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Faulty graphics chips cost nVidia $120m

Outlay covers product replacement costs

nVidia on has disclosed a charge of $119.1 million for its second fiscal quarter, which ended July 26, to cover costs related to a faulty die and weak packaging material used in its graphics chips.

It was nVidia's second charge related to the faulty chips. nVidia recorded a $196 million charge during last year's second fiscal quarter to cover warranty and product replacement costs associated with the issue.

nVidia last July reported that some graphics chips were overheating due to weak packaging material and the thermal design of some laptops. PC makers such as Dell, HP and Apple used the faulty graphics chips in their products. Following the revelation, PC makers put programmes in place that would either fix the BIOS or replace PCs that had the faulty chips. The costs of those programmes were shared between Nvidia and the manufacturers.

Initially it was hard to estimate the size of a charge for repairs, as very few deals were in place with nVidia's customers, such as PC makers, said Jen-Hsun Huang, president and chief executive officer of Nvidia, during a conference call. Since then, nVidia has negotiated agreements with affected customers, making it easier to estimate repair costs and their financial impact, Huang said. The costs were higher than originally anticipated, and he could not estimate whether the company would incur further charges related to the flaw.

However, the costs are a small distraction and haven't impacted Nvidia's ability to launch new products, Huang said.

The charges were revealed as part of second-quarter results announced by nVidia on Thursday. Including the charge, the company recorded a net loss of $105.3 million, or $0.19 per share, compared to a net loss of $120.9 million reported in the second quarter of last year. Not counting the charges, nVidia had net income of $0.07 per share, beating a consensus estimate of $0.02 from analysts polled by Thomson Reuters.

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