Nvidia Overcomes Bad Graphics Chips

Nvidia's problem with weak packaging material that caused some of its laptop graphics chips to fail prematurely hasn't hurt the company's relationships with laptop makers that use its chips, a company executive said.

"It hasn't hurt us in terms of getting new design wins at all. None of the OEMs [original equipment manufacturers] held that against us or anything," said Ujesh Desai, vice president of product marketing at Nvidia, speaking on the sidelines of the Computex exhibition in Taipei last week.

"These are pretty complex devices and things happen every once in a while," he said.

Nvidia took a one-time US$196 million charge last year to cover warranty and product replacement costs associated with faulty graphics chips. In March, a filing with the U.S. Securities and Exchange Commission revealed that Nvidia spent $43.6 million of that amount during its previous fiscal year.

Nvidia's customers include Apple, Dell, Hewlett-Packard and Acer, among others.

Despite the packaging material problem that emerged last year, demand for Nvidia's laptop graphics chips remains strong and is growing. "Our connect rate on notebooks is going up for graphics and I think it's going to go up even more this year," Desai said.

Besides taking the one-time charge to cover additional warranty costs, Nvidia also released a software update that causes laptop fans to run more frequently to reduce thermal stress on the chips. Nvidia also started using an improved material package that fixed the problem.

Nvidia's quick response to the problem helped to ensure that its relationships with the OEMs remains strong, Desai said.

"As a company, I think we stepped up and we did a good job with how we handled that. Our customers appreciated how we handled that," he said,