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Nvidia throws itself under the bus with chip defect, delays and lost sales

The $200m laptop failure surprise

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Nvidia issued some somber news for shareholders today, revealing a financial forecast cut short due to slowing sales, a delayed ramp for new product, and a hefty payout due to faulty laptop chips.

The graphics giant said it expects to pay between $150m and $200m to cover warranty, repair, return, replacement and other costs for defects in certain laptop GPUs (graphic processing units) and MCPs (media and communication processors).

As of yet unspecified notebooks using previous generation GPUs and MCPs manufactured with a particular die/packaging material set are failing at higher than normal rates, the company said.

A filing with the US Securities and Exchange Commission states the number of notebooks shipped and sold with the defect were in "significant quantities."

"While we have not been able to determine a root cause for these failures, testing suggests a weak material die/package combination, system thermal management designs, and customer use patters are contributing factors," the SEC filing states.

An Nvidia spokeswoman said the company won't reveal which laptops are affected by the problem out of consideration for its customers (that would be the vendor customers, not the end-user customers obviously.) She described that the materials used in this particular die set are not robust enough to handle the thermal stress in certain laptop configurations.

Nvidia intends to fully support vendors in their repair and replacement of impacted boxes. So, we guess that's fire suits and apologies all around.

"We continue to not see any abnormal failure rates in any system using Nvidia products other than certain notebook configurations," the filing states.

"However, we are continuing to test and otherwise investigate other products. There can be no assurance that we will not discover defects in other MCP or GPU products."

Nvidia has developed a band-aide software driver that will cause the computer's fan to start when the system powers on, giving it an instant cool down. So, if your computer starts buzzing after a system update, you'll know you're an unlucky recipient. Share your grief with us. We'd like to know what systems are among the afflicted.

Adding to the good news, the chipmaker noted that second quarter revenue is expected to be lower than previous forecasts because of poor sales worldwide, the delayed ramp of a next generation MCP, and lower GPU prices.

"This has been a challenging experience for us," said Nvidia CEO Jen-Hsun Huang in a statement. "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."

It's also hoping to avoid public confrontation with the likely source of the chip issues — its foundry partner Taiwan Semiconductor Manufacturing that makes most of the company's kit.

When asked if TSMC was responsible for the material defect an Nvidia spokeswoman replied, "We aren't saying 'yes' to that question now."

"We're being careful to take our share of the responsibility rather than throw anyone else under the bus," she said.

Nvidia now expects sales for the quarter ending July 27 to range between $875m and $950m, which would be below analysts' estimates of close to $1bn in revenue. Investors responded to the news in after-hours trading — dropping Nvidia shares nearly 22 per cent at time of publication. ®

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