8-KOther Events

NVIDIA CORP 8-K Report, Corporate Update (Jul 2, 2008)

Filed July 2, 2008For Securities:NVDA

Summary

NVIDIA Corporation announced on July 2, 2008, that it expects to take a significant charge of $150 million to $200 million against its cost of revenue. This charge is intended to cover anticipated costs associated with customer warranty, repairs, returns, replacements, and other consequential expenses. The issue stems from a weak die/packaging material set in certain older generation MCP (Media and Communications Processor) and GPU (Graphics Processing Unit) products used in notebook systems, which are failing in the field at higher than normal rates. While NVIDIA has implemented a software driver to mitigate thermal stress and is advising customers on design modifications, the company is actively engaged in discussions with its supply chain for potential reimbursement and plans to pursue insurance coverage. This charge, while material, addresses issues specifically identified in certain notebook configurations and NVIDIA continues to monitor other product lines for any similar anomalies.

Key Highlights

  • 1NVIDIA announced a charge of $150 million to $200 million against cost of revenue due to product failures.
  • 2The charge covers anticipated customer warranty, repair, return, replacement, and other consequential costs.
  • 3The issue is related to a weak die/packaging material set in certain previous generation MCP and GPU products used in notebook systems.
  • 4Newer manufactured products and current volume shipping products use a different, more robust material set.
  • 5NVIDIA has released a software driver to help mitigate thermal stress on affected chips.
  • 6Discussions are underway with the supply chain for potential cost reimbursement, and insurance coverage will be sought.
  • 7NVIDIA is continuing to investigate other products for potential defects, though no abnormal failure rates have been observed outside of specific notebook configurations.

Frequently Asked Questions

NVIDIA anticipates taking a charge of $150 million to $200 million against its cost of revenue to cover warranty, repair, return, replacement, and other related expenses arising from the identified product defects.

The issue affects certain previous generation MCP and GPU products that were included in a number of notebook systems shipped and sold in significant quantities. Newer products and those currently shipping in volume utilize a different and more robust material set and are not impacted.

NVIDIA has developed and made available a software driver to reduce thermal stress on the affected chips. They are also recommending design changes to customers' thermal management systems for their notebook products. Furthermore, NVIDIA is in discussions with its supply chain for potential reimbursement and intends to pursue insurance coverage to offset these costs.

NVIDIA has not observed abnormal failure rates in other systems using their products, but they are continuing to test and investigate other product lines. There is a possibility that defects could be discovered in other MCP or GPU products, although no assurances can be made.