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7/3/2008
02:01 PM
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Nvidia Stock Falls On Lowered Revenue Forecast

Investors reacted negatively to the graphics chipmaker's revised earnings estimate and the news that it would take up to a $200 million charge for products that failed in notebooks.

Nvidia stock plummeted Thursday, a day after the graphics chipmaker lowered its revenue forecast and said it would have to take a one-time charge of $150 million to $200 million for products that failed in notebooks.

Nvidia stock fell about 30% to less than $13, as investors showed little confidence in the company following its negative reports.

The dive started late Wednesday when Nvidia lowered its second-quarter sales estimate to between $875 million and $950 million. The forecast was lower than the $1.1 billion expected from analysts polled by Thomson Financial.

Nvidia blamed the lower estimate on a drop in demand and on competitive pressure that forced the company to lower pricing. Nvidia's main rival is Advanced Micro Devices, which makes the ATI line of graphics cards.

In addition, Nvidia said it suffered from a delay in production of its next-generation media communication processor, which is designed specifically for the creation and distribution of digital media.

Also weighing heavily on investors was Nvidia's disclosure that it would take a one-time charge of $150 million to $200 million in the second quarter to cover warranty, repair, return, replacement, and other costs and expenses related to a "weak die/packaging material" in versions of its previous-generation graphics processing units and MCPs used in notebooks.

The problem was related to excessive heat that appeared to be caused by the notebook design, Nvidia chief executive Jen-Hsun Huang said. To correct the problem, the company switched production to a better die/package material and was working with computer makers to develop system management software that would provide better heat management to the GPU.

"Today's high-performance notebooks are highly complex systems with extreme thermal environments," Huang said. "The combination of limited thermal management and frequent power cycling is particularly challenging for complex processors like the GPU."

In the future, Nvidia plans to head off such problems by working more closely with notebook system designers and its chip foundries "to ensure that the GPU and the system are designed collaboratively for the best performance and robustness," Huang said.

Further details would not be available until Nvidia reports quarterly results Aug. 12, the company said.

Competition between Nvidia and AMD is fierce because of the growing importance of graphics, as PC makers offer an increasing number of products focused on video and photos. At the same time, Intel is making its own play in the market by boosting the performance of its integrated graphics processors in chipsets that accompany the company's general-purpose CPUs.

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