NVIDIA Stubs Its Toes.. All Of Them (NVDA, AMD)

NVIDIA Corporation (NASDAQ: NVDA) has just come out and issued an earnings warning over several issues. The graphics processor giant said that second quarter revenue and gross margin are expected to be lower than guidance provided during its first quarter conference call back on May 8, 2008.  It now sees total revenue from $875 million to $950 million.  This is a HUGE disappointment.  First Call had estimates at $1.1 Billion in revenues.  The decrease in revenue and gross margin is being noted because of the following reasons:

• end-market weakness around the world,
• the delayed ramp of a next generation MCP,
• and price adjustments of GPU products to respond to competitive products.

NVIDIA said it also plans to take a one-time charge from $150 million to $200 million against cost of revenue for the second quarter to cover warranty, repair, return, replacement and other associated costs and expenses.  These arose from a weak die/packaging material set in certain versions of its previous generation GPU and MCP products used in notebook systems.  It noted that certain notebook configurations with GPUs and MCPs manufactured with a certain die/packaging material set are failing in the field at higher than normal rates.  NVIDIA said that abnormal failure rates with systems other than certain notebook systems have not been seen, and it has started discussions with its supply chain regarding this material set issue and the Company will also seek to access insurance coverage for this matter.

This might actually be a break for Advanced Micro Devices Inc. (NYSE: AMD).  It is unknown if the same end weakness that is mentioned is also true at AMD or if maybe this is Caused by AMD and its graphics chipsets from the old ATI that it acquired.  We cannot drop any fears that some of the issues do not overlap.  But that failure rate hasn’t been the same according to available data seen out of AMD.  AMD shares are down with NVIDIA, with shares down 3.7% at $5.44 at the close and shares are down another 1.3% at $5.37 in after-hours trading.

NVIDIA had already been weak for some time, so much may have been known.  Its stock closed down 3.8% at $18.03 in regular trading.  Unfortunately NVIDIA stock is halted until 5:05 PM EST. It’s hard to imagine that this won’t see a new 52-week low as its 52-week trading range was $17.31 to $39.67.

Jon C. Ogg
July 2, 2008