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Overheating mobile chips to affect Nvidia Q2 earnings

updated 11:40 pm EDT, Wed July 2, 2008

Nvidia cuts Q2 earnings

Nvidia says that a heat problem in with one of its mobile chips will hurt its earnings for the second quarter, sending its shares tumbling down almost 25 percent to below $14 in after-hours trading. According to the Wall Street Journal, Nvidia said that the overheating problem -- which appears to be focused on older chips for notebook computers -- caused higher-than-normal failure rates in certain GPU models as well as related chip sets; the company's said that it could see a revenue shortfall of nearly 24 percent in the second quarter (ending July 27th), but also cited problems such as general market conditions, price cuts to match rival AMD, and delayed product ramps. In June, the company debuted its Nvidia GeForce 9M series, which it said was built on a new, multi-core graphics engine that is up to 40 percent faster than its earlier 8M chipsets; the GeForce 9M series chips were set to appear this summer, and while a few manufacturers had already begun shipping designs with the newer GPUs, the company used most of the quarter to push out its older chips.

Nvidia attributed the high failure rate in its older-generation chips -- which shipped in "significant quantities" of PCs -- to the materials used to make the chips and their packaging, but also claimed that notebook designs and use were part of the thermal problems.

According to IDG News, the company is hoping that a software driver will help mitigate the overheating issues and help prevent further loss to the company; the driver, already distributed to manufacturers, will cause system fans to start operating sooner and reduce the "thermal stress" on the chips.

Although it has since changed materials (and is hoping that its insurance will pick up some of the tab), Nvidia will take a one-time charge of $150 million to $200 million in the second quarter to cover anticipated costs associated with repairs or replacing those products.

Though the company in May revised revenue forecasts downward by about 5 percent, it now says it expects revenue of $875 million to $950 million for the second quarter, about 24 percent less than the previous quarter. The Wall Street Journal also notes that Nvidia's gross profit margin will take hit, after it predicted an increase of about a percentage point from the 44.6 percent margin reported in the first period.




by MacNN Staff

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