Nvidia CFO: Manufacturing Yield Problems Are 'easing'

Manufacturing problems that delayed the release of Nvidia's high-end Fermi chip family have eased, giving the company a boost in terms of sales and gross margin, the company's chief financial officer said Thursday.

Fermi is the code name for a graphics chip architecture designed for PCs and parallel processing systems. Originally set for release last year, the chips --which are produced using a cutting-edge 40-nanometer process -- were delayed by more than six months, largely due to manufacturing issues at Taiwan Semiconductor Manufacturing Co. (TSMC), the contract chip maker that produces the chips for Nvidia.

Nvidia wasn't the only company to suffer yield problems with TSMC's 40-nanometer process. Other companies, including rival graphics chip maker Advanced Micro Devices, faced similar issues. But things are starting to look up.

"Supply constraints are finally easing," said David White, executive vice president and chief financial officer of Nvidia, during a quarterly conference call with financial analysts.

"We really had kind of a turning point somewhere around the December/January time frame, where we began seeing predictable improvements and those improvements continued throughout the first quarter," White said, referring to the first quarter of the company's fiscal year.

The "higher than expected" yields for Fermi chips were behind the release of Nvidia's GeForce GTX 480 and 470 GPUs, which hit the market in mid-April, White said, without offering a figure for the yields.

Even though the first quarter of Nvidia's current fiscal year ended on May 2, the few weeks when the Fermi chips were available had a noticeable impact on the company's results, White said, pointing to a slight increase in the company's gross margin compared with the previous quarter. Gross margin is the difference between a company's revenue and the cost of goods sold, excluding operating expenses, taxes and other costs.

"Our margin progression wound up exceeding our expectations and as a result of [the yield] exceeding expectations we wound up having more die available to sell," White said, adding, "We shipped everything we could get."

Overall, Nvidia reported a net profit of $137.6 million on revenue of $1 billion for the first quarter of its 2011 fiscal year. The company's gross margin during the period was 45.6 percent, compared to 44.7 percent during previous period.

"Going forward, we expect Fermi to continue to be an important element of our product mix and as a result of that you see our guidance of gross margin going up quarter by quarter," White said.

Nvidia forecast that gross margin for the second quarter of its fiscal year will be between 46 percent to 47 percent. The company's revenue is expected to fall by 3 percent to 5 percent due to seasonal buying patterns, it said.

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