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Nvidia posts loss as sales weaken and faulty graphics chips lead to one-time charge

Graphics chip maker Nvidia posted a worse-than-expected loss of $141 million for its second fiscal quarter and warned of weakening business conditions in the overall PC market.

The GAAP loss of 25 cents a share compared with a net loss of $105.3 million, or 19 cents a share, a year earlier. Revenue for the three months ended Aug. 1 was $811.2 million, up 4.5 percent from $776. 5 million a year earlier. The weak results are a contrast to the past couple of quarters, when strong sales of PCs related to the launch of Windows 7 helped Nvidia. Now, the weakening recovery threatens healthy growth in the PC market and will put some pressure on Jen-Hsun Huang (pictured right), chief executive of Nvidia. Nvidia was late launching its Fermi-based graphics chips last fall and that has cascaded through the quarters in terms of its financial impact on Nvidia.

The Santa Clara, Calif.-based company attributed the shortfall to lower consumer demand, increased memory costs, and economic weakness in Europe and China. The earnings were hurt by a charge of $193.9 million related to a pending settlement of a class-action suit over faulty graphics chips and weak packaging material used in its graphics chips. In 2008, Nvidia reported that the graphics chips were overheating due to the weak packaging material and thermal design of some laptops. Nvidia took charges in previous quarters to deal with the cost of the problem. Nvidia also had to take an inventory write-off related to weak demand for high-end graphics chips.

Excluding the one-time charges, Nvidia would have reported a profit of $20.1 million, or 3 cents a share.

In the third fiscal quarter, Nvdia expects revenue of $835.5 million to $851.8 million, up 3 percent to 5 percent from the prior quarter. Analysts were expecting $854 million for third fiscal quarter revenue, according to Thomson Reuters. It’s worth noting that Nvidia’s chief rival, Advanced Micro Devices, has been having great results because of high demand for its graphics chips. AMD recently surpassed Nvidia as the biggest provider of discrete graphics chips in the second quarter, according to market researcher Mercury Research. AMD has 51 percent of the stand-alone graphics chip market, compared to 49 percent for Nvidia. A year ago, Nvidia had 59 percent and AMD had 41 percent. Intel is still the overall leader in graphics, since it leads the market in integrated graphics, or those that combine a graphics chip with chip sets. Those integrated graphics chip sets are popular in laptops and cheaper desktops.


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