Nvidia Admits to “Ongoing” Failure Problem in Some Notebooks During SEC Filing

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Date: Thursday, May 21st, 2009, 08:22
Category: Finance

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Graphics processor firm Nvidia formally stated that some notebooks utilizing its chips continue to have “failure” issues, in a filing with the Securities and Exchange Commission on Wednesday.
Per cnet, Nvidia stated that though it does not continue to see “abnormal failure rates” in systems using Nvidia products,” some notebooks are still affected.
“We continue to not see any abnormal failure rates in any systems using Nvidia products other than certain notebook configurations. However, we are continuing to test and otherwise investigate other products,” Nvidia said, adding, “there can be no assurance that we will not discover defects in other MCP or GPU products.” (MCP stands for Media and Communications Processor; GPU stands for Graphics Processing Unit.)
On July 2 of last year, Nvidia announced that the company was planning to take a one-time charge to cover costs associated with problems with materials used in certain versions of its laptop graphics chips. Subsequently, a US$196 million charge was recorded in the second quarter of its 2009 fiscal year to “cover anticipated customer warranty, repair, return, replacement and associated costs” with the problem.
In the company’s 10-Q filing, Nvidia cited a “balance of US$145.7 million associated with incremental repair and replacement costs from a weak die/packaging material set.” and “US$31.2 million for the three months ended April 26, 2009 in payments related to the warranty accrual associated with incremental repair and replacement costs from a weak die/packaging material set.”
Nvidia paid or incurred US$50.3 million against the original “warranty accrual” in its fiscal third quarter and fourth quarter 2009, such that the remaining balance of the “bump-crack accrual” (defect) was US$145.7 million at the end of its fiscal fourth quarter, according to Nvidia.
Nvidia is also negotiating with insurance companies over payments to PC makers regarding GPU failures, according to a report filed by TGDaily.
As early as 2007, Hewlett-Packard listed notebook models affected by the graphics chip glitch. In August 2008, Dell also listed affected models with Apple stating in October that it would repair faulty graphics chips.
In the 10-Q filing, Nvidia also stated that “in September, October and November 2008, several putative consumer class action lawsuits were filed against us, asserting various claims arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products used in notebook systems.”

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