Nvidia in financial strife as it confirms ‘significant quantities’ of defective chips

Posted at: 11:30am 3rd July 2008 by Ben Hardwidge

Stock price drops 25% as Nvidia takes a $200 million US hit to sort out support for weak chips

The seemingly unstoppable force that is Nvidia took a beating on the stock market yesterday as its stock price dropped by 25 per cent. While stocks and shares can often fluctuate in price, Nvidia’s reasoning for its recent financial woes is particularly interesting, as it involves ‘significant quantities’ of its laptop GPUs and media control processors (MCPs) that have been found to have serious problems.

The giant of PC graphics has now had to adjust its revenue forecast for the period ending in July to be between $875 million and $950 million US, although 24/7 Wall St claims that Wall Street had expected $1.1 billion US. Nvidia says that this is partly because it will have to ‘take a $150 million to $200 million charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and other consequential costs and expenses’ that have arisen from the issue.

Nvidia wouldn’t name which chips specifically had the problems, but said that ‘certain notebook configurations of these MCP and GPU products are failing in the field at higher than normal rates.’ The company hasn’t yet discovered why the chips are failing, but said that ‘testing suggests a weak material set of die/package combination, system thermal management designs, and customer use patterns are contributing factors.’

Disturbingly, this issue may not be confined to just laptop chips, and may affect desktop GPUs as well. In its 8-K form, Nvidia states that ‘we are continuing to test and otherwise investigate other products,’ adding that ‘there can be no assurance that we will not discover defects in other MCP or GPU products.’

In the meantime, Nvidia says that it’s made a software driver available to ‘cause the system fan to begin operation at the powering up of the system and reduce the thermal stress on these chips,’ which we’re sure will be a great sound.

Nvidia also issued a further warning about the strength of the silicon market in general, adding that the fall in its stock price was also a result of ‘market weakness around the world.’ The company also admitted that ‘price adjustments’ of its GPUs needed to ‘respond to competitive products.’

Nvidia’s president and CEO Jen-Hsun Huang admitted that the problems have ‘been a challenging experience for us,’ but added that ‘the lessons we've learned will help us build far more robust products in the future, and become a more valuable system design partner to our customers.’ Huang was also keen to point out that Nvidia has now ‘switched production to a more robust die/package material set and are working proactively with our OEM partners to develop system management software that will provide better thermal management to the GPU.’