The company has already stopped making the chip with the problem, but as is always the case with the incredibly complex process of semiconductor manufacturing, doing so is a costly process. Intel said it will reduce its revenue forecast for the first quarter by $300 million as it ends production of the old chip and gets volume of the new one ramped up. Total cost to repair and replace affected materials and computers already sold with the problem chip will be $700 million.

Those with long memories will recall Intel’s Pentium bug in the mid-1990s, which caused a big crisis of confidence in Intel chips, jokes from late-night TV hosts and a drop in the company’s stock price. This error is nothing like that. The company says the processor itself is unaffected.

Analysts are telling investors not to overreact. “Assuming pent-up demand for Sandy Bridge and mild competition, we think impact of this problem will be relatively small,” Standard & Poor’s analyst Clyde Montevirgen told clients in a note today. Mark Moskowitz of J.P. Morgan said it is likely that only a small number of end consumers are affected.

Meanwhile, Intel closed its $1.4 billion deal to acquire the wireless chip division of the German chipmaker Infineon, and said it expects to finally close its $7.7 billion acquisition of McAfee by the end of the quarter.

The combination of those two deals plus the chip trouble caused Intel to issue new guidance for the first quarter. It now expects first-quarter sales in the range of $11.3 billion to $12.1 billion, which is slightly higher than previous guidance. However it shaved three points off its gross margin forecast: The mid-point of the range is now 61 percent, down from 64 percent.

Intel shares are down more than one percent at the moment, while shares of rival Advanced Micro Devices are surging by more than five percent.

“The ultrathin microprocessor which fits into the ultrathin solution is addressing all of these areas–better battery life, better performance,” Mooly Eden, vice president and general manager of the PC Client Group at Intel (INTC), said while announcing the chips this morning. “It’s going to be lighter, it’s going to be smaller, and it will fit the consumer system price point. You’ll see some very affordable systems.”

This bodes well for the ultrathin laptop, which hasn’t had much success staking out a middle ground between the netbook and the laptop because its performance often doesn’t justify its price. If Intel’s new chips change that, the ultrathin segment may stand to gain a bit of traction in the portable market.

Silverthorne, part of Intel’s “Menlow” Mobile Internet Device platform, reportedly runs as fast as a second generation Pentium M processor, but consumes between half a watt and two watts of electrical power–about a tenth of the power consumed by a typical notebook processor. No wonder Apple’s said to be interested in the chip. It would appear to be perfect for a number of devices rumored to be secreted away in its product pipeline–the FlashBook, the multitouch Newton, the Mac tablet.

That said, we’ll likely not see it popping up in a 3G iPhone, though at first glance it would make sense there as well. “According to several iPhone teardowns, Apple is likely using the Samsung S3C6400, or some special equivalent built just for them, in the iPhone,” explains News.com’s Tom Krazit. “That chip is based on the ARM1176 core, which at 620MHz consumes just 279 milliwatts. That’s running all-out, whereas most of the time you’re actually going to be drawing much less power than that. Silverthorne, by contrast, will consume 500 milliwatts of power at minimum, and probably only when it’s doing nothing in idle mode. Those numbers just aren’t going to work in a phone, especially an Apple phone, if the company really is so concerned about power consumption that it has held off on releasing a 3G iPhone until the power consumption of that modem improves.”