Update: Intel to lose $1 billion over chip manufacturing blunder

Intel announced Monday it had halted shipments of a new chipset after it discovered a manufacturing blunder; that manufacturing error could ultimately cause 5 percent of the chips to fail over the next three to five years.

The loss in revenue and the subsequent fixes to the roughly 500,000 laptop and desktop computers that contain the chipset could cost the technology giant $1 billion. The supply chain error is yet another example of the implications that result from manufacturing and supply chain practices that are not running at optimal levels.

Intel's Series 6 chip, dubbed the Cougar Point, controls the movement of data to hard drives, DVD drives and monitors, but has a failure rate of five percent over the typical lifespan of a computer. The chipset started shipping on January 9, and though Intel caught the problem early, some eight million chipsets have already been shipped.

Full production on the fixed chipset models is not schedule to begin until April, with a modified version starting deliveries at the end of February. Intel has placed a lot of time and money in the development of the chip as the largest maker of chips looks to widen its lead over Advanced Micro Devices, its closest competitor.