-quarter earnings by $53 million to pay for costs associated with the recall. The motherboard recall, which was announced in May, will apparently cost less than the notorious Pentium recall of 1994, which costs the company roughly $475 million.
Investment sales have been a growing part of Intel's quarterly income, but a stock sale of this magnitude is bound to raise eyebrows. The $2.3 billion in stock earnings will effectively double the company's second-quarter earnings.
A "sizable" amount of the sudden gain comes from sale of stock in memory maker Micron Technologies, said an Intel representative. Intel invested $500 million in Micron in October 1998 as part of an effort to jump-start manufacturing of Rambus memory. The Intel representative would not confirm whether the sale constitutes a complete divestiture of its Micron holdings.
Micron, which reports earnings Thursday, has seen its shares rise in recent weeks with the rise in memory prices. Micron has also been one of the more active companies in promoting Double Data Rate DRAM, which will compete against Rambus memory.
Dan Niles, an analyst with Lehman Brothers, said the stock gain will merely be treated as a one-time gain for Intel. Texas Instruments, for instance, has been selling its Micron stock as well.
"Both these companies made humongous gains on their initial investments," he said, adding that at one point, TI held 12 percent of Micron and Intel owned 6 percent. "Both are just trying to take some of the money off the table to diversify their investments," he said.
Intel first signed its deal with Micron when the company's stock was bouncing between $15 and $20. The stock now hovers in the low $90s.
Niles also discounted any connection between the sale and Micron's seemingly declining interest in Rambus. Micron has reduced the amount of Rambus memory it manufacturers from approximately 7 percent of its output to nearly zero, he said. However, Intel's investment was not conditioned on any sort Rambus output. Intel is likely just capitalizing on its investment.
News.com's Ian Fried contributed to this report.