Seven hundred million dollars is a lot of money. That’s the estimated cost of Intel’s recent recall on its new chipsets. Once replacements are available in April, each motherboard sold, whether to a computer manufacturer or directly to consumers, will have to be swapped out for a new one courtesy of the silicon giant. Occasional recalls happen in the tech industry; a notebook model will to burst into flames, or a phone’s USB port will turn ot defective. Intel, however, is the world’s largest semiconductor corporation, and its recall of eight million units is a bad mistake at the worst time for the company.

Newspapers and blogs have taken to, rather inaccurately, calling this goof the “Sandy Bridge Recall.” Sandy Bridge refers to the new processor architecture that Intel released to market this year, a line of desktop and laptop CPUs that boast faster onboard graphics, increased clock speeds and improved power consumption. The chips are fast, efficient, use less energy and generate less heat. There is nothing wrong with the processors.

The problem is with their motherboards, the central circuit component of any modern computer. The new line of P67 and H67 motherboards utilizes a new chipset referred to as “Cougar Point,” and that’s where Intel seems to have a problem. Because of manufacturing defects, the company estimates that five to 15 percent of these motherboards will experience severe degradation in some of their Serial Advanced Technology Attachment (SATA) ports over several years. For any hard drive or CD/DVD drive connected to ports Nos.2-5, long-term usage will result in sluggish performance and eventual dysfunction.

For most portable computers, it’s not catastrophic. Most utilize no more than two SATA ports (one hard drive and an optical drive, for example) and can use the unaffected No.0 and No.1 ports instead. But for desktops or high-end laptops with multiple drives or external SATA connections, connectivity degradation will necessitate a motherboard swap or even a whole new computer. five to 15 percent may not sound like a lot, but Intel has no way of testing all the units sold thus far and has been forced to recall all models with potential defects. Internal estimates of the recall cost place the fee around $700,000,000 which, given the size of the company, isn’t a crippling bill at face value.

The recall, however, is just another item on Intel’s long list of challenges and disappointments for this year. Rival AMD has a brand-new architecture that should offer the first consumer-grade octacore CPUs at prices competitive with Intel’s quad-core units. Mobile silicon firm ARM has announced its first processors targeted at laptop computing, declaring an end to Intel’s reign over the market. At the same time, Intel’s ventures into the mobile market have collapsed: Nokia, the firm’s partner for its Linux-based MeeGo OS, has converted to Microsoft’s Windows Phone 7 and Intel’s mobile Oak Trail processors will debut this year on a market already dominated by ARM’s Cortex (think iPhones) and Nvidia’s Tegra systems. And to add insult to injury, Nvidia just announced a quad-core mobile chip, dubbed Kal-El, with unbelievable graphics processing capabilities that will go on sale this year. Intel’s business is tethered to a model of computing that grows more obsolescent each year, and its competitors are threatening even that market share.

Intel deserves a little credit in its handling of the Cougar Point recall. As soon as its engineers were aware of the problem, the company made recall plans, halted production and announced the defect to its investors and its customers. As far as business ethics go, Intel showed industry watchers its model status.

As far as business success goes, Intel’s prognosis seems grim. Tech journalism outlets, like “Tom’s Hardware,” seem skeptical of the $700,000,000 figure for the recall. Examining similar events, such as Nvidia’s 2007 GPU recall which cost twice its projected sum, the techies at Tom’s believe that seven hundred million “may actually be a realistic number that is most likely, too low.” That’s a lot of capital lost at a most inopportune moment.

Intel has been the giant of its industry for years. Its command of the market has led to FTC antitrust proceedings and the nickname “Chipzilla.” After a decade of domination, it would be hyperbole to declare that the Cougar Point recall and recent challenges will change that fact. But even just two months in, it’s a bad year for Intel — and competitors’ big releases haven’t even hit the stores yet. Barring some secret project slated for release in the upcoming months, expect Intel’s stock to drop and its stranglehold on the processor market to loosen. $700,000,000 is a lot of money, but Intel has a whole lot more to lose.