1-3-18 4:34 PM EST | Email Article

By Wallace Witkowski, MarketWatch

Intel says flaw is not unique to its chips and will not slow down systems for average computer user

Intel Corp. shares had their worst day in eight months, but pared deeper earlier losses Wednesday after the company said a report its chips have a unique security-design flaw that could eventually slow down computers by up to 50% was inaccurate.

Intel (INTC) shares, which had been down as much as 6% earlier, closed down 3.4% at $45.26, their worst one-day percentage loss since April 28, 2017, when shares dropped 3.4%. Intel was the second most heavily traded stock on the S&P 500 index with more than 114 million shares exchanging hands, compared with a 52-week average daily volume of 23.8 million shares. After hours, shares declined an additional 0.9%.

Late Tuesday, online technology news site The Register reported that a "fundamental design flaw" (https://www.theregister.co.uk/2018/01/02/intel_cpu_design_flaw/) in Intel chips has caused Linux coders and those at Microsoft Corp.(MSFT) to patch their operating systems for security reasons. Most damning, however, was that the report said these patches will slow down performance by 5% to 30% in certain systems with Intel chips, and that Advanced Micro Devices Inc.(AMD) processors were not affected.

Opinion: Intel suffers an epic security fail, offering a big opportunity for AMD (http://www.marketwatch.com/story/intel-suffers-an-epic-security-fail-offering-a-big-opportunity-for-amd-2018-01-03)

By midday, Intel disputed the report.

"Recent reports that these exploits are caused by a 'bug' or a 'flaw' and are unique to Intel products are incorrect," Intel said in a statement. "Based on the analysis to date, many types of computing devices--with many different vendors' processors and operating systems--are susceptible to these exploits."

The most heavily traded stock on the S&P 500, at volume of more than 150 million shares, was rival chip maker AMD. The stock has a 52-week average daily trading volume of 65 million shares. Shares, which had rallied more than 10% earlier, closed up 5.2% at $11.55. In the first two sessions of 2018, shares are up more than 12%, after having declined 9.3% over the course of 2017. After hours, shares declined 1.4%. AMD did not immediately provide a comment Wednesday.

The PHLX Semiconductor Index rose 38.2% in 2017, and is up 4.5% for the first two days of 2018.

Intel continued: "Intel is committed to product and customer security and is working closely with many other technology companies, including AMD, ARM Holdings and several operating system vendors, to develop an industrywide approach to resolve this issue promptly and constructively."

On CNBC, Intel Chief Executive Brian Krzanich said he believes the company has the right fixes in place for the issue and has not seen the security exploit used.

The big question is how much Intel is going to be liable for the security flaw, according to Bernstein analyst Stacy Rasgon in a note, calling to mind a $475 million share Intel took in 1994 to address a bug in its Pentium processors, and the $700 million share in 2011 to address the Cougar Point chipset issue.

"The current problem feels much bigger ($475M would have replaced perhaps 5-10M processors back in 1994, and the Cougar Point issue affected 8M units, while the affected PC installed base today is in the hundreds of millions of units); potential liability remains the biggest open-ended question we have at the moment," Rasgoin said.

Nvidia Corp. (NVDA) shares also rallied, gaining 6.6% to close at $214.47. The gains in AMD and Nvidia follow Tuesday's strong day for chip makers following reports of strong November sales (http://www.marketwatch.com/story/amd-chipmakers-drive-tech-rally-on-2018s-first-day-of-trading-on-strong-sales-data-2018-01-02). Nvidia shares were the 13th most heavily traded stock on the S&P 500 at more than 22 million shares.

"This is a positive in our view for Nvidia (Data Center)," RBC Capital Markets analyst Mitch Steves wrote in a Wednesday note of the Intel news. Steves has an outperform rating on Nvidia but does not cover AMD. "If there are speed/performance issues with Intel products, this gives Nvidia a chance to gain market share while the issues are being resolved."

Micron Technology Inc. (MU) shares were the fifth most traded stock on the S&P 500 with more than 42 million shares changing hands. Shares of the chip maker closed up 3%.

A little over two months ago, the roles were reversed for Intel and AMD shares: Shares of Intel surged after posting "impressive" earnings (http://www.marketwatch.com/story/intel-stock-soars-to-17-year-high-after-impressive-earnings-2017-10-27) while AMD shares dropped even after topping Wall Street expectations (http://www.marketwatch.com/story/amds-stock-tumbles-as-solid-results-werent-good-enough-for-wall-street-2017-10-25).

-Wallace Witkowski; 415-439-6400; AskNewswires@dowjones.com


(END) Dow Jones Newswires

01-03-18 1634ET

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