Graphics chip vendor Nvidia Corp has been forced to write off inventory worth $21m as demand for PCs slowed. However, the figure includes $7m for chips for Microsoft Corp's Xbox, suggesting that the Redmond, Washington-based giant is struggling in its battle with market leader Sony Corp's PlayStation2.

Nvidia is already in a dispute with Microsoft over the price it pays for chipsets for the Xbox, which the companies have agreed to send to arbitration. But the write-offs suggest that its relationship with Microsoft is damaging its bottom line.

Santa Clara, California-based Nvidia warned earlier this month that its revenue would be down about 26% on the previous quarter because of the weakness in the PC market, though it can still boast annual growth rates that most in the industry will envy.

There are fears about delays in its NV30 high-end graphics chip, but CEO Jen-Hsun Huang said the company expects it to be in the market in time for the Christmas season.

He said that although he approaches the short term with caution, he remains excited about the business. Huang is pinning great hopes on Cg, which he describes as the industry's first high-level graphics language that he claims will make cutting-edge 3D effects more accessible to all software programmers. "Cg is the foundation of our next-level cinematic GPUs, and will usher in a new era in computer graphics," he said.

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