Monday, July 7, 2008

Nvidia Lowers Sales Guidance amid Chipset Flaws and Decreasing Prices of Graphics Chips

Nvidia Corp., the world’s largest supplier of graphics processing units, has issued a warning regarding lower sales during the ongoing quarter. The company blamed issues with its chipsets as well as low prices of graphics processing units for its fiscal results.

According to Nvidia, second quarter revenue and gross margin are expected to be lower than guidance provided during its first quarter financial conference call and be from $875 million to $950 million. The company said that the estimated decrease in revenue and gross margin is due to several reasons, including the delayed ramp of a next generation core-logic set, price adjustments of the graphics processors to respond to competitive products as well as “end-market weakness around the world”.

This is the first time in years when Nvidia admitted that it has to lower pricing of its graphics processing units to respond to a relatively successful product launch of its main rival, ATI, graphics product group of Advanced Micro Devices.

Separately, Nvidia plans to take a one-time charge from $150 million to $200 million against cost of revenue for the second quarter to cover anticipated warranty, repair, return, replacement and other costs and expenses, arising from a “weak” die/packaging material set in certain versions of its previous generation graphics chips and chipset products used in notebook systems. Certain notebook configurations with chips manufactured with a certain die/packaging material set are failing in the field at higher than normal rates. The company plans to seek to access insurance coverage for this matter.

“This has been a challenging experience for us. However, 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. As for the present, we have 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,” said Jen-Hsun Huang, chief executive officer of Nvidia.

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