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Storm clouds are gathering as NVIDIA faces a reinvigorated competitor

As the old saying goes, when it rains it pours.  NVIDIA was performing beautifully thanks to aggressive pricing and performance of its 8000 series of graphics cards.  It looked poised to leave competitor AMD (formerly ATI) in the dust.  However, the latest round in graphics war has marked a dramatic turnaround with AMD's 4850 and 4870 outperforming NVIDIA's offerings at a lower price

While NVIDIA still holds a tenuous grip on the highest end offerings, with its GeForce GTX 280 GPU, this might soon slip, depending on the performance of AMD's dual processor 4870 X2 (R700) card, likely coming in Q3 2008.  Meanwhile, NVIDIA faces challenges from Intel in its low-end and laptop graphics offerings, and from AMD's PUMA chipset/graphics package in the laptop market.

The economic repercussions of NVIDIA's slippage are already visible.  NVIDIA announced yesterday that it was going to turn in revenue of $875 million to $950 million for Q2 2008, which ends July 27.  This is significantly lower than the current analyst expectations of $1.1 billion.

That was not the end of the bad news from NVIDIA either.  It announced that it was facing a massive recall, due to overheating GPUs in notebook computers.  NVIDIA reported higher than average failures in both the laptop GPUs and in laptop chipsets.

NVIDIA said that the chips and their packaging were made with materials that proved to be too "weak".  NVIDIA passes the blame to notebook manufacturers, which it says contributes to the problem.  Typically notebooks have poorer ventilation and components concentrated in a smaller space than desktop computers.

The result of the recalls is that NVIDIA will be taking a onetime charge of $150M USD to $200M USD to cover the damages.  It plans to use the money to repair or replace defective parts.  It also hopes to collect part of the money from insurers it uses.  However, it has acknowledged its problems and switched the materials it uses.

The news has resulted in NVIDIA taking a beating on the stock market, sliding over 25 percent.



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By kilkennycat on 7/3/2008 6:59:53 PM , Rating: 2
The thing that has really pulled the Nvidia stock price down so drastically in the last couple of days is the $200 million write-off for this quarter and its consequent effect on the quarter's net earnings (probably a loss...). In today's uncertain conditions 3 months of patience is too much of a strain for the big fund investors who own(ed?) 85% of nVidia's stock. Probably a great time for individuals to buy and hold for at least 6 months. nVidia has ~ $800million in the bank and ZERO debt. Remember that the nVidia management team that bound together to survived the Fx5800 debacle that nearly dragged the company under is still intact and the company is financially in great shape.

As for the GT280/260 -- considering the competition/cost-pressure from ATi, I suspect that a 55nm version will be put on a high-priority fast track to production. Lower die-cost, better yield, much faster or lower power (or any combo in between). Since the G92-family GTX has now made the transition to 55nm and the GT280/260 has the same fundamental building blocks but with enhanced data-paths and compute units, such a "shrink" should be pretty straightforward. I doubt if this shrink was in nVidia's short-term 'grand-plan' for near-term production, but history has shown nVidia again and again to be capable of making very rapid corrective business decisions.


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