Part of Nvidia's revenues for Q2 of Fiscal 2009 will cover warranty, repair and replacement arising from a weak die/packaging material set in certain versions of its previous generation GPU and MCP products used in notebook systems.
According to Nvidia, certain notebook configurations with GPUs and MCPs manufactured with a certain die/packaging material set are failing in the field at higher than normal rates. To date, abnormal failure rates with systems other than certain notebook systems have not been seen. The comapny said that it has initiated discussions with its supply chain regarding this material set issue and the Company will also seek to access insurance coverage for this matter.
"Although the failure appears related to the combination of the interaction between the chip material set and system design, we have a responsibility to our customers and will take our part in resolving this problem. The GPU has become an increasingly important part of the computing experience and we are seeing more interest by PC OEMs to adopt GPUs in more platforms. Recognizing that the GPU is one of the most complex processors in the system, it is critical that we now work more closely with notebook system designers and our chip foundries to ensure that the GPU and the system are designed collaboratively for the best performance and robustness."
Huang added, "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."
Nvidia plans to take a one-time charge from $150 million to $200 million against cost of revenue for the chip failure.
Unconfirmed sources in Taiwan indicate that the defective products were Nvidia Geforce 8500M-series graphics chips launched in 2007, and that the problem was caused by related bump processing. Taiwan Semiconductor Manufacturing Company (TSMC), Advanced Semiconductor Engineering (ASE) and Siliconware Precision Industrial (SPIL) all provide bump processing services to Nvidia.
Speculations also indicate that the problem might have been caused by PCB substrates supplied by Nay Ya Print Circuit Board (NPC) or Phoenix Precision Technology (PPT).
None of the aformentioned companies have confirmed the reports.
Nvidia's second quarter revenue and gross margin are expected to be lower than guidance provided during its first quarter financial conference call held May 8, 2008. Total revenue is now estimated to be from $875 million to $950 million. The estimated decrease in revenue and gross margin is due to several reasons: end-market weakness around the world, the delayed ramp of a next generation MCP, and price adjustments of our GPU products to respond to competitive products.