INTC Intel Corporation

By Don Clark and Georgia Wells 

Intel Corp. said it is recalling all Basis Peak smartwatches because of overheating issues, a setback for the chip maker's high-profile embrace of wearable technology.

The Silicon Valley giant asked customers to return the fitness-tracking devices for a refund of the unit price, sales tax and shipping cost.

The watches were created by Intel's Basis Sciences unit and sold between November 2014 and June 2016, when Intel discovered the overheating problem. The company recommended that customers stop using the product until it delivered a software update. The company on Wednesday said its effort to update the software had not fixed the problem.

Intel in June said that a small number of Basis Peak customers had reported that their watches overheated, in some cases causing discomfort, blistering or burns. The reported problems at that time involved approximately 0.2% of the watches sold, it said.

A company spokesman said he couldn't estimate how many Basis Science devices had been sold, or whether a replacement product will be developed.

Intel acquired the product line through the March 2014 purchase of San Francisco startup Basis Science Inc. Intel didn't disclose financial terms of the acquisition, but a person familiar with the matter said that Intel paid more than $100 million.

Basis found only a small niche market. Its sales never exceeded 1% of all smartwatches, according to Daniel Matte, an analyst with research firm Canalys who covers wearables.

However, the market as a whole hasn't met optimistic expectations. Fitbit Inc., the leader in fitness trackers, on Tuesday reported it had sold 5.7 million devices in its most recent quarter, helping to ease "concerns that fitness trackers could be a fad," wrote SunTrust Robinson Humphrey analyst Robert Peck in a research note.

Intel, based in Santa Clara, Calif., is best known for selling microprocessor chips for personal computers. Its sales have suffered as demand for those devices have fallen and the company failed to place its chips in many smartphones.

Brian Krzanich, who became Intel's chief executive in May 2013, tried to establish a strong position in wearable computing by jumping into the market early. The Basis purchase was described by the company at the time mainly as a way of acquiring intellectual property and expertise in the field, rather than an attempt to build a major consumer products business.

Intel subsequently developed chips targeting smartwatches and wearable devices, though most such products use chip technology licensed from rival ARM Holdings PLC. It also purchased other startups in the field such as Recon Instruments, which develops high-tech eyewear for sport enthusiasts.

The company said Wednesday it was unable to develop a software update to fix the overheating problem "without completely compromising the user experience." So it opted for the recall.

"This was a tough decision, but your safety is our top priority," said Josh Walden, senior vice president and general manager of Intel's new technology group, in a statement posted on the Basis website.

Intel said most of the watches were priced at $139 to $199, while a Titanium version sold for $299. It said customers will receive slightly more for the refunds, which will include sales tax plus shipping costs.

(END) Dow Jones Newswires

August 03, 2016 20:22 ET (00:22 GMT)

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